<PAGE>
OAKMARK UNITS
GOVERNMENT PORTFOLIO
TAX-EXEMPT DIVERSIFIED PORTFOLIO
A Cash Management Vehicle for
Existing and Prospective Shareholders of
LOGO
PROSPECTUS
-----------
THE OAKMARK FUNDS
TWO NORTH LASALLE STREET
CHICAGO, ILLINOIS 60602-3790
-----------
THIS BROCHURE INCLUDES A PROSPECTUS WHICH DESCRIBES IN DETAIL THE FUND'S OB-
JECTIVES, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES AND OTHER MATTERS OF
INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MON-
EY.
-----------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Highlights....................................................... 5
An Introduction to the Portfolios.......................................... 8
Investment Policies ....................................................... 10
Description of Securities and Investment Techniques........................ 11
Investment Limitations..................................................... 17
Management................................................................. 19
Net Asset Value............................................................ 20
Yield Information.......................................................... 21
Organization and Units of the Portfolios................................... 22
Distributions and Taxes.................................................... 23
Additional Services........................................................ 25
Unitholder Services........................................................ 26
How to Purchase Units...................................................... 27
How to Redeem Units........................................................ 30
</TABLE>
QUESTIONS ABOUT YOUR ACCOUNT:
If you have questions about your account, please call Oakmark at: 1-800-626-
9392.
<PAGE>
OAKMARK UNITS
GOVERNMENT PORTFOLIO
TAX-EXEMPT DIVERSIFIED PORTFOLIO
-----------------------------
Supplement to Prospectus dated May 1, 1996
Although indicated in the chart on page 10, the Government Portfolio may not
invest in Commercial Paper.
<PAGE>
OAKMARK UNITS
GOVERNMENT PORTFOLIO
TAX-EXEMPT DIVERSIFIED PORTFOLIO
The Government Portfolio and Tax-Exempt Diversified Portfolio (the
"Portfolios") are portfolios of Goldman Sachs Money Market Trust (the
"Trust"), a no-load, open-end, management investment company (a "mutual fund")
which includes the Goldman Sachs-Institutional Liquid Assets portfolios. This
Prospectus relates to the offering of ILA Service units of beneficial interest
of each Portfolio ("Oakmark Units") through Harris Associates, L.P. ("Harris
Associates") in its capacity as a Service Organization for the Portfolios.
The Government Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments. The
Portfolio pursues its objective by investing in a diversified portfolio of
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities ("U.S. Government
Securities") and repurchase agreements relating to U.S. Government Securities.
The Tax-Exempt Diversified Portfolio seeks to provide unitholders, to the
extent consistent with the preservation of capital and prescribed portfolio
standards, with a high level of income excluded from gross income for federal
income tax purposes, by investing primarily in municipal instruments. The
Portfolio pursues its objective by investing in a diversified portfolio of
municipal obligations issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies,
authorities and instrumentalities, and the District of Columbia.
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. serves as each Portfolio's investment adviser. Goldman, Sachs &
Co. serves as each Portfolio's distributor and transfer
(Continued on page 2)
-----------------
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.
The date of this Prospectus is May 1, 1996.
<PAGE>
agent. Harris Associates or its designee will act as nominee and record holder
of the Oakmark Units. Investors should be aware that Oakmark Units of the
Portfolios may be purchased only through Harris Associates or its designee.
Harris Associates is not the distributor of the Portfolios.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
-----------------
This Prospectus provides you with information about the Portfolios that you
should know before investing in Oakmark Units. It should be read and retained
for future reference. If you would like more detailed information, the Statement
of Additional Information dated May 1, 1996, as amended or supplemented from
time to time, is available upon request without charge by calling The Oakmark
Funds at 1-800-OAKMARK (1-800-625-6275) or by writing The Oakmark Funds at Two
North LaSalle Street, Chicago, Illinois 60602. The Statement of Additional
Information, which is incorporated by reference into this Prospectus, has been
filed with the Securities and Exchange Commission.
2
<PAGE>
UNITHOLDER AND PORTFOLIO EXPENSES (NOTE 1)
OAKMARK UNITS (NOTE 2)
<TABLE>
<CAPTION>
TAX-EXEMPT
GOVERNMENT DIVERSIFIED
PORTFOLIO PORTFOLIO
---------- -----------
<S> <C> <C>
UNITHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases............... None None
Sales Charge Imposed on Reinvested Distributions........ None None
Deferred Sales Load Imposed on Redemptions.............. None None
Exchange Fee............................................ None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees (Note 3) (after adjustments)............ 0.35% 0.25%
Other Expenses .........................................
Service Fees (Note 4).................................. 0.40% 0.40%
Other Expenses (Note 3) (after expense limitation)..... 0.06% 0.06%
---- ----
TOTAL OPERATING EXPENSES (Note 3)........................ 0.81% 0.71%
---- ----
</TABLE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a hypothetical $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Portfolio....................... $8 $26 $45 $100
Tax-Exempt Diversified Portfolio........... $7 $23 $40 $88
</TABLE>
- -----------
Notes:
(1) The purpose of this table is to assist investors in understanding the
various costs and expenses that an investment in the Portfolios will bear
directly or indirectly. Operating expenses for the Portfolios are based on
actual amounts incurred during the fiscal year ended December 31, 1995.
These expenses are expected to be incurred on an ongoing basis. The table
and hypothetical example should not be considered a representation of past
or future expenses; actual expenses may vary depending upon a variety of
factors including the actual performance of each Portfolio, which may be
greater or less than 5%. See "Management". Investors should be aware that,
due to the service fees, a long-term unitholder in a Portfolio may pay
over time more than the economic equivalent of the maximum front-end sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
(2) The information set forth in the foregoing table and example relates only
to Oakmark Units of the Portfolios. The Oakmark Units are ILA Service
Units sold through Harris Associates. The Portfolios also offer ILA Units
and ILA Administration Units which are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services. Information regarding
any other class of the Portfolios may be obtained from your sales
representative or from Goldman Sachs by calling the number on the front of
this Prospectus. See "Organization and Units of the Portfolios."
3
<PAGE>
(3) Goldman Sachs Asset Management (the "Adviser" or "GSAM") has agreed to
reduce or otherwise limit certain expenses of the Portfolios (excluding
fees payable to Service Organizations, as defined herein, taxes, interest,
brokerage and litigation, indemnification and other extraordinary
expenses), on an annualized basis, to the average daily net assets of such
Portfolio, less the effect of fee reductions, if any, shown in the above
table. The Adviser has also agreed that a portion of its fees will not be
imposed for the Tax-Exempt Diversified Portfolio. Had the reduction of
fees otherwise payable and expense limitations not been reflected in the
above table, the management fees payable by the Tax-Exempt Diversified
Portfolio would be 0.35% of its average daily net assets and the amount of
other expenses payable by the Government Portfolio and Tax-Exempt
Diversified Portfolio would be 0.08% and 0.07%, respectively, of average
daily net assets. Had the reduction of fees otherwise payable and expense
limitations not been reflected in the above table, the Total Operating
Expenses of the Government Portfolio and the Tax-Exempt Portfolio would be
0.83% and 0.82%, respectively, of average daily net assets.
(4) Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of ILA Service Units in
connection with their customers' accounts. See "Additional Services." Such
fees, if any, may affect the return such customers realize with respect to
their investments.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following data with respect to a unit (of the class specified) of the
Government Portfolio and Tax-Exempt Diversified Portfolio outstanding during
the periods indicated have been audited by Arthur Andersen LLP, independent
auditors, as indicated in their report incorporated by reference and attached
to the Statement of Additional Information from the annual report to
unitholders for the fiscal year ended December 31, 1995 (the "Annual Report"),
and should be read in conjunction with the financial statements and related
notes incorporated by reference and attached to the Statement of Additional
Information.
5
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
--------------------------------------
NET
NET ASSET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT DISTRIBUTIONS END OF TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS(a) TO UNITHOLDERS PERIOD RETURN (a)
--------- ---------- ------------- ------------- -------------- --------- ----------
GOVERNMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
1995-ILA units.. $1.00 $0.0562 $0.0002 $0.0564 $(0.0564) $1.00 5.77%
1995-ILA Admin-
istration units. 1.00 0.0549 0.0002 0.0551 (0.0551) 1.00 5.62
1995-ILA Service
units........... 1.00 0.0519 0.0002 0.0521 (0.0521) 1.00 5.35
1994-ILA units.. 1.00 0.0378 0.0002 0.0380 (0.0380) 1.00 3.94
1994-ILA Admin-
istration units. 1.00 0.0362 0.0002 0.0364 (0.0364) 1.00 3.79
1994-ILA Service
units........... 1.00 0.0350 0.0002 0.0352 (0.0352) 1.00 3.53
1993-ILA units.. 1.00 0.0282 0.0008 0.0290 (0.0291) 1.00 2.94
1993-ILA Admin-
istration units. 1.00 0.0267 0.0008 0.0275 (0.0276) 1.00 2.79
1993-ILA Service
units........... 1.00 0.0242 0.0006 0.0248 (0.0250) 1.00 2.53
1992-ILA units.. 1.00 0.0338 0.0027 0.0365 (0.0364) 1.00 3.70
1992-ILA Admin-
istration units. 1.00 0.0325 0.0027 0.0352 (0.0351) 1.00 3.55
1992-ILA Service
units........... 1.00 0.0309 0.0030 0.0339 (0.0336) 1.00 3.29
1991-ILA units.. 1.00 0.0567 0.0011 0.0578 (0.0578) 1.00 5.91
1991-ILA Admin-
istration units. 1.00 0.0545 0.0011 0.0556 (0.0556) 1.00 5.75
1991-ILA Service
units........... 1.00 0.0522 0.0011 0.0533 (0.0533) 1.00 5.49
1990-ILA units.. 1.00 0.0779 0.0003 0.0782 (0.0782) 1.00 8.11
1990-ILA Admin-
istration
units(b)........ 1.00 0.0439 0.0004 0.0443 (0.0443) 1.00 7.74(c)
1990-ILA Service
units(b)........ 1.00 0.0359 0.0002 0.0361 (0.0363) 1.00 7.42(c)
1989-ILA units.. 1.00 0.0877 0.0001 0.0878 (0.0878) 1.00 9.15
1988-ILA units.. 1.00 0.0716 0.0002 0.0718 (0.0718) 1.00 7.42
1987-ILA units.. 1.00 0.0622 0.0001 0.0623 (0.0624) 1.00 6.43
1986-ILA units.. 1.00 0.0629 0.0011 0.0640 (0.0641) 1.00 6.65
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS (d)
-------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO END OF EXPENSES TO INCOME TO
AVERAGE NET AVERAGE PERIOD AVERAGE NET AVERAGE NET
ASSETS NET ASSETS (IN 000S) ASSETS ASSETS
------------ ------------ ---------- ------------ ------------
GOVERNMENT PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
1995-ILA units.. 0.41% 5.62% $ 570,469 0.43% 5.60%
1995-ILA Admin-
istration units. 0.56 5.49 47,558 0.58 5.47
1995-ILA Service
units........... 0.81 5.19 85,401 0.83 5.17
1994-ILA units.. 0.40 3.78 881,520 0.44 3.74
1994-ILA Admin-
istration units. 0.55 3.62 95,483 0.59 3.58
1994-ILA Service
units........... 0.80 3.50 156,930 0.84 3.46
1993-ILA units.. 0.40 2.82 1,315,378 0.43 2.79
1993-ILA Admin-
istration units. 0.55 2.67 161,845 0.58 2.64
1993-ILA Service
units........... 0.80 2.42 101,272 0.83 2.39
1992-ILA units.. 0.40 3.38 1,785,472 0.42 3.36
1992-ILA Admin-
istration units. 0.55 3.25 461,542 0.57 3.23
1992-ILA Service
units........... 0.80 3.09 56,389 0.82 3.07
1991-ILA units.. 0.40 5.67 2,103,627 0.43 5.64
1991-ILA Admin-
istration units. 0.55 5.45 464,060 0.58 5.42
1991-ILA Service
units........... 0.80 5.22 200,176 0.83 5.19
1990-ILA units.. 0.39 7.79 2,203,756 0.39 7.79
1990-ILA Admin-
istration
units(b)........ 0.55(c) 7.49(c) 296,313 0.55(c) 7.49(c)
1990-ILA Service
units(b)........ 0.80(c) 7.15(c) 132,888 0.80(c) 7.15(c)
1989-ILA units.. 0.40 8.77 2,268,330 0.40 8.77
1988-ILA units.. 0.40 7.16 2,197,796 0.40 7.16
1987-ILA units.. 0.40 6.22 2,243,870 0.40 6.22
1986-ILA units.. 0.40 6.29 2,401,140 0.40 6.29
- --------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) ILA Administration and Service unit activity commenced during June and
July 1990, respectively.
(c) Annualized.
(d) Prior year ratios have been restated in order to conform with current year
presentation.
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET
NET ASSET REALIZED TOTAL
VALUE AT NET GAIN (LOSS) INCOME FROM
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS OPERATIONS
--------- ---------- ------------- -----------
TAX-EXEMPT DIVERSIFIED PORTFOLIO
- ----------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C> <C>
1995-ILA units.. $1.00 $0.0365 $ -- $0.0365
1995-ILA Admin-
istration
units........... 1.00 0.0351 -- 0.0351
1995-ILA Service
units........... 1.00 0.0324 -- 0.0324
1994-ILA units.. 1.00 0.0264 -- 0.0264
1994-ILA Admin-
istration
units........... 1.00 0.0250 -- 0.0250
1994-ILA Service
units........... 1.00 0.0220 -- 0.0220
1993-ILA units.. 1.00 0.0222 -- 0.0222
1993-ILA Admin-
istration
units........... 1.00 0.0207 -- 0.0207
1993-ILA Service
units........... 1.00 0.0183 -- 0.0183
1992-ILA units.. 1.00 0.0277 -- 0.0277
1992-ILA Admin-
istration
units........... 1.00 0.0266 -- 0.0266
1992-ILA Service
units........... 1.00 0.0243 -- 0.0243
1991-ILA units.. 1.00 0.0424 -- 0.0424
1991-ILA Admin-
istration
units........... 1.00 0.0406 -- 0.0406
1991-ILA Service
units........... 1.00 0.0386 -- 0.0386
1990-ILA units.. 1.00 0.0550 (0.0001) 0.0549
1990-ILA Admin-
istration
units(c)........ 1.00 0.0301 -- 0.0301
1990-ILA Service
units(c)........ 1.00 0.0259 -- 0.0259
1989-ILA units.. 1.00 0.0591 (0.0001) 0.0590
1988-ILA units.. 1.00 0.0487 0.0003 0.0490
1987-ILA units.. 1.00 0.0413 (0.0003) 0.0410
1986-ILA units.. 1.00 0.0426 -- 0.0426
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS(d)
-------------------------
RATIO OF NET NET RATIO OF NET
NET ASSET RATIO OF NET INVESTMENT ASSETS AT RATIO OF NET INVESTMENT
VALUE AT EXPENSES TO INCOME TO END OF EXPENSES TO INCOME TO
DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD AVERAGE NET AVERAGE NET
TO UNITHOLDERS OF PERIOD RETURN(a) ASSETS ASSETS (IN 000S) ASSETS ASSETS
-------------- --------- ---------- ------------ ------------ ---------- ------------ ------------
TAX-EXEMPT DIVERSIFIED PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995-ILA units.. $(0.0365) $1.00 3.72% 0.31% 3.65% $1,342,585 0.42% 3.54%
1995-ILA Admin-
istration
units........... (0.0352) 1.00 3.57 0.46 3.51 48,773 0.57 3.40
1995-ILA Service
units........... (0.0325) 1.00 3.31 0.71 3.24 49,647 0.82 3.13
1994-ILA units.. (0.0264) 1.00 2.71 0.30 2.64 1,434,965 0.41 2.53
1994-ILA Admin-
istration
units........... (0.0250) 1.00 2.55 0.45 2.50 97,778 0.56 2.39
1994-ILA Service
units........... (0.0220) 1.00 2.30 0.70 2.20 36,492 0.81 2.09
1993-ILA units.. (0.0222) 1.00 2.25 0.30 2.22 1,769,477 0.41 2.11
1993-ILA Admin-
istration
units........... (0.0207) 1.00 2.09 0.45 2.08 99,896 0.56 1.97
1993-ILA Service
units........... (0.0183) 1.00 1.84 0.70 1.83 45,172 0.81 1.72
1992-ILA units.. (0.0277) 1.00 2.82 0.30 2.77 1,333,925 0.42 2.65
1992-ILA Admin-
istration
units........... (0.0266) 1.00 2.67 0.45 2.66 50,225 0.57 2.54
1992-ILA Service
units........... (0.0243) 1.00 2.41 0.70 2.43 29,534 0.82 2.31
1991-ILA units.. (0.0424) 1.00 4.33 0.32 4.24 1,044,986 0.42 4.14
1991-ILA Admin-
istration
units........... (0.0406) 1.00 4.17 0.47 4.06 37,567 0.57 3.96
1991-ILA Service
units........... (0.0386) 1.00 3.91 0.72 3.86 52,399 0.82 3.76
1990-ILA units.. (0.0549) 1.00 5.64 0.40 5.50 603,895 0.40 5.50
1990-ILA Admin-
istration
units(c)........ (0.0300) 1.00 5.43(b) 0.55(b) 5.40(b) 42,498 0.55(b) 5.40(b)
1990-ILA Service
units(c)........ (0.0259) 1.00 5.17(b) 0.80(b) 5.16(b) 56,810 0.80(b) 5.16(b)
1989-ILA units.. (0.0590) 1.00 6.07 0.40 5.91 688,556 0.40 5.91
1988-ILA units.. (0.0490) 1.00 5.03 0.40 4.87 907,782 0.40 4.87
1987-ILA units.. (0.0410) 1.00 4.23 0.40 4.13 965,714 0.40 4.13
1986-ILA units.. (0.0426) 1.00 4.45 0.40 4.26 1,492,752 0.40 4.26
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June and
July 1990, respectively.
(d) Prior year ratios have been restated in order to conform with current year
presentation.
7
<PAGE>
AN INTRODUCTION TO THE PORTFOLIOS
THE TRUST: The Trust is a no-load, open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). This Prospectus relates to the offering of ILA
Service Units ("Oakmark Units") of the Portfolios through Harris Associates,
L.P. ("Harris Associates") in its capacity as a Service Organization for the
Portfolios. Each Portfolio is a separate pool of assets which pursues its
investment objective through separate investment policies, as described below.
THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Portfolios'
investment adviser (the "Adviser" or "GSAM").
THE DISTRIBUTOR: Goldman Sachs, which serves as the Portfolios' distributor
and transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.
THE PORTFOLIOS: Each Portfolio's securities are valued by the amortized cost
method as permitted by a rule ("Rule 2a-7") of the Securities and Exchange
Commission ("SEC"). Under such rule, each Portfolio may invest only in
securities that are determined to present minimal credit risk and meet certain
other criteria.
INVESTMENT OBJECTIVE AND POLICIES FOR THE GOVERNMENT PORTFOLIO: To
maximize current income to the extent consistent with the preservation of
capital and the maintenance of liquidity by investing exclusively in high
quality money market instruments.
INVESTMENT OBJECTIVE AND POLICIES FOR THE TAX-EXEMPT DIVERSIFIED
PORTFOLIO: To provide unitholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high
level of income exempt from federal income tax by investing primarily in
Municipal Instruments, as defined herein.
NET ASSET VALUE: Each Portfolio seeks to maintain a stable net asset value
of $1.00 per unit.
MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.
DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY: Not more than ninety days.
8
<PAGE>
FIRST TIER SECURITIES: Each Portfolio may purchase securities which are
rated (or that have been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class,
comparable in priority and quality with such securities) in the highest short-
term rating category by at least two NRSROs (as defined below), or if only one
NRSRO has assigned a rating, by that NRSRO. U.S. Government Securities as
defined herein are considered First Tier Securities.
SECOND TIER SECURITIES: The Tax-Exempt Diversified Portfolio may purchase
securities which are not First Tier Securities but which are rated in the top
two short-term rating categories by at least two NRSROs, or if only one NRSRO
has assigned a rating, by that NRSRO. The Government Portfolio will not invest
in a security which is a Second Tier Security at the time of purchase.
UNRATED SECURITIES: Unrated securities may be purchased only if they are
deemed to be of comparable quality to First Tier Securities, or to the extent
that a Portfolio may purchase Second Tier Securities, comparable in quality to
Second Tier Securities.
NRSROS: Nationally Recognized Statistical Rating Organizations include
Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA
Limited and its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a
description of each NRSRO's rating categories, see Appendix A to the Statement
of Additional Information.
9
<PAGE>
INVESTMENT POLICIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GOVERNMENT
PORTFOLIO TAX-EXEMPT DIVERSIFIED PORTFOLIO
- -------------------------------------------------------------------------------
<C> <C> <S>
US Treasury .
Obligations
- -------------------------------------------------------------------------------
US Government .
Securities
- -------------------------------------------------------------------------------
Commercial Paper . .
Tax-Exempt Only
- -------------------------------------------------------------------------------
Repurchase . .
Agreements
- -------------------------------------------------------------------------------
Tax-Exempt .
Municipals At least 80% of income must be derived
from Municipal Instruments, except in
extraordinary circumstances
- -------------------------------------------------------------------------------
Credit Quality First Tier First or Second Tier
- -------------------------------------------------------------------------------
Investment . .
Companies Up to 10% of Up to 10% of total assets in other
total assets in investment companies
other investment
companies
- -------------------------------------------------------------------------------
Unrated .
Securities
- -------------------------------------------------------------------------------
Summary of Taxable Federal Tax-Exempt Federal and Taxable State***
Taxation* and State**
- -------------------------------------------------------------------------------
Miscellaneous May (but does not currently intend to
invest up to 20% in AMT securities) and
may temporarily invest in the taxable
money market instruments described herein
- -------------------------------------------------------------------------------
</TABLE>
Note: See "Description of Securities and Investment Techniques" for a
description of, and certain criteria applicable to, each of these
categories of investments.
* See "Taxes" below for an explanation of the tax consequences summarized in
the table above.
** Taxable except for distributions from U.S. Treasury Obligation interest
and certain U.S. Government Security interest in many states.
*** Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
10
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. TREASURY OBLIGATIONS
"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.
U.S. GOVERNMENT SECURITIES
U.S. Government Securities are obligations issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities. Unlike U.S.
Treasury Obligations, 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
Government National Mortgage Association), (b) the right of the issuer to
borrow from the Treasury (such as securities of the Student Loan Marketing
Association), (c) the discretionary authority of the U.S. Government to
purchase the agency's obligations (such as securities of the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation), 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,
authorities or instrumentalities in the future. U.S. Government Securities may
include zero coupon bonds. Such bonds may be purchased when yields are
attractive.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are deemed to include (a)
securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. Government, its agencies,
authorities or instrumentalities and (b) participations in loans made to
foreign governments or their agencies that are so guaranteed. The secondary
market for certain of these participations is limited. Such participations may
therefore be regarded as illiquid.
Each Portfolio 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").
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CUSTODIAL RECEIPTS
The Tax-Exempt Diversified Portfolio may also acquire securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities in the form of custodial receipts that
evidence ownership of future interest payments, principal payments or both on
certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. For certain securities law purposes,
custodial receipts are not considered obligations of the U.S. Government.
MUNICIPAL OBLIGATIONS
MUNICIPAL INSTRUMENTS: Obligations issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities, and the District of
Columbia, the interest from which is, in the opinion of bond counsel, if any,
excluded from gross income for federal income tax purposes.
Such Municipal Instruments may include:
(A) fixed rate notes and similar debt instruments rated in the highest
short-term rating category or in one of the two highest long-term
rating categories;
(B) variable and floating rate demand instruments rated in the highest
rating categories: short-term or one of the two highest long-term;
(C) tax-exempt commercial paper rated in the highest rating category;
(D) municipal bonds rated in one of the two highest rating categories; and
(E) unrated notes, paper, bonds or other instruments determined to be of
comparable quality by the Adviser pursuant to criteria approved by the
Trustees.
As a matter of fundamental policy, at least 80% of the Tax-Exempt
Diversified Portfolio's annual gross income will be derived from Municipal
Instruments, except in extraordinary circumstances. The Portfolio may
temporarily invest in taxable money market instruments when the Adviser
believes that the market conditions dictate a defensive posture. Investments
in taxable money market instruments will be limited to those meeting the
quality standards of the Tax-Exempt Diversified Portfolio.
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MUNICIPAL NOTES AND BONDS. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of bonds. Revenue bonds are
backed by the revenues of a project or facility such as the tolls from a toll
bridge. Revenue bonds also include lease rental revenue bonds which are issued
by a state or local authority for capital projects and are secured by annual
lease payments from the state or locality sufficient to cover debt service on
the authority's obligations. Municipal bonds may be issued in a variety of
forms, including commercial paper, tender option bonds and variable and
floating rate securities.
Industrial development bonds (generally referred to under current tax law as
"private activity bonds") are a specific type of revenue bond backed by the
credit and security of a private user and therefore have more potential risk.
The Tax-Exempt Diversified Portfolio does not currently intend to invest in
such bonds.
TENDER OPTION BONDS. A tender option bond is a Municipal Instrument
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term, tax-exempt rates. The bond is typically issued in
conjunction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holder the option, at periodic intervals, to tender its securities to
the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal
to the difference between the bond's fixed coupon rate and the rate, as
determined by a remarketing or similar agent at or near the commencement of
such period, that would cause the 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. The tender option will be taken into account in
determining the maturity of the tender option bonds and the Portfolio's
average portfolio maturity. There is a risk that the Portfolio will not be
considered the owner of a tender option bond for federal income tax purposes
and thus will not be entitled to treat such interest as exempt from federal
income tax.
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REVENUE ANTICIPATION WARRANTS. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that permits
the holder to sell the RAWs to a bank or other financial institution at a
purchase price equal to par plus accrued interest on each interest rate reset
date.
FLOATING AND VARIABLE RATE OBLIGATIONS. The value of floating and variable
rate obligations generally is more stable than that of fixed rate obligations
in response to changes in interest rate levels. Variable and floating rate
obligations usually have demand features that permit the Portfolio to sell
them at par value plus accrued interest upon short notice. The issuers or
financial intermediaries providing demand features may support their ability
to purchase the obligations by obtaining credit with liquidity supports. These
may include lines of credit, which are conditional commitments to lend, and
letters of credit, which will ordinarily be irrevocable, both of which may be
issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States. When considering whether an obligation meets
the Portfolio's quality standards, the Portfolio will look to the
creditworthiness of the party providing the demand features as well as to the
quality of the obligation itself. The Portfolio may consider the maturity of a
variable or floating rate Municipal Instrument to be shorter that its ultimate
stated maturity if the Portfolio has the right to demand prepayment of its
principal at specified intervals prior to the security's ultimate stated
maturity, subject to the conditions for using amortized cost valuation under
the Investment Company Act. The Portfolio may purchase such variable or
floating rate obligations from the issuers or may purchase certificates of
participation, a type of floating or variable rate obligation, which are
interests in a pool of debt obligations held by a bank or other financial
institution.
OTHER POLICIES. Ordinarily, the Tax-Exempt Diversified Portfolio expects
that 100% of its portfolio securities will be Municipal Instruments. However,
the Portfolio may hold cash or invest in short-term taxable securities as set
forth above. The Portfolio may invest 25% or more of the value of its total
assets in Municipal Instruments which are related in such a way that an
economic, business or political development or change affecting one Municipal
Instrument would also affect the other Municipal Instruments. For example, the
Portfolio may invest all of its assets in (a) Municipal Instruments the
interest on which
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is paid solely from revenues from similar projects such as hospitals, electric
utility systems, multi-family housing, nursing homes, commercial facilities
(including hotels), steel companies or life care facilities, (b) Municipal
Instruments whose issuers are in the same state or (c) industrial development
obligations. Concentration of the Portfolio's investments in these Municipal
Instruments will subject the Portfolio, to a greater extent than if such
investment was more limited, to the risks of adverse economic, business or
political developments affecting any such state, industry or other area of
concentration.
The Tax-Exempt Diversified Portfolio may purchase Municipal Instruments
which are backed by letters of credit, which will ordinarily be irrevocable,
issued by domestic banks or foreign banks (excluding the Government Portfolio)
which have a branch, agency or subsidiary in the United States. In addition,
the Portfolio may acquire securities in the form of custodial receipts which
evidence ownership of future interest payments, principal payments or both on
obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability, or quality of a Municipal
Instrument, the Tax-Exempt Diversified Portfolio may acquire the right to sell
the security to another party at a guaranteed price and date. These rights may
be referred to as puts, demand features, or standby commitments.
REPURCHASE AGREEMENTS
Each Portfolio may only enter into repurchase agreements with primary
dealers in U.S. Government Securities. A repurchase agreement is an agreement
under which a Portfolio purchases securities and the seller agrees to
repurchase the securities within a particular time at a specified price. Such
price will exceed the original purchase price, the difference being income to
the Portfolio, and will be unrelated to the interest rate on the purchased
security. A Portfolio's custodian or sub-custodian will maintain custody of
the purchased securities for the duration of the agreement. The value of the
purchased securities, including accrued interest, will at all times equal or
exceed the value of the repurchase agreement. In the event of bankruptcy of
the seller or failure of the seller to repurchase the securities as agreed,
the Portfolio could suffer losses, including loss of interest on or principal
of the security and costs associated with delay and enforcement of the
repurchase agreement. In evaluating whether to enter into a repurchase
agreement, the Adviser will carefully consider the creditworthiness of the
seller pursuant to procedures reviewed and approved by the Trustees.
Distribution of the income from repurchase agreements
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entered into by a Portfolio will be taxable to its unitholders. In addition,
each Portfolio, together with other registered investment companies having
advisory agreements with the Adviser or any of its affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Portfolio may purchase when-issued securities and make contracts to
purchase or sell securities for a fixed price at a future date beyond
customary settlement time. A Portfolio is required to hold and maintain in a
segregated account with the Portfolio's custodian or subcustodian until three
days prior to settlement date, cash or liquid, high quality debt obligations
in an amount sufficient to meet the purchase price. Alternatively, a Portfolio
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. Although a
Portfolio would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
the Portfolio may dispose of a when-issued security or forward commitment
prior to settlement if the Adviser deems it appropriate to do so.
OTHER INVESTMENT COMPANIES
The Adviser will determine, under guidelines established by the Trustees,
whether securities issued by other money market investment companies present
minimal credit risks. The amount of the Portfolio's investments in securities
of other investment companies will be subject to the limitations on such
investments prescribed by the Investment Company Act and certain state
securities regulations. These limits include a prohibition on the Portfolio
acquiring more than 3% of the voting shares of any other investment company,
and investing more than 5% of its assets in securities of any one investment
company or more than 10% of its assets in securities of all investment
companies. The Portfolio will indirectly bear its proportionate share of any
management fees and other expenses paid by such other investment companies.
Goldman Sachs will not impose a portion of the management fees payable by the
Portfolio (the "Acquiring Portfolio") with respect to assets invested in
another money market investment company (the "Acquired Portfolio") as follows.
The amount of the management fees otherwise payable by the Acquiring Portfolio
and not
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imposed by Goldman Sachs will be equal to the amount of management fees
indirectly borne by the Acquiring Portfolio as a unitholder of the Acquired
Portfolio. Such other investment companies will have investment objectives,
policies and restrictions substantially similar to those of the Acquiring
Portfolio and will be subject to substantially the same risks.
INVESTMENT LIMITATIONS
GOVERNMENT PORTFOLIO. Pursuant to SEC Rule 2a-7 under the Investment Company
Act, the Government Portfolio may not invest more than 5% of its assets (taken
at amortized cost) in the securities of any one issuer (except U.S. Government
Securities and repurchase agreements collateralized by such securities). The
Portfolio may, however, invest more than 5% of its assets in the First Tier
Securities of a single issuer for a period of up to three business days after
the purchase thereof, although the Portfolio may not make more than one such
investment at any time. The Government Portfolio may not invest in securities
which are Second Tier Securities at the time of purchase. Immediately after
the acquisition of any put by the Portfolio, not more than 5% of such
Portfolio's total assets may be invested in securities issued by or subject to
puts from the same issuer. However, this limitation will not apply to the
issuer of unconditional puts if the Portfolio does not have more than 10% of
its total assets invested in securities issued by or subject to unconditional
puts from such issuer. Pursuant to SEC Rule 2a-7 the foregoing restrictions
are not applicable to the Tax-Exempt Diversified Portfolio. The foregoing
requirements of Rule 2a-7 are more restrictive than the fundamental policy set
forth in the Statement of Additional Information. Purchases of securities
which are unrated or rated by only one NRSRO must be approved or ratified by
the Trustees, except for purchases made on behalf of the Tax-Exempt
Diversified Portfolio.
TAX-EXEMPT DIVERSIFIED PORTFOLIO. Pursuant to SEC Rule 2a-7, immediately
after the acquisition of any put by the Tax-Exempt Diversified Portfolio, not
more than 5% of the Portfolio's total assets may be invested in securities
issued by or subject to puts from the same issuer. However, this limitation
applies only with respect to 75% of the Portfolio's total assets. This
limitation will not apply to an issuer of unconditional puts if the Portfolio
does not have more than 10% of its total assets invested in securities issued
by or subject to unconditional puts from such issuer. The Tax-Exempt
Diversified Portfolio will operate in accordance with this operating policy
which complies with SEC Rule 2a-7.
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INVESTMENT RESTRICTIONS. Each Portfolio is subject to certain investment
restrictions that are described in detail under "Investment Restrictions" in
the Statement of Additional Information. Fundamental investment restrictions
and the investment objective of a Portfolio cannot be changed without approval
of a majority of the outstanding units of that Portfolio. All policies not
specifically designated as fundamental are non-fundamental and may be changed
without unitholder approval.
RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Portfolio may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933 ("1933 Act"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act. However, a Portfolio
will not invest more than 10% of its net assets in illiquid investments, which
include fixed time deposits maturing in more than seven days and restricted
securities. Restricted securities (including commercial paper issued pursuant
to Section 4(2) of the 1933 Act) which the Board of Trustees has determined
are liquid, based upon a continuing review of the trading markets for the
specific restricted security, will not be deemed to be illiquid investments
for purposes of this restriction. The Board of Trustees may adopt guidelines
and delegate to the Adviser the daily function of determining and monitoring
the liquidity of restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance that the market for
restricted securities eligible for resale under Rule 144A will continue to be
liquid, the Adviser will carefully monitor each Portfolio's 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 each Portfolio
to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
In addition, the Trustees of the Trust have adopted the following non-
fundamental policy which may be changed or amended with respect to either
Portfolio by action of the Trustees without the approval of unitholders.
Accordingly, each Portfolio may not invest in repurchase agreements maturing
in more than seven days and securities which are not readily marketable if, as
a result thereof, more than 10% of the net assets of that Portfolio (taken at
market value) would be invested in such investments. Certain repurchase
agreements which mature in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements
will be regarded as liquid instruments.
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MANAGEMENT
THE ADVISER
GSAM, One New York Plaza, New York, New York, a separate operating division
of Goldman Sachs, acts as investment adviser to the Portfolios. Goldman Sachs
became registered as an investment adviser in 1981. As of March 27, 1996,
Goldman Sachs, together with its affiliates, acted as investment adviser,
administrator or distributor for approximately $58 billion in assets.
As of November 25, 1995, Goldman Sachs and its consolidated subsidiaries had
assets of approximately $70.7 billion and partners' capital of $1.9 billion
and ranked as one of the largest international investment banking and
brokerage firms in the United States. Founded in 1869, Goldman Sachs is a
major investment banking and brokerage firm providing a broad range of
financing and investment services both in the United States and abroad.
Pursuant to an SEC order, the Government Portfolio may enter into principal
transactions in certain taxable money market instruments, including repurchase
agreements, with Goldman Sachs or its affiliate, Goldman Sachs Money Market,
L.P.
Under its Investment Advisory Agreement with the Trust, GSAM continually
manages each Portfolio, including the purchase, retention and disposition of
its securities and other assets. In addition, GSAM administers the Portfolios'
business affairs and performs various unitholder servicing functions to the
extent not provided by other organizations. The management of each Portfolio
is subject to the supervision of the Board of Trustees and each Portfolio's
investment policies. For these services, the Trust, on behalf of each
Portfolio, pays GSAM a monthly fee at an annual rate of each Portfolio's
average daily net assets as follows:
<TABLE>
<CAPTION>
RATE PAID
FOR FISCAL
ANNUAL YEAR ENDED
RATE 12/31/95
------ ----------
<S> <C> <C>
Government Portfolio .35% .35%
Tax-Exempt Diversified Portfolio .35% .25%
</TABLE>
The difference between the stated advisory fee and the actual advisory fee
paid by the Tax-Exempt Diversified Portfolio reflects the fact that GSAM did
not charge the full amount of the advisory fee to which it would have been
entitled.
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GSAM has agreed to reduce or otherwise limit the daily expenses of each
Portfolio (excluding fees payable to Service Organizations, as defined herein,
taxes, interest, brokerage and litigation, indemnification and other
extraordinary expenses) on an annualized basis to .43% of the average daily
net assets of the Portfolio less the effect of fee reductions, if any. Such
reductions or limits, if any, are calculated monthly on a cumulative basis.
Any such reductions or limits may be discontinued or modified only with the
express approval of the Trustees. In addition, GSAM has voluntarily agreed not
to impose all or a portion of its advisory fee and/or to reduce or otherwise
limit the Government and Tax-Exempt Diversified Portfolios' annual total
operating expenses (excluding fees payable to Service Organizations, as
defined herein) to .41% and .31%, respectively, of average daily net assets.
GSAM has no current intention to, but may in the future, discontinue or modify
the voluntary limitations at its discretion.
THE DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the
Distributor of units of each Portfolio pursuant to a Distribution Agreement
with each Portfolio. The Distributor will assist in the sale of units of the
Portfolios upon the terms described herein. Goldman Sachs also serves as the
Transfer Agent of each Portfolio. For the transfer agency services, Goldman
Sachs receives .04% (on an annualized basis) of the average daily net assets
with respect to each Portfolio.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold units of the Portfolios in order to increase the assets of the
Portfolios. Increasing the Portfolios' assets may enhance investment
flexibility and diversification. Goldman Sachs reserves the right to redeem at
any time some or all of the Portfolio units acquired for its own account.
Goldman Sachs will consider the effect of redemptions on the Portfolios and
other unitholders in deciding whether to redeem its units.
NET ASSET VALUE
The net asset value of the Portfolios is determined 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. Net asset value per unit for each class of units
of each Portfolio is calculated by determining the amount of net assets
attributable to each class of units and dividing by the number of units for
such class.
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On any Business Day, as defined herein, when the Public Securities
Association ("PSA") recommends that the securities market close early, the
Government and Tax-Exempt Diversified Portfolios reserve the right to cease,
accepting purchase and redemption orders for same Business Day credit at the
time the PSA recommends that the securities market close. On days either
Portfolio closes early, purchase and redemption orders received after the PSA
recommended closing time will be credited for the next Business Day. In
addition, each Portfolio reserves the right to advance the time by which
purchase and redemption orders must be received for same Business Day credit
as permitted by the SEC.
The portfolio securities of each Portfolio are valued at their amortized
cost, which does not take into account unrealized securities gains or losses.
This method involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any premium paid or
discount received.
YIELD INFORMATION
From time to time, each Portfolio may advertise its yield and effective
yield. The yield of a Portfolio refers to the income generated by an
investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then annualized; that is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The Tax-Exempt Diversified Portfolio may also quote tax-equivalent yield.
The Portfolio's tax-equivalent yield is calculated by determining the rate of
return that would have to be achieved on a fully taxable investment to produce
the after-tax equivalent of the Portfolio's yield, assuming certain tax
brackets for a unitholder.
Investors should note that the investment results of a Portfolio are based
on historical performance and will fluctuate over time. Any presentation of a
Portfolio's yield, effective yield or tax-equivalent yield for any prior
period should not be considered a representation of what an investment may
earn or what a Portfolio's yield, effective yield or tax-equivalent yield may
be in any future period.
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Yield, effective yield and tax-equivalent yield will be calculated
separately for each class of units in existence. Because each such class of
units is subject to different expenses, the net yield of such classes of a
Portfolio for the same period may differ. See "Organization and Units of the
Portfolios" below.
ORGANIZATION AND UNITS OF THE PORTFOLIOS
The Trust was formed as a business trust under the laws of The Commonwealth
of Massachusetts on December 6, 1978. The Trustees of the Trust are
responsible for the overall management and supervision of its affairs. The
Declaration of Trust authorizes the Trustees to classify or reclassify any
series or portfolio of units into one or more classes. The Trustees have
authorized the issuance of three classes of units of each of the portfolios,
which are: ILA Units, ILA Administration Units and ILA Service Units. The
Oakmark Units are ILA Service Units.
When issued, units are fully paid and nonassessable by the Trust. In the
event of liquidation, unitholders are entitled to share pro rata in the net
assets of the applicable Portfolio available for distribution to unitholders.
Units entitle their holders to one vote per unit, are freely transferable and
have no preemptive, subscription or conversion rights.
Units of a Portfolio will be voted separately by Portfolio with respect to
matters pertaining to that Portfolio except for the election of Trustees and
ratification of independent accountants. For example, unitholders of each
Portfolio are required to approve the adoption of any investment advisory
agreement relating to that Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the unitholders of one
Portfolio is effective only as to that Portfolio.
The Trust does not intend to hold annual unitholder meetings, although
special meetings may be called for such purposes as electing or removing
Trustees, complying with a requirement of the Investment Company Act, or such
other purposes as are set forth above. The Trust will facilitate unitholder
communication as required and in the manner prescribed by Section 16(c) of the
Investment Company Act.
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DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
All or substantially all of each Portfolio's net investment income will be
declared daily (as of 4:00 p.m. New York time) as a dividend and paid to
Harris Associates for distribution to holders of Oakmark Units monthly.
Distributions will be made in additional Oakmark Units of the same Portfolio
or, at the election of holders of Oakmark Units, in cash. The election to
reinvest dividends and distributions in Oakmark Units or receive them in cash
may be changed by providing written notice to Oakmark. If no election is made,
all dividends and capital gain distributions will be reinvested. Dividends
will be reinvested as of the last calendar day of each month. Cash
distributions will be paid on or about the first business day of each month.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986 (the "Code") and may be
reflected in a Portfolio's distributions. Each Portfolio may distribute at
least annually its long-term capital gains, if any, after reduction by
available capital losses. In order to avoid excessive fluctuations in the
amount of monthly capital gains distributions, a portion of any net capital
gains realized on the disposition of securities during the months of November
and December may be distributed during the subsequent calendar year. Although
realized gains and losses on the assets of a Portfolio are reflected in the
net asset value of the Portfolio, they are not expected to be of an amount
which would affect the Portfolio's net asset value of $1.00 per unit.
A Portfolio's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the
Portfolio from sources other than capital gains over (iii) the amortization of
market premium on all portfolio securities and (iv) the estimated expenses of
the Portfolio, including a proportionate share of the general expenses of the
Trust.
TAXES
Each Portfolio is treated as a separate entity for federal income tax
purposes has elected to be treated and intends to continue to qualify and be
treated as a regulated investment company under Subchapter M of the Code for
each taxable year. To qualify as such, each Portfolio must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to unitholders.
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As a regulated investment company, each Portfolio 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 unitholders in accordance with
certain timing requirements of the Code.
Dividends paid by a Portfolio from net investment income (except, in the
case of the Tax-Exempt Diversified Portfolio, tax-exempt interest), the excess
of net short-term capital gain over net long-term capital loss and taxable
original issue discount or market discount income will be taxable to
unitholders as ordinary income. Dividends paid by a Portfolio from the excess
of net long-term capital gain over net short-term capital loss will be taxable
as long-term capital gain regardless of how long the unitholders have held
their units. These tax consequences will apply to taxable distributions of a
Portfolio (including the Tax-Exempt Diversified Portfolio, which pays exempt-
interest dividends, as described below) regardless of whether distributions
are received in cash or reinvested in units. Certain distributions paid by the
Portfolios in January of a given year will be taxable to unitholders as if
received on December 31 of the year in which they are declared. Unitholders
will be informed annually about the amount and character of distributions
received from the Portfolios for federal income tax purposes, including any
distributions that may constitute a return of capital or any distributions of
the Tax-Exempt Diversified Portfolio that may constitute a tax preference item
under the federal alternative minimum tax.
The Tax-Exempt Diversified Portfolio intends to satisfy certain requirements
of the Code for the payment of "exempt-interest dividends" not included in
unitholders' federal gross income. Dividends paid by the Portfolio from
interest on tax-exempt obligations and properly designated by the Portfolio as
exempt-interest dividends, including dividends attributable to exempt-interest
dividends received by the Portfolio from other regulated investment companies,
will generally be exempt from federal income tax, although a portion of such
dividends may be subject to the federal alternative minimum tax. Exempt-
interest dividends will be considered in computing the "adjusted current
earnings" preference item for purposes of the corporate federal alternative
minimum tax, the corporate environmental tax, and the extent, if any, to which
social security or railroad retirement benefits are taxable. Persons who are
"substantial users" of facilities financed by certain industrial development
or private activity bonds should consult their own tax advisers before
purchasing units of the Portfolio. Interest incurred to purchase or carry
units of the Portfolio will not be deductible for federal income tax purposes
to the extent related to exempt-interest dividends paid by the Portfolio and
may not be deductible in whole or in part for state income tax purposes.
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<PAGE>
Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on taxable distributions if they fail
to furnish their correct taxpayer identification number and certain
certifications required by the Internal Revenue Service or if they are
otherwise subject to backup withholding. Individuals, corporations and other
unitholders that are not U.S. persons under the Code are subject to different
tax rules and may be subject to nonresident alien withholding at the rate of
30% (or a lower rate provided by an applicable tax treaty) on amounts treated
as ordinary dividends from a Portfolio.
In addition to federal taxes, a unitholder may be subject to state and local
taxes on payments received from a Portfolio. A state income (and possibly
local income and/or intangible property) tax exemption is generally available
to the extent a Portfolio'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. Unitholders should
consult their own tax advisers concerning these matters.
ADDITIONAL SERVICES
Each Portfolio has adopted a Service Plan with respect to the ILA Service
Units which authorizes it to compensate Service Organizations, including
Harris Associates, for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Units. Each Portfolio will enter into agreements with Service
Organizations which purchase ILA Service Units, on behalf of their customers
("Service Agreements"). The Service Agreements will provide for compensation
to the Service Organization in an amount up to .40% (on an annualized basis)
of the average daily net assets of the ILA Service Units of that Portfolio
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 .25% of such average daily net assets.
The services provided by a Service Organization may include acting, directly
or through an agent, as the sole unitholder of record, maintaining account
records for its customers, processing orders to purchase, redeem and exchange
ILA Service Units for its customers, responding to inquiries from prospective
and existing unitholders and
25
<PAGE>
assisting customers with investment procedures. In addition, GSAM, at its own
expense, may pay a Service Organization compensation equal on an annual basis
up to .10% of the average daily net assets of the ILA Service Units held of
record by such Service Organization for providing certain additional services
to its customers. Such compensation will not represent an additional expense
to the Portfolio or its unitholders, since it will be paid from the assets of
GSAM.
For the fiscal year ended December 31, 1995, the Trust, on behalf of each
Portfolio, paid Service Organizations fees at the annual rate of .40% of each
Portfolio's average daily net assets attributable to ILA Service Units.
Holders of ILA Service Units of a Portfolio will bear all expenses and fees
paid to Service Organizations for their services with respect to such Units as
well as any other expenses which are directly attributable to such Units.
Service Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of ILA Service Units 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 an investor's return with respect to an investment in a Portfolio.
Goldman Sachs may, at its own expense, provide compensation to certain
dealers whose customers purchase significant amounts of units of the
Portfolios. The amount of such compensation may be made on a one-time and/or
periodic basis, and may be up to 25% of the annual fees that are earned by
GSAM as investment adviser to the Portfolio (after adjustments) and are
attributable to units held by such customers. Such compensation will not
represent an additional expense to the Portfolio or its unitholders, since it
will be paid from assets of Goldman Sachs or its affiliates.
UNITHOLDER SERVICES
REPORTING TO UNITHOLDERS
You will receive a confirmation statement from Oakmark reflecting each of
your purchases and redemptions of Oakmark Units, as well as periodic
statements detailing distributions made by the Portfolios. In addition,
Oakmark will send you semiannual and annual reports
26
<PAGE>
containing audited financial statements and will provide you annually with tax
information.
IRA PLAN
Harris Associates Investment Trust has a master individual retirement
account (IRA) plan that allows you to invest on a tax-sheltered basis in the
Government Portfolio and The Oakmark Funds as defined below. The plan also
permits you to "roll over" or transfer to your Oakmark IRA a lump sum
distribution from a qualified pension or profit-sharing plan, thereby
postponing federal income tax on the distribution. If your employer has a
Simplified Employee Pension Plan (SEP), you may establish an IRA with the
Government Portfolio and the Funds to which your employer may contribute
annually up to the lesser of 15% of your earned income or $30,000, subject to
special rules designed to avoid discrimination. Because the Trust has
determined that the Tax-Exempt Diversified Portfolio is not a suitable
investment for IRA accounts, the Portfolio is not available for IRA
investments.
SPECIAL WAYS TO INVEST OR REDEEM
In addition to the ways to purchase or redeem Oakmark Units described above,
the New Account Purchase Application offers you the following additional
investment and redemption options:
AUTOMATIC INVESTMENTS--purchase Oakmark Units each month with payment by
electronic transfer from your bank account ($100-$50,000 per transaction).
TELEPHONE INVESTMENTS--purchase Oakmark Units by placing a telephone order
and paying for them by electronic transfer from your bank account ($100-
$50,000 per transaction).
SYSTEMATIC WITHDRAWALS--redeem a fixed dollar amount of Oakmark Units each
month or quarter and have the proceeds sent by check to you or deposited by
electronic transfer into your bank account (up to $50,000 per transaction for
electronic transfers).
HOW TO PURCHASE UNITS
You may purchase Oakmark Units of either Portfolio by check, by wire, by
electronic transfer or by exchange through State Street Bank and Trust Company
as agent for Harris Associates ("Oakmark"). There are no sales commissions or
underwriting discounts. The minimum initial investment is $2,500, except that
the minimum initial investment in an
27
<PAGE>
Oakmark IRA account is $1,000. Minimum subsequent investments are $100, except
for reinvestments of dividends and capital gain distributions.
BY CHECK
To make an initial purchase of units, complete and sign the New Account
Purchase Application and mail it to the Oakmark Funds Family, P.O. Box 8510,
Boston, Massachusetts 02266-8510, together with a check for the total purchase
amount payable to State Street Bank and Trust Company.
You may make subsequent investments by submitting a check along with either
the stub from your Portfolio account confirmation statement or a note
indicating the amount of the purchase, your account number, and the name in
which your account is registered. Each individual check submitted for purchase
must be at least $100. Oakmark will not accept cash, drafts, third party
checks or checks drawn on banks outside of the United States. If your order to
purchase Oakmark Units of a Portfolio is cancelled because your check does not
clear, you will be responsible for any resulting loss incurred by Oakmark.
BY WIRE
You may also pay for Oakmark Units by instructing your bank to wire money to
Oakmark. Your bank may charge you a fee for sending the wire. IF YOU ARE
OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST TELEPHONE OAKMARK AT 1-
800-626-9392 TO REQUEST AN ACCOUNT NUMBER AND FURNISH YOUR SOCIAL SECURITY OR
OTHER TAX IDENTIFICATION NUMBER. Neither the Portfolios nor Oakmark will be
responsible for the consequences of delays, including delays in the banking or
Federal Reserve wire systems.
BY ELECTRONIC TRANSFER
If you have an established Portfolio account you may make subsequent
investments by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request by calling 1-
800-626-9392 or at pre-scheduled intervals. (See "Unitholder Services.")
Electronic transfer purchases are subject to a $100 minimum and a $50,000
maximum. You may not open a new account through electronic transfer.
BY EXCHANGE
You may purchase Oakmark Units of the Portfolios by exchange of Oakmark
Units from the GS Short Duration Tax-Free Fund or shares from The Oakmark
Fund, The Oakmark International Fund, The Oakmark
28
<PAGE>
SmallCap Fund, The Oakmark Balanced Fund and The Oakmark International
Emerging Value Fund ("The Oakmark Funds") either by phone or by mail. AN
EXCHANGE TRANSACTION IS A SALE AND PURCHASE FOR FEDERAL INCOME TAX PURPOSES
AND MAY RESULT IN CAPITAL GAIN OR LOSS. Restrictions apply and there is a
charge (currently $5) for each exchange from The Oakmark Funds into the
Portfolios or the GS Short Duration Tax-Free Fund. Please review the
information under "How to Redeem Units--By Exchange."
PURCHASE PRICE AND DIVIDENDS
Oakmark Units of each Portfolio may be purchased on any business day at the
net asset value next determined after receipt by Oakmark of both the purchase
order and the purchase price in Federal Funds.
Purchases of Oakmark Units may be made by check or wire transfer. PURCHASES
ARE EFFECTIVE AS SOON AS A CHECK IS CONVERTED TO FEDERAL FUNDS. Purchases by
wire transfer will be effected the day the wire transfer is received if the
wire transfer is received prior to the respective Portfolio's cut-off time as
noted below. It is expected that checks will ordinarily be converted to
Federal Funds within two business days after receipt. A purchase by check is
deemed to be effective prior to the Portfolio's cut-off time noted below on
the date such purchase proceeds convert to Federal Funds. Oakmark Units
purchased by check may not be redeemed until the check has cleared, as
described under "How to Redeem Units."
- -------------------------------------------------------------------------------
Oakmark Units of the Government Portfolio are deemed to have been purchased
when an order becomes effective and are entitled to dividends as follows:
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
OAKMARK DIVIDENDS BEGIN
----------------------- -----------------
<S> <C>
By: 3:00 p.m.--N.Y. time Same Business Day
After: 3:00 p.m.--N.Y. time Next Business Day
</TABLE>
- -------------------------------------------------------------------------------
Oakmark Units of the Tax-Exempt Diversified Portfolio are deemed to have
been purchased when an order becomes effective and are entitled to dividends
as follows:
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED BY
OAKMARK DIVIDENDS BEGIN
----------------------- -----------------
<S> <C>
By: 1:00 p.m.--N.Y. time Same Business Day
After: 1:00 p.m.--N.Y. time Next Business Day
</TABLE>
- -------------------------------------------------------------------------------
29
<PAGE>
GENERAL
Each purchase order for Oakmark Units must be accepted by Oakmark. Once your
purchase order has been accepted, you may not cancel or revoke it; however,
you may redeem the Oakmark Units. Oakmark reserves the right not to accept any
purchase order that it determines not to be in the best interest of the Trust
or of a Portfolio's unitholders. Oakmark uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If Oakmark does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Oakmark will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
HOW TO REDEEM UNITS
BY MAIL
You may redeem all or any part of your Oakmark Units of a Portfolio upon
your written request delivered to the Oakmark Funds Family, P.O. Box 8510,
Boston, Massachusetts 02266-8510.
Your redemption request must:
(1) identify the Portfolio and give your account number;
(2) specify the number of units or dollar amount to be redeemed;
(3) be signed in ink by all owners exactly as their names appear on the
account; and
(4) for redemptions greater than $50,000 or redemptions payable to other
than the unitholder address of record, include an ink-stamped guarantee by
an "eligible guarantor institution" as defined in the Securities Exchange
Act of 1934 (including a bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association, but not a notary public) for each signature on the
redemption request (the guarantee must use the phrase "signature
guaranteed" and must include the name of the guarantor bank or firm and an
authorized signature).
Special rules apply to redemptions by corporations, trusts and partnerships.
In the case of a corporation, the request must be signed in the name of the
corporation by an officer whose title must be stated, and must be accompanied
by a bylaw provision or resolution of the
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<PAGE>
board of directors, certified within 60 days, authorizing the officer to so
act. A redemption request from a partnership or a trust must be signed in the
name of the partnership or trust by a general partner or a trustee and include
a signature guarantee. If the trustee is not named in the account
registration, a redemption request by a trust must also include evidence of
the trustee's appointment as such (e.g., a certified copy of the relevant
portions of the trust instrument). Under certain circumstances, before Oakmark
Units can be redeemed, additional documents may be required in order to verify
the authority of the person seeking to redeem.
BY EXCHANGE
You may redeem all or any portion of your Oakmark Units of a Portfolio and
use the proceeds to purchase Oakmark Units of the GS Short Duration Tax-Free
Fund or shares of The Oakmark Funds if your signed, properly completed New
Account Purchase Application is on file. AN EXCHANGE TRANSACTION IS A SALE AND
PURCHASE FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT IN CAPITAL GAIN OR
LOSS. Before exchanging, you should obtain a prospectus from The Oakmark Funds
and read it carefully. The exchange privilege is not an offering or
recommendation of shares of The Oakmark Funds. The registration of the account
to which you are making an exchange must be exactly the same as that of the
account from which the exchange is made and the amount you exchange must meet
any applicable minimum investment of the fund being purchased. An exchange may
be made by following the redemption procedure described above under "By Mail"
and indicating the fund to be purchased, except that a signature guarantee
normally is not required. (See also the discussion below of the Telephone
Exchange Privilege.)
SPECIAL REDEMPTION PRIVILEGES
The Telephone Exchange and Telephone Redemption Privileges will be
established automatically when you open your account unless you elect on your
New Account Purchase Application to decline these Privileges. Other Privileges
must be specifically elected. A signature guarantee may be required to
establish a Privilege after you open your account. Oakmark Units held in an
IRA account may not be redeemed by telephone.
BY CHECK
Holders of Oakmark Units of a Portfolio may elect to have checks issued to
them in order to redeem Oakmark Units from their accounts in each Portfolio.
When Oakmark receives a completed New Account
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<PAGE>
Purchase Application and signature card, Oakmark will forward to the
requesting customer a supply of checks. Checks drawn on this account may be
payable to the order of any person in any amount of $500 or more, but cannot
be certified. The payee of the check may cash or deposit it like any other
check drawn on a bank. When such a check is presented to Oakmark for payment,
a sufficient number of full and fractional Oakmark Units will be redeemed to
cover the amount of the check. Cancelled checks will be returned to the
recordholder of Oakmark Units by Oakmark.
The check redemption privilege enables a unitholder to receive the dividends
declared on the Oakmark Units to be redeemed until the date the check is
processed. Because of this feature, the check redemption privilege may not be
used for complete liquidation of a unitholder's account. If the amount of a
check is greater than the value of the Oakmark Units held in the unitholder's
account, the check will be returned unpaid, and the unitholder may be subject
to extra charges.
Oakmark reserves the right to impose conditions on, limit the availability
of or terminate the check redemption privilege at any time with respect to a
particular unitholder or all unitholders in general. The Portfolios and
Oakmark reserve the right at any time to suspend the procedure permitting
redemptions by check and intend to do so in the event that federal legislation
or regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of other Oakmark unitholders of the
Portfolios.
TELEPHONE EXCHANGE PRIVILEGE
You may use the Telephone Exchange Privilege to exchange among The Oakmark
Funds and the Portfolios by calling 1-800-626-9392. The general redemption
policies apply to redemptions by Telephone Exchange. (See "General Redemption
Policies.")
Oakmark reserves the right at any time without prior notice to suspend or
terminate the use of the Telephone Exchange Privilege by any person or class
of persons. Oakmark believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects the Portfolios.
THEREFORE, OAKMARK GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES
BY UNITHOLDERS IDENTIFIED BY OAKMARK AS "MARKET-TIMERS." Moreover, you may not
make more than six exchanges from any Portfolio in any calendar year. Oakmark
reserves the right at any time without prior notice to suspend, limit, modify,
or terminate the Telephone Exchange Privilege in its entirety. Because such a
step would be taken only if it
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<PAGE>
would be in the best interests of the Portfolios, Oakmark expects that it
would provide unitholders with prior written notice of any such action unless
it appears that the resulting delay in the suspension, limitation,
modification, or termination of the Telephone Exchange Privilege would
adversely affect the Portfolios. IF OAKMARK WERE TO SUSPEND, LIMIT, MODIFY, OR
TERMINATE THE TELEPHONE EXCHANGE PRIVILEGE, YOU MIGHT FIND THAT AN EXCHANGE
COULD NOT BE PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. See "How to Redeem Units--By Exchange."
During periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone; you may wish to consider
placing your exchange by mail during such periods.
TELEPHONE REDEMPTION PRIVILEGE
You may use the Telephone Redemption Privilege to redeem Units having a
value of up to $50,000 per day from your account by calling 1-800-626-9392.
The proceeds may be sent by check to your registered address or you may
request payment by electronic transfer to a bank account previously designated
by you at a bank that is a member of the Automated Clearing House. If you
request a redemption by electronic transfer before the applicable Portfolio's
redemption cut-off time and the proceeds are to be sent to your pre-
established designated bank account, the proceeds will be transferred to your
bank account on that business day. REDEMPTION BY TELEPHONE IS SUBJECT TO A
$50,000 MAXIMUM. The Telephone Redemption Privilege is not available to redeem
units held in an IRA account, and is not available for 30 days after Oakmark
receives notice from you of a change of address.
PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS
Oakmark Units of each Portfolio may be redeemed without charge upon request
on any business day at the net asset value next determined after receipt by
Oakmark of the redemption request.
33
<PAGE>
In accordance with the following, redemption proceeds will be sent to the
holders of Oakmark Units.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REDEMPTION REQUEST REDEMPTION
RECEIVED BY OAKMARK PROCEEDS ORDINARILY DIVIDENDS
------------------- ------------------- ---------
<S> <C> <C> <C>
(1) Government Portfolio
By: 3:00 p.m. - N.Y. time (i) Wire Redemptions Not Earned on the Day
Sent Same Business request is received
Day
(ii) Check Redemptions
Sent Next Business
Day
After: 3:00 p.m. - N.Y. time (i) Wire Redemptions Earned on the Day
Sent Next Business request is received
Day
(ii) Check Redemptions
Sent Within Two
BusinessDays
- ---------------------------------------------------------------------------------
(2) Tax-Exempt Diversified
Portfolio
By: 12:00 noon - N.Y. time (i) Wire Redemptions Not Earned on the Day
Sent Same Business request is received
Day
(ii) Check Redemptions
Sent Next Business
Day
After: 12:00 noon - N.Y. time (i) Wire Redemptions Earned on the Day
Sent Next Business request is received
Day
(ii) Check Redemptions
Sent Within Two
Business Days
</TABLE>
- -------------------------------------------------------------------------------
GENERAL REDEMPTION POLICIES
You may not cancel or revoke your redemption order once instructions have
been received and accepted. PLEASE TELEPHONE OAKMARK BY CALLING 1-800-626-9392
IF YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION BEFORE
SUBMITTING YOUR REQUEST. Oakmark reserves the right to require a properly
completed New Account Purchase Application before making payment for Oakmark
Units redeemed.
34
<PAGE>
Oakmark will generally mail payment for Oakmark Units redeemed within three
days after proper instructions are received. If you attempt to redeem Oakmark
Units within 15 days after they have been purchased by check or electronic
transfer, Oakmark may delay payment of the redemption proceeds to you until it
can verify that payment for the purchase of those Oakmark Units has been (or
will be) collected. To reduce such delays, Oakmark recommends that your
purchase be made by Federal Funds wire through your bank. If you so request,
the proceeds of your redemption may be paid by wire, but the cost of the wire
(currently $5) will be deducted from the redemption proceeds.
Oakmark reserves the right at any time without prior notice to suspend,
limit, modify, or terminate any privilege or its use in any manner by any
person or class.
Use of any Special Redemption Privilege authorizes Oakmark to tape-record
all instructions to redeem. Oakmark uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If Oakmark does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Oakmark will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Oakmark reserves the right to redeem Oakmark Units in any account and send
the proceeds to the owner if the Oakmark Units in the account do not have a
value of at least $1,000.
Oakmark Units in any account you maintain with a Portfolio may be redeemed
to the extent necessary to reimburse Oakmark for any loss it sustains that is
caused by you (such as losses from uncollected checks and electronic transfers
or any liability under the Code provisions on backup withholding relating to
your account).
-----------------------------
35
<PAGE>
ADDRESS OF HARRIS ASSOCIATES, L. P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
1-800-OAKMARK
(1-800-625-6275)
THE OAKMARK FUNDS 24-HOUR NAV HOTLINE
1-800-GROWOAK
(1-800-476-9625)
OAKMARK SHAREHOLDER SERVICE
State Street Bank and Trust Company
Attention: Oakmark Funds Family
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-626-9392
<PAGE>
[PRINTED ON RECYCLED PAPER LOGO]
THIS COVER IS NOT PART OF THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST.
