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PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS GLOBAL INCOME FUND
CLASS A SHARES
(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 Goldman Sachs Global Income Fund prospectus, dated March 1, 1995, as revised
August 15, 1995 and amended and/or supplemented from time to time (the
"Prospectus"), which may be obtained without charge from Goldman, Sachs & Co. by
calling the telephone number, or writing to one of the addresses, listed below.
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TABLE OF CONTENTS Page
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Introduction...................................... B-2
Investment Objective and Policies................. B-3
Investment Restrictions........................... B-14
Management........................................ B-16
Advisory and Administrative Services.............. B-18
Distribution and Authorized Dealer Service Plans.. B-23
Portfolio Transactions............................ B-28
Shares of the Trust............................... B-28
Net Asset Value................................... B-29
Taxation.......................................... B-30
Performance Information........................... B-36
Other Information................................. B-41
Financial Statements.............................. B-42
Appendix A........................................ 1-A
Appendix B........................................ 1-B
Appendix C........................................ 1-C
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The date of this Additional Statement is March 1, 1995, as revised August 15,
1995.
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET MANAGEMENT
Adviser and Administrator INTERNATIONAL, Subadviser
One New York Plaza 140 Fleet Street
New York, New York 10004 London EC4A 2BJ England
GOLDMAN, SACHS & CO. GOLDMAN, SACHS & CO.
Distributor Transfer Agent
85 Broad Street 4900 Sears Tower
New York, New York 10004 Chicago, Illinois 60606
Toll free.....800-526-7384
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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 Goldman Sachs Global Income Fund (the "Fund")
and six other series of the Trust. Additional series of the Trust may be added
in the future. As of the date of this Additional Statement, the Board of
Trustees has authorized the issuance of three classes of shares of the Fund:
Institutional Shares, Administration Shares and Class A Shares. See "Shares of
the Trust."
Pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") between the Fund and Goldman Sachs Asset Management ("GSAM" or the
"Investment Adviser"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), GSAM serves as investment adviser to the Fund. In addition,
GSAM serves as the Fund's administrator. Goldman Sachs Asset Management
International ("GSAM International" or the "Subadviser"), an affiliate of
Goldman Sachs, serves as subadviser to the Fund. The goal of the Fund's
portfolio managers is to create the most appropriate mix of global securities
and currencies in order to generate the highest returns consistent with the
Fund's quality standards and risk control guidelines.
The 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.
High Income. The Fund's portfolio managers will seek out the highest
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yielding bonds in the global fixed income market that meet the Fund's credit
quality standards and certain other criteria.
Capital Appreciation. Investing in the foreign bond markets offers the
--------------------
potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers also attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic strength.
However, there is a risk of capital depreciation as a result of unanticipated
interest rate and currency fluctuations.
Portfolio Management Flexibility. The Fund is designed to be actively
--------------------------------
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the Fund's investment guidelines and often have strong currencies
and stable economies and in securities that they believe offer favorable
performance prospects. Furthermore, because the Fund can purchase securities
with short-to intermediate-term maturities, the portfolio managers can adjust
the Fund's holdings in an effort to maximize returns in almost any interest rate
environment. In addition, the Fund's ability to invest in securities deemed to
have estimated remaining maturities of ten years or less allows its portfolio
managers to adjust the Fund's portfolio as interest rates change to take
advantage of the most attractive segments of the yield curve.
Relative Stability of Principal. The Fund may be able to reduce principal
-------------------------------
fluctuation by investing in foreign countries with economic policies or business
cycles different from those of the United States and in foreign securities
markets that do not necessarily move in the same direction or magnitude as the
U.S. market. Investing in a broad range of U.S. and foreign fixed income
securities and currencies reduces the dependence of the Fund's performance on
developments in any particular market to the
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extent that adverse events in one market are offset by favorable events in other
markets. The Fund's policy of investing primarily in high credit quality
securities may also reduce principal fluctuation. However, there is no
assurance that these strategies will always be successful.
Professional Management. Individual U.S. investors may prefer professional
-----------------------
management of their global bond and currency portfolios because a well-
diversified portfolio requires a large amount of capital and because the size of
the global market requires access to extensive resources and a substantial
commitment of time.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the 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 credit quality
fixed income securities of U.S. and foreign issuers and through transactions in
foreign currencies. There is no assurance that this objective will be achieved.
The following information relates to and supplements the description contained
in the Fund's Prospectus of its investment policies.
FOREIGN INVESTMENTS
The 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 the Fund may
temporarily hold funds in bank deposits in foreign currencies during completion
of investment programs, the 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 and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the 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 the Fund is uninvested and no return is
earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities, or, if the Fund has entered into a contract
to
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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 the 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. The 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 the 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.
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when the
Fund anticipates the receipt in a foreign currency of dividend or interest
payments on such a security which it holds, the Fund may desire to "lock in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be. By entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
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 management of the Fund 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 the 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 the 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 the 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.
The 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 Investment Adviser determines that there is a
pattern of correlation between the two currencies. The Fund may also purchase
and sell forward contracts to seek to increase total return when the Investment
Adviser
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anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio.
The 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 Ratings Group ("S&P")
or, if unrated by such rating organizations, deemed by the Investment 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 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, the
Fund's ability to utilize forward foreign currency exchange contracts may be
restricted. The Fund generally will not enter into a forward contract with a
term of greater than one year.
While the Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between the Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the 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.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. The 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, the Fund may purchase call options on currency to seek to increase
total return when the Investment Adviser or Subadviser anticipates that the
currency will appreciate in value, but the securities denominated in that
currency do not present attractive investment opportunities and are not included
in the Fund's portfolio.
A call option written by the 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 the
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.
The Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." 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.
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The 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. The purchase of a call option would entitle the Fund, in
return for the premium paid, to purchase specified currency at a specified price
during the option period. 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.
The 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 ("protective puts"). The purchase of a put option would entitle the
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, the
Fund may use options on currency to seek to increase total return. The 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, the 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.
The 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.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that the Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If the Fund as a covered
call option writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying currency (or
security denominated in that currency) until the option expires or it delivers
the underlying currency upon exercise.
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There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
The Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities, as
described in the Fund's Prospectus. Trading in over-the-counter options is
subject to the risk that the other party will be unable or unwilling to closeout
options purchased or written by the Fund.
The amount of the premiums which the Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
INTEREST RATE SWAPS, CURRENCY SWAPS, AND INTEREST RATE CAPS, FLOORS AND COLLARS
The Fund may enter into interest rate swaps and currency swaps for hedging
purposes and to seek to increase total return. The Fund may also enter into
other types of interest rate swap arrangements, such as caps, floors and
collars. Inasmuch as swaps are entered into for good faith hedging purposes or
are offset by a segregated account as described below, the Fund and the
Investment Adviser believe that swaps do not constitute senior securities as
defined in the Investment Company Act of 1940, as amended (the "Act") and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions. The net amount of the excess, if any, of the 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 (i.e., securities rated in one of the top three ratings categories by
Moody's or S&P, or, if unrated by such rating organizations, deemed by the
Investment Adviser or Subadviser to be of comparable credit quality) having an
aggregate net asset value at least equal to such accrued excess will be
maintained in a segregated account by the Fund's custodian.
The Fund will not enter into any interest rate swap, currency swap, and
interest rate cap, floor or collar unless the credit quality of the unsecured
senior debt or the claims-paying ability of the other party thereto is
considered to be investment grade by the Investment Adviser or Subadviser. If
there is a default by the other party to such a transaction, the 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. However, the staff of the Securities
and Exchange Commission currently takes the position that swaps, caps, floors
and collars are illiquid for purposes of the Fund's 15% limitation on illiquid
investments.
CUSTODIAL RECEIPTS
The 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, authorities or instrumentalities.
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.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING COVERED OPTIONS. The Fund may write (sell) covered call and put
options on any securities in which it may invest. The Fund may purchase and
write such options on securities that are listed on national domestic or foreign
securities exchanges or traded in the over-the-counter market. A call option
written by the Fund obligates the Fund to sell specified securities to the
holder of the option at a specified price if the option is exercised at any time
before the expiration date. All call options written by the Fund are covered,
which means that the Fund will own the securities subject to the option so long
as the option is outstanding or using the other methods described below. The
Fund's purpose in writing covered call options is to realize greater income than
would be realized on portfolio securities transactions alone. However, in
writing covered call options for additional income, the Fund may forego the
opportunity to profit from an increase in the market price of the underlying
security.
A put option written by the Fund would obligate the Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
the Fund would be covered, which means that the Fund would have deposited with
its custodian cash or liquid, high-grade debt securities (i.e., securities rated
in one of the top three categories by Moody's or S&P, or, if unrated by such
rating organizations, deemed by the Investment Adviser or Subadviser to be of
comparable credit quality) with a value at least equal to the exercise price of
the put option or using the other methods described below. The purpose of
writing such options is to generate additional income for the Fund. However, in
return for the option premium, the Fund accepts the risk that it may be required
to purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
In addition, a written call option or put option may be covered by
maintaining cash or liquid, high grade debt securities (either of which may be
denominated in any currency) in a segregated account, by entering into an
offsetting forward contract and/or by purchasing an offsetting option or any
other option on the same or a related currency or any other option which, by
virtue of its exercise price or otherwise, reduces the Fund's net exposure on
its written option position.
The Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index
options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single
security.
The Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. The Fund may 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 its custodian or
by using the other methods described above.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated prior to the options expiration
date only by entering into an offsetting transaction with the counterparty to
such option. Such purchases are referred to as "closing purchase transactions."
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PURCHASING OPTIONS
The Fund may purchase put and call options on any securities in which it may
invest or options on any securities index composed of securities in which it may
invest. The Fund would also be able to enter into closing sale transactions in
order to realize gains or minimize losses on options it has purchased.
The Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain if, during the option period,
the value of such securities exceeded the sum of the exercise price, the premium
paid and transaction costs. Otherwise the Fund would realize either no gain or
a loss on the purchase of the call option.
The Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle
the Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of the Fund's
securities. Put options may also be purchased by the Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. The Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise
the Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of underlying portfolio
securities.
The Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on securities. For a description of
options on securities indices, see "Writing Covered Options" above.
Transactions by the 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 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 the Fund may write or purchase may
be affected by options written or purchased by other investment advisory clients
of the Investment Adviser. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
YIELD CURVE OPTIONS
The Fund may enter into options on the yield "spread," or yield differential
between two securities. Such options are referred to as "yield curve options".
In contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
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Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Fund may purchase or write such options for
hedging purposes. For example, the Fund may purchase a call option on the yield
spread between two securities, if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. The Fund may also purchase or
write yield curve options for other than hedging purposes (i.e., in an effort to
increase its current income) if, in the judgment of the Investment Adviser or
Subadviser, the Fund will be able to profit from movements in the spread between
the yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread moves
in a direction or to an extent which was not anticipated.
Yield curve options written by the 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, the Fund's liability for
such a covered option is generally limited to the difference between the amount
of the Fund's liability under the option written by the Fund less the value of
the option held by the Fund. Yield curve options may also be covered in such
other manner as may be in accordance with the requirements of the counterparty
with which the option is traded and applicable laws and regulations. Yield
curve options are traded over-the-counter and because they have been only
recently introduced, established trading markets for these securities have not
yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS
There is no assurance that a liquid secondary market on a domestic or
foreign options exchange will exist for any particular exchange-traded option or
at any particular time. If the Fund is unable to effect a closing purchase
transaction with respect to covered options it has written, the Fund will not be
able to sell the underlying securities or dispose of assets held in a segregated
account until the options expire or are exercised. Similarly, if the Fund is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in order to realize any profit
and will incur transaction costs upon the purchase or sale of underlying
securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening 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 Fund may purchase and sell both options that are traded on United States
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
B-10
<PAGE>
Until such time as the staff of the Securities and Exchange Commission changes
it position, the Fund 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 Commission.
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 protective
puts for hedging purposes depends in part on the Investment Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to seek to increase total return, the Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. The 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 and other
financial instruments and indices. The Fund will engage in futures and related
options transactions only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total return to the extent permitted by
regulations of the CFTC. All futures contracts entered into by the Fund are
traded on U.S. exchanges or boards of trade that are licensed and regulated by
the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, the Fund
can seek through the sale of futures contracts to offset a decline in the value
of its current portfolio securities. When rates are falling or prices are
rising, the Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases. Similarly, the Fund can sell futures
contracts on a specified currency to protect against a decline in the value of
such currency and its portfolio securities which are denominated in such
currency. The Fund can purchase futures contracts on foreign currency to fix
the price in U.S. dollars of a security denominated in such currency that the
Fund has acquired or expects to acquire.
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 the Fund's futures contracts on securities or currency
will usually be liquidated in this manner, it may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish
more certainty than would otherwise be possible with respect to the effective
price, rate of return or currency exchange rate
B-11
<PAGE>
on portfolio securities or securities that the Fund owns or proposes to acquire.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in order to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities.
Such futures contracts may include contracts for the future delivery of
securities held by the Fund or securities with characteristics similar to those
of the Fund's portfolio securities. Similarly, the Fund may sell futures
contracts on any currency in which its portfolio securities are 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
Investment Adviser, there is a sufficient degree of correlation between price
trends for the 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 the Fund's portfolio may be
more or less volatile than prices of such futures contracts, the Investment
Adviser will attempt to estimate the extent of this difference in volatility
based on historical patterns and to compensate for it 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 the Fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when the Fund anticipates
the subsequent purchase of particular securities when it has the necessary cash,
but expects the prices or currency exchange rates then available in the
applicable market to be less favorable than prices or rates that are currently
available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give the Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, the Fund obtains the benefit of the futures position if
prices move in a favorable direction but limits its risk of loss in the event of
an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of the Fund's assets. By writing a
call option, the Fund becomes obligated, in exchange for the premium, (upon
exercise of the option) to sell a futures contract, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that the Fund intends to purchase. However, the Fund
becomes obligated (upon exercise of the option) to purchase a futures contract,
which may have a value lower than the exercise price. Thus, the loss incurred
by the Fund in writing options on futures is potentially unlimited and may
exceed the amount of the premium received. The Fund will incur transaction
costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. The
Fund's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
B-12
<PAGE>
OTHER CONSIDERATIONS. The Fund will engage in futures and related options
transactions only for bona fide hedging or to seek to increase total return to
the extent permitted by CFTC regulations which permit principals of an
investment company registered under the Act to engage in such transactions
without registering as commodity pool operators. The Fund will determine that
the price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or which it expects to purchase. Except as stated below, the
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 the currency in which they are quoted or
denominated) that the Fund owns, or futures contracts will be purchased to
protect the Fund against an increase in the price of securities (or the currency
in which they are quoted or denominated) it intends to purchase. As evidence of
this hedging intent, the 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 assets 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 the 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 Fund 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 the Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Fund will engage in transactions in futures contracts and related options only
to the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining its qualification as a regulated
investment company 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 the Fund to purchase securities or currencies, require the Fund to
segregate, with its custodian 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 the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.
Perfect correlation between the Fund's futures positions and portfolio
positions will be impossible to achieve because no futures contracts based on
corporate fixed-income securities are currently available. The only futures
contracts available to hedge the Fund's portfolio are various futures on U.S.
Government securities and foreign currencies, futures on a municipal securities
index and stock index futures. In addition, 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 likely
to fluctuate as a result of independent factors not related to currency
fluctuations.
B-13
<PAGE>
INVESTMENT IN UNSEASONED COMPANIES
The 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, none of which
may be changed with respect to the Fund without the approval of the holders of a
majority of the outstanding voting securities of the Fund. As defined in the
Act, "a majority of the outstanding voting securities" of the Fund means the
vote (a) of 67% or more of the shares present at a meeting of shareholders of
the Fund, if the holders of more than 50% of the Fund's outstanding shares are
present or voting by proxy at the meeting, or (b) of more than 50% of the
outstanding shares of the Fund, whichever is less.
For the purposes of the 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.
The 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.
B-14
<PAGE>
(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 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 and officers
deemed to be "interested persons" of the Trust for purposes of the Act are
indicated by an asterisk.
B-15
<PAGE>
Paul C. Nagel, Jr., Age 72, 19223 Riverside Drive, Tequesta, Florida 33469.
Chairman of the Board of Trustees. Retired. Director and Chairman of the Audit
---------------------------------
and Finance Committees of Great Atlantic & Pacific Tea Co., Inc. and Director of
United Conveyer Corporation.
Ashok N. Bakhru, Age 52, 1235 Westlakes Drive, Suite 385, Berwyn, PA 19312.
Trustee. President, ABN Associates, Inc. since June 1994. Retired, Senior Vice
-------
President of Scott Paper Company. Director of Arkwright Mutual Insurance
Company. Trustee of International House of Philadelphia, Member of Cornell
University Council and Trustee of Walnut Street Theater.
David B. Ford*, Age 49, One New York Plaza, New York, New York 10004. Trustee.
-------
General Partner, Goldman Sachs, since 1986. Chairman and Chief Executive
Officer to GSAM since December 1994.
Marcia L. Beck*, Age 39, One New York Plaza, New York, New York 10004.
President and Trustee. Director, Institutional Funds Group of GSAM since
---------------------
September 1992. Vice President and Senior Portfolio Manager, GSAM from June
1988 to present.
Alan A. Shuch,* Age 45, One New York Plaza, New York, New York 10004. Trustee.
-------
Director and Vice President, Goldman Sachs Funds Management, Inc. from April
1990 to November 1994. President and Chief Operating Officer of GSAM from
September 1988 to November 1994 (overseeing GSAM's fixed income investment
management activities and financial, accounting, administrative and systems
functions). Limited Partner of Goldman Sachs since December 1994.
Jackson W. Smart, Jr., Age 64, One Northfield Plaza - #218, Northfield, Illinois
60093. Trustee. Chairman and Chief Executive Officer of MSP Communications,
-------
Inc. (a company engaged in radio broadcasting) since November, 1988. Consultant
from August 1987 to November 1988 of Thomas Industries, Inc. (a manufacturer of
lighting fixtures, home decorations and hardware items) and Chairman and member
of the Executive Committee prior thereto. Director of Federal Express
Corporation and North American Private Equity Group (a venture capital Fund).
William H. Springer, Age 65, 701 Morningside Drive, Lake Forest, Illinois 60045.
Trustee. Vice Chairman of Ameritech (a tele-communications holding company)
-------
(February 1987 to retirement in August 1992), and Vice Chairman and Chief
Financial and Administrative Officer of Ameritech prior thereto. Director of
Walgreen Co. (a retail drugstore business). Director, Baker, Fentress & Co. (a
closed-ended non-diversified management investment company) since April 1992.
Richard P. Strubel, Age 55, 70 West Madison Street, Suite 1400, Chicago,
Illinois 60602. Trustee. Managing Director, Tandem Partners, Inc. (since
-------
1990). President and Chief Executive Officer of Microdot, Inc. (a diversified
manufacturer of fastening systems and connectors) (January 1984 to October
1994).
Pauline Taylor,* Age 48, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President of Goldman Sachs since June, 1992. Consultant 1989
---------
to June 1992. Senior Vice President of Fidelity Investments prior to 1989.
Nancy L. Mucker,* Age 45, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President of Goldman Sachs and Co-Manager of Shareholder
---------
Services for GSAM.
John W. Mosior,* Age 56, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President of Goldman Sachs and Co-Manager of Shareholder
---------
Services for GSAM.
B-16
<PAGE>
Scott M. Gilman,* Age 35, One New York Plaza, New York, New York 10004.
Treasurer. Director, Mutual Funds Administration, GSAM since April 1994.
---------
Assistant Treasurer of Goldman Sachs Funds Management, Inc. since March 1993.
Vice President of Goldman Sachs since March, 1990 and Assistant Treasurer of the
Trust from April, 1990 until October, 1991. Formerly Manager of Arthur Andersen
LLP.
Michael J. Richman,* Age 34, 85 Broad Street, New York, New York 10004.
Secretary. Vice President and Assistant General Counsel of Goldman Sachs since
---------
June, 1992, Associate General Counsel to GSAM since February 1994 and Counsel to
the Funds Group of GSAM since June, 1992. Formerly Partner of Hale and Dorr.
Howard B. Surloff, * Age 29, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Counsel and Vice President of Goldman Sachs since
-------------------
November, 1993 and May 1994, respectively and Counsel to the Funds Group of GSAM
since November, 1993. Formerly Associate of Shereff, Friedman, Hoffman &
Goodman.
Steven E. Hartstein*, Age 31, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Legal Products Analyst, Goldman Sachs (June 1993 to
-------------------
present); Funds Compliance Officer, Citibank Global Asset Management (August
1991 to June 1993); Legal Assistant, Brown & Wood (prior thereto).
Gail M. Shanley*, Age 26, 85 Broad Street, New York, New York 10004. Assistant
---------
Secretary. Legal Products Analyst, Goldman Sachs since June 1994. Formerly
---------
Blue Sky Legal Assistant at Smith Barney Shearson.
The Trust's Trustees and officers hold comparable positions with certain
other investment companies of which Goldman Sachs, GSAM or an affiliate thereof
is the investment adviser, administrator or distributor. As of March 15, 1995,
the Trustees and officers as a group owned less than 1% of the outstanding
shares of beneficial interest of the 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, 1994:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman Sachs
Aggregate Accrued as Mutual Funds
Compensation Part of (including the
Name of Trustee from the Trust Trust's Expenses Trust)*
--------------- -------------- ---------------- ------------------
<S> <C> <C> <C>
Paul C. Nagel, Jr. $17,426 $0 $101,000
Ashok N. Bakhru $10,253 $0 $ 61,000
Marcia L. Beck $ 0 $0 $ 0
Robert P. Mayo** $10,523 $0 $ 61,000
Alan A. Shuch $ 0 $0 $ 0
Jackson W. Smart $10,523 $0 $ 61,000
William H. Springer $10,523 $0 $ 61,000
Richard P. Strubel $10,523 $0 $ 61,000
</TABLE>
______________
* The Goldman Sachs Mutual Funds consisted of 32 mutual funds, including
the eleven series of the Trust, on October 31, 1994.
** Mr. Mayo retired as of December 31, 1994
B-17
<PAGE>
ADVISORY AND ADMINISTRATIVE SERVICES
INVESTMENT ADVISERS AND ADMINISTRATOR
As stated in the Fund's Prospectus, GSAM, One New York Plaza, New York, New
York, serves as investment adviser and administrator to the Fund and GSAM
International, 140 Fleet Street, London EC4A 2BJ, England, acts as the 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-Investment
Adviser, Subadviser and Administrator" in the Fund's Prospectus for a
description of the duties of GSAM as investment adviser and administrator and
GSAM International as subadviser to the Fund.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies and trades and makes
markets on a wide range of equity and debt securities 24 hours a day. The firm
is headquartered in New York and has offices throughout the U.S. 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 Investment Adviser and Subadviser 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 Investment Adviser and Subadviser.
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.
The fixed income research capabilities of Goldman Sachs available to the
Investment Adviser and Subadviser 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 the Fund's investments.
B-18
<PAGE>
In addition to fixed income research and credit research, the Investment
Adviser and Subadviser 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 Fund's portfolio among currencies, the
Investment Advisers will have access to the Global Asset Allocation Model. The
model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Investment Adviser and Subadviser 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. In allocating the Fund's assets among
currencies, the Investment Adviser and Subadviser will also have access to
Goldman Sachs' economics team, which is internationally recognized for its skill
in currency forecasting and international economics.
The Advisory Agreement and Subadvisory Agreement each provide that the
Investment Adviser and Subadviser may render similar services to others so long
as the services under such Agreement are not impaired thereby.
The Advisory Agreement between GSAM and the Trust on behalf of the Fund and
the Subadvisory Agreement between GSAM, GSAM International and the Trust on
behalf of the Fund were each last approved by the Trustees of the Trust on April
26, 1995 and by shareholders of the Fund on December 5, 1991. The Fund's
Advisory Agreement and Subadvisory Agreement will continue in effect until June
30, 1996, and from year to year thereafter provided such continuance is
specifically approved at least annually (a) by the vote of a majority of the
outstanding voting securities of the Fund or by a majority of the Trustees of
the Trust, and (b) by the vote of a majority of the Trustees of the Trust who
are not parties to such Agreement or "interested persons" (as such term is
defined in the Act) of any party thereto cast in person at a meeting called for
the purpose of voting on such approval.
The Advisory Agreement and Subadvisory Agreement will terminate
automatically if assigned (as defined in the Act) and each such agreement is
terminable at any time without penalty by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of the Fund on 60 days'
written notice to the Investment Adviser and Subadviser and by the Investment
Adviser or Subadviser upon 60 days' written notice to the Trust.
Pursuant to its Advisory Agreement, GSAM is entitled to receive a monthly
advisory fee from the Fund equal on an annual basis to 0.25% of the 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 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
Fund's average daily net assets. Although GSAM
B-19
<PAGE>
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. For the fiscal years
ended October 31, 1992, October 31, 1993 and October 31, 1994, the Fund paid
GSAM investment advisory fees of $1,241,875, $1,553,394 and $1,518,814,
respectively. For the same periods, the Fund paid GSAM International subadvisory
fees of $2,483,750, $3,106,787 and $3,037,627, respectively.
GSAM performs administrative services for the Fund under a separate
Administration Agreement. The administrative services provided by GSAM include,
subject to the general supervision of the Trustees of the Trust, (a) providing
supervision of all aspects of the Fund's non-investment operations (other than
certain operations performed by others pursuant to agreements with the Fund),
(b) providing the Fund, 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 Fund, (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the Fund's expense, of the
Fund's tax returns, reports to shareholders, periodic updating of the Prospectus
and this Additional Statement, and reports filed with the Securities and
Exchange Commission and other regulatory authorities, (d) providing the Fund, 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 Fund's records other than those maintained pursuant to such agreements. For
its services under its Administration Agreement, the 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, 1992, October 31, 1993 and October 31, 1994, the
Fund paid GSAM administration fees of $745,125, $932,036 and $911,288,
respectively.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Investment Adviser, Subadviser and
Goldman Sachs and their affiliates in the management of, or their interests in,
other accounts and other activities of Goldman Sachs may present conflicts of
interest with respect to the Fund or impede its investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Adviser, Subadviser 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 Fund and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Fund. Goldman Sachs and its affiliates are major participants in the global
currency, equities, swap and fixed income markets, in each case on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Fund invests. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Fund will invest, which could have an adverse impact on the Fund's
performance. Such transactions, particularly in respect of proprietary accounts
or customer accounts other than those included in the Investment Adviser's and
Subadviser's and their advisory affiliates' asset management activities, will be
executed independently of the Fund's transactions and thus at prices or rates
that may be more or less favorable. When the Investment Adviser, Subadviser and
their advisory affiliates seek to purchase or sell the same assets for their
managed accounts, including the Fund, the assets actually purchased or sold may
be allocated among the accounts on a basis determined in the good faith
discretion of such entities to be equitable. In some cases, this system may
adversely affect the size or the price of the assets purchased or sold for the
Fund.
B-20
<PAGE>
From time to time, the Fund's activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Investment Adviser and Subadviser
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Investment Adviser,
Subadviser and/or their affiliates are performing services or when position
limits have been reached.
In connection with their management of the Fund, the Investment Adviser and
Subadviser may have access to certain fundamental analysis and proprietary
technical models developed by Goldman Sachs, Aron and other affiliates. The
Investment Adviser and Subadviser will not be under any obligation, however, to
effect transactions on behalf of the Fund in accordance with such analysis and
models. In addition, neither Goldman Sachs nor any of its affiliates will have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Fund and it
is not anticipated that the Investment Adviser and Subadviser will have access
to such information for the purpose of managing the Fund. The proprietary
activities or portfolio strategies of Goldman Sachs and its affiliates or the
activities or strategies used for accounts managed by them or other customer
accounts, could conflict with the transactions and strategies employed by the
Investment Adviser and Subadviser in managing the Fund.
The results of the Fund's investment activities may differ significantly
from the results achieved by the Investment Adviser, Subadviser 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 the Fund. Moreover, it is possible that the Fund will
sustain losses during periods in which Goldman Sachs and its affiliates achieve
significant profits on their trading for proprietary or other accounts. The
opposite result is also possible.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding the Fund's activities,
but will not be involved in the day-to-day management of the Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities,
currencies and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Investment Adviser and Subadviser 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 Fund should be aware.
The Investment Adviser and Subadviser may enter into transactions and
invest in currencies or other instruments on behalf of the Fund in which
customers of Goldman Sachs serve as the counterparty, principal or issuer. In
such cases, such party's interests in the transaction will be adverse to the
interests of the Fund, and such party may have no incentive to assure that the
Fund obtains the best possible prices or terms in connection with the
transactions. Goldman Sachs and its affiliates may also create, write or issue
derivative instruments for customers of Goldman Sachs or its affiliates, the
underlying securities, currencies or instruments of which may be those in which
the Fund invests or which may be based on the performance of the Fund. The Fund
may, subject to applicable law,
B-21
<PAGE>
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 Fund. The Fund will deal
with Goldman Sachs and its affiliates on an arm's-length basis.
The Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with the Fund's establishment of its business relationships, nor is
it expected that the Fund's counterparties will rely on the credit of Goldman
Sachs or any of its affiliates in evaluating the Fund's creditworthiness.
DISTRIBUTOR AND THE TRANSFER AGENT
Goldman Sachs serves as the exclusive distributor of shares of the Fund
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust dated February 1, 1993. Pursuant to the distribution agreement,
after the Prospectus 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 offering the shares 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 shares of the Fund. Goldman Sachs
received a portion of the sales load imposed on the sale of Fund shares and has
advised the Fund that it retained approximately $2,317,000, $922,000 and
$350,000 during the fiscal years ended October 31, 1992, October 31, 1993 and
October 31, 1994, respectively.
Goldman Sachs serves as transfer and dividend disbursing agent for the
Fund. Goldman Sachs has undertaken with the Trust with respect to the Fund to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and monthly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian in connection with redemptions, (iv) provide dividend crediting and
certain disbursing agent services, (v) maintain shareholder accounts, (vi)
provide certain state Blue Sky and other information, (vii) provide shareholders
and certain regulatory authorities with tax related information, (viii) respond
to shareholder inquiries and (ix) render certain other miscellaneous services.
As compensation for the services rendered to the Fund 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 (i) a fee
with respect to Class A Shares 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) and (ii) a fee with respect
to each of the Institutional and Administration Shares equal to 0.04% (on an
annualized basis) of the average daily net assets attributable to such class.
For the fiscal years ended October 31, 1992, October 31, 1993 and October 31,
1994, the Fund incurred transfer agency fees of $126,698, $127,834 and $132,123,
respectively.
The foregoing distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
B-22
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN
As described in its Prospectus, the Fund has adopted a distribution plan
(the "Plan") pursuant to Rule 12b-1 under the Act. See "Distribution Plan" in
the Prospectus.
The Plan was most recently approved on April 26, 1995 by a 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 operation of the Plan, cast in person at a meeting called for
the purpose of voting on the Plan. The Plan was approved by the shareholders of
the Fund on December 5, 1991.
The compensation payable under the Plan may not exceed 0.50% per annum of
the Fund's average daily net assets of the Fund, of which up to 0.25% may be for
personal and account maintenance services. Currently, the amount of such fee
has been voluntarily limited by Goldman Sachs to 0.25% of the Fund's average
daily net assets. Goldman Sachs has no current intention of modifying or
discontinuing such limitation, but may do so in the future at its discretion.
For the fiscal year ended October 31, 1994, the Fund paid to Goldman Sachs
distribution fees of $1,518,814. Had Goldman Sachs' voluntary limitation not
been in effect, the Fund would have paid Goldman Sachs $3,037,628.
As set forth above, it is intended that the Fund will pay 0.25% per annum
of its average daily net assets to Goldman Sachs for distribution and personal
and account maintenance activities on behalf of the Fund in connection with the
sale of the Fund's shares. Goldman Sachs may pay up to the entire amount of
such fee to Authorized Dealers for providing services in connection with the
sale of the 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
of distributing the 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 the Plan were terminated by the Board of Trustees and no successor plan were
adopted, the Trustees would cease to make payments to Goldman Sachs under the
Plan and Goldman Sachs would be unable to recover the amount of any of its
unreimbursed distribution 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.
B-23
<PAGE>
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.
<TABLE>
<CAPTION>
Compensation and Printing and Mailing of
Expenses of the Allocable Overhead, Prospectuses to Other Preparation and
Compensation Distributor and its Sales Telephone and Travel than Current Distribution of Sales
to Dealers Personnel Expenses Shareholders Literature and Advertising
------------ ------------------------- -------------------- ----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year $49,202 $1,554,257 $657,000 $50,572 $50,481
ended October
31, 1994
</TABLE>
B-24
<PAGE>
Under the Plan, Goldman Sachs, as distributor of the Fund's 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 Plan and the purposes for which such services were
performed and expenditures were made.
The Plan will remain in effect until June 1, 1996 and from year to year
thereafter, provided such continuance is approved annually by a vote of 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 Plan (the "non-interested Trustees"). The Plan may not be
amended to increase materially the amount to be spent for the services described
therein as to the Fund without approval of a majority of the outstanding voting
securities of the Fund. All material amendments of the Plan must also be
approved by the Board of Trustees of the Trust in the manner described above.
The Plan may be terminated at any time without payment of any penalty by a vote
of a majority of the "non-interested" Trustees or by vote of a majority of the
outstanding voting securities of the Fund. So long as the Plan is in effect,
the selection and nomination of "non-interested" Trustees shall be committed to
the discretion of the "non-interested" Trustees. The Board of Trustees of the
Trust have determined that in their judgment there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders.
AUTHORIZED DEALER SERVICE PLAN
The 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 the provision of personal and account maintenance services. The
Service Plan has been approved by the Board of Trustees, including a majority of
the non-interested Trustees who have no direct or indirect financial interest in
the Service Plan, at a meeting held on April 26, 1995. The Fund's Service Plan
provides for the compensation for personal and account maintenance services at
an annual rate of up to 0.25% of the Fund's average daily net assets
attributable to its Class A Shares.
The Service Plan will remain in effect until June 1, 1996 and from year to
year thereafter, provided that the continuance of each service plan is approved
annually by a majority vote of the Trustees of the Trust, including a majority
of the non-interested Trustees who have no direct or indirect financial interest
in the Service Plan. All material amendments of the Service Plan must also be
approved by the Trustees of the Trust in the manner described above. The
Service Plan may be terminated at any time as to the Fund without payment of any
penalty by a vote of a majority of the non-interested Trustees of the Trust or
by vote of a majority of the outstanding voting securities of the Fund. The
Trustees of the Trust have determined that in their judgement there is a
reasonable likelihood that the Service Plan will benefit the Fund and its
shareholders.
EXPENSES
Except as set forth in the Fund's Prospectus under "Management-Investment
Adviser, Subadviser and Administrator," the Trust, on behalf of the Fund, is
responsible for the payment of the Fund's expenses. The expenses borne by
Institutional, Administration and Class A Shares of the Fund include, without
limitation, the fees payable to GSAM, GSAM International and Goldman Sachs, the
fees and expenses to 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
B-25
<PAGE>
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 GSAM or GSAM International
with respect to the Trust), expenses of preparing and setting in type
prospectuses, statements of additional information, proxy material, reports and
notices and the printing and distributing of the same to the Trust's
shareholders and regulatory authorities, any fees under administration,
distribution or authorized dealer service plans, any compensation and expenses
of the Trust's "non-interested" Trustees and extraordinary expenses, if any,
incurred by the Trust. Except for any transfer agency fees or fees under
administration, distribution and authorized dealer service plans, all Fund
expenses are borne on a non-class specific basis.
GSAM and GSAM International voluntarily have agreed to reduce or otherwise
limit certain Other Expenses of the Fund (excluding transfer agency fees
estimated to be 0.04% of average daily net assets, 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 Investment 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.
GSAM and GSAM International have also each agreed that if, in any fiscal
year, the sum of the Fund's expenses (including the fee payable to the
Investment Adviser and Subadviser, but excluding taxes, interest, brokerage
commissions, distribution expenses 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.
CUSTODIAN AND SUB-CUSTODIANs
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, is the custodian of the Fund's portfolio securities
and cash. State Street also maintains the Fund's accounting records. State
Street may appoint sub-custodians from time to time to hold certain securities
purchased by the Fund in foreign countries and to hold cash and currencies for
the Fund.
INDEPENDENT PUBLIC ACCOUNTANTS
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 Fund's federal
and state tax returns and provides consultation and assistance on accounting,
internal control and related matters.
B-26
<PAGE>
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Fund are generally effected at a
net price without a broker's commission (i.e., a dealer is dealing with the 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 Fund may invest are traded on
exchanges at fixed commission rates. In connection with portfolio transactions,
the Fund's Advisory and Subadvisory Agreements provide that the Fund's
Investment Adviser and Subadviser shall attempt to obtain the best net price and
the most favorable execution. The Advisory Agreement provides that, on
occasions when the Investment Adviser deems the purchase or sale of a security
to be in the best interests of the Fund as well as its other customers
(including any other fund or other investment company or advisory account for
which the Investment Adviser or an affiliate acts as investment adviser), the
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 Investment Adviser in the manner it considers to be most equitable
and consistent with its fiduciary obligations to the Fund and such other
customers. In some instances, this procedure may adversely affect the size of
the position obtainable for the Fund. To the extent that the execution and
price offered by more than one dealer are comparable, the Advisory Agreement and
Subadvisory Agreement of the Fund permit the Investment Advisers, in their
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 Investment Advisory Agreement and Subadvisory Agreement are not reduced by
reason of the Investment Adviser receiving such brokerage and research services.
For the fiscal year ended October 31, 1994, the Fund paid no brokerage
commissions.
During the fiscal year ended October 31, 1994, the Fund acquired and
sold securities of its regular broker-dealers: Nomura Securities International,
Chemical Securities, UBS Securities, Inc., J.P. Morgan & Co. Inc., Bankers Trust
Company, Lehman Brothers, Inc., Nikko Securities, Inc., Morgan Stanley & Co.,
Smith Barney Shearson and Salomon Brothers, Inc. As of October 31, 1994, the
Fund held no securities of its regular broker/dealers, as defined in Rule 10b-1
under the Act, or their parents.
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
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 Fund and six other series. The Trust
Agreement further authorizes the Board of Trustees to classify or reclassify any
series or portfolio of shares into one or more classes. The Trustees have
authorized shares of three classes of the Fund: Institutional Shares,
Administration Shares and Class A Shares. Each class is subject to different
fees and expenses, which will be borne exclusively by that class, has different
minimum investment requirements and is entitled to different services. All Fund
expenses are based on a percentage of the
B-27
<PAGE>
Fund's average net assets. Information regarding each class may be obtained by
calling the number on the cover page of this Additional Statement. At October
31, 1994, no Institutional or Administration Shares had been issued. Each share
of the Fund represents an equal proportionate interest in the assets belonging
to the Fund.
Fund shares when issued, are fully paid and non-assessable. In the
event of liquidation, shareholders are entitled to share pro rata in the net
assets of the 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.
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.
As of December 31, 1994, Goldman Sachs Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, 85 Broad Street, 7th Floor, New York,
New York was the holder of 8% of the Fund's outstanding shares.
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 Fund. In
accordance with procedures adopted by the Trustees of the Trust, the net asset
value per share of each class is calculated by determining the net assets
attributable to each class of the Fund (assets, including securities at value,
minus liabilities) divided by the number of outstanding shares of that class.
The Fund will compute its net asset value once daily at 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).
B-28
<PAGE>
For the purpose of calculating the net asset value of the Fund, debt
securities, other than money market instruments, 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 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.
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 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 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
GENERAL
The following is a summary of the principal U.S. federal income and
certain other tax considerations regarding the purchase, ownership and
disposition of shares in the Fund. This summary does not address special tax
rules applicable to certain classes of investors, such as tax-exempt entities,
insurance companies and financial institutions. Prospective investors are urged
to consult their own tax advisers with respect to the specific federal, state,
local and foreign tax consequences of investing in the Fund. The summary is
based on the laws in effect on the date of this Additional Statement, which are
subject to change.
The Fund is treated as a separate entity for tax and accounting
purposes, has qualified and elected to be treated as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to continue to qualify for such treatment for each taxable year. To so
qualify, the Fund must, among other things: (a) derive at least 90% of its gross
income for each
B-29
<PAGE>
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies (the "90% gross income test"); (b)
derive less than 30% of its gross income for each taxable year 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 (or options, futures or forward contracts on foreign
currencies) but only if such currencies (or options, futures or forward
contracts) are not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stock
or securities) (the "short-short test"); and (c) diversify its holdings so that,
at the end of each quarter of the Fund's taxable year, the following two
conditions are met: (i) at least 50% of the market value of the Fund's total
(gross) assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to an amount not greater in market value than 5%
of the market value of the Fund's total (gross) assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government securities or 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 the
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
disposition 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 the Fund's principal business of investing in stock
or securities or options and futures with respect to stock or securities. Using
foreign currency positions or entering into foreign currency options, futures
and forward or swap contracts for purposes other than hedging currency risk with
respect to securities in the Fund's portfolio or anticipated to be acquired may
not qualify as "directly-related" under these tests.
As a regulated investment company, the 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 for 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 all of the Fund's income and
gain , other than net capital gain (as defined below), and is reduced by
deductible expenses) and of any net tax-exempt interest. The 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 the
Fund retains any investment company taxable income or net capital gain, it will
be subject to federal income tax at regular corporate rates on the amount
retained. If the Fund retains any net capital gain, the Fund may designate the
retained amount as undistributed capital gains in a notice to its shareholders
who, if subject to U.S. federal income tax on long-term capital gains, (i) will
be required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Fund
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities. For U.S. federal income tax
purposes, the tax basis of shares owned by a shareholder of the Fund will be
increased by an amount equal under current law to 65% of the amount of
undistributed net capital gain included in the shareholder's gross income. The
Fund intends to distribute at least annually to its shareholders an amount at
least equal to its investment company taxable income and net capital gain, as
determined under the Code. Exchange control or other foreign laws, regulations
or practices may restrict
B-30
<PAGE>
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the Fund and may therefore make it more difficult
for the Fund to satisfy the distribution requirements described above, as well
as the excise tax distribution requirements described below. However, the Fund
generally expects to be able to obtain sufficient cash to satisfy such
requirements from new investors, the sale of securities or other sources. If
for any taxable year the Fund fails to qualify for treatment as a regulated
investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
The Fund has received a private letter ruling from the Internal
Revenue Service which confirms that its issuance of multiple classes of shares
will not adversely affect its tax status and the tax treatment of its
distributions.
In order to avoid a 4% federal excise tax, the Fund must distribute or
be deemed to have distributed by December 31 of each calendar year at least 98%
of its ordinary income for such year, at least 98% of the excess of its capital
gains over its capital losses (generally computed on the basis of the one-year
period ending on October 31 of such year) and all ordinary income and the excess
of capital gains over capital losses for the previous year that were not
distributed for such year and on which the Fund paid no federal income tax. The
Fund intends to make timely distributions of its income and capital gains in
compliance with these requirements. As a result, it is anticipated that the
Fund generally will not be required to pay the excise tax.
For federal income tax purposes, dividends declared by the 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.
For federal income tax purposes, the Fund is permitted to carry
forward a net capital loss in any year to offset its net capital gains, if any,
during the eight years following the year of the loss. At October 31, 1994, the
Fund had $18,599,348 of capital loss carryforwards for U.S. federal tax
purposes. This amount is available to be carried forward to offset future
capital gains to the extent permitted by applicable laws or regulations. The
capital loss carryforward expires in 2002.
The Fund's transactions in options, futures contracts and forward
contracts will be subject to special tax rules that may affect the amount,
timing and character of distributions to shareholders. For example, certain
positions held by the Fund on the last business day of each taxable year will be
marked to market (i.e., treated as if closed out on such day), and any resulting
gain or loss will generally be treated as 60% long-term and 40% short-term
capital gain or loss or, in the case of certain currency-related positions, as
ordinary income or loss. These provisions may require the Fund to recognize
income or gains without a concurrent receipt of cash. Certain positions held by
the Fund that substantially diminish the Fund's risk of loss with respect to
other positions in its portfolio may constitute "straddles," which are subject
to tax rules that may cause deferral of Fund losses, adjustments in the holding
periods of Fund securities and conversion of short-term into long-term capital
losses. The Fund may have to limit its activities in options, futures contracts
and forward contracts in order to maintain its qualification as a regulated
investment company, and the applicable tax rules may affect the amount, timing
and character of the Fund's distributions to shareholders. Certain tax
elections may be available to the Fund to mitigate some of the unfavorable
consequences described in this paragraph.
The Fund may be subject to foreign taxes on its income (possibly
including, in some cases, capital gains) derived from foreign securities. These
taxes may be reduced or eliminated under the
B-31
<PAGE>
terms of an applicable U.S. income tax treaty. The Fund will be eligible to
elect to pass qualified foreign taxes through to shareholders, who may then be
entitled to foreign tax credits or deductions for their shares of qualified
foreign taxes paid by the Fund, if more than 50% of the value of the total
assets of the Fund at the close of any taxable year consists of stocks or
securities issued by foreign corporations.
In the event such an election is made, shareholders will be required
to include their pro rata share of foreign taxes paid by the Fund that are
treated as income taxes under U.S. tax regulations (which excludes, for example,
stamp taxes, securities transaction taxes, and similar taxes) in gross income
(in addition to taxable dividends actually received) and treat such share as
foreign taxes paid by them, for which they may then be entitled to claim a
foreign tax credit or deduction subject to certain conditions and limitations
under the Code.
If the Fund makes this election, its shareholders may then deduct such
pro rata portions of qualified foreign taxes in computing their taxable incomes,
or, alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. federal income taxes. Shareholders who do not
itemize deductions for federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their shares of such taxes in gross
income if the election is made.
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 the 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 the 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 the Fund may not be able to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Fund.
Shareholders who are not liable for U.S. income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year
that the Fund makes the election described above, its shareholders will be
notified of the amount of (i) each shareholder's pro rata share of qualified
foreign taxes paid by the Fund and (ii) the portion of Fund dividends which
represents income from each foreign country. If the Fund cannot or does not
make this election, it may deduct such taxes in computing its investment company
taxable income.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and investments that may affect the
amount, timing and character of income, gain or loss recognized by the Fund.
Under these rules, foreign exchange gains and losses realized by the Fund with
respect to foreign currencies, foreign currency-denominated debt securities,
certain foreign currency options, futures or forward contracts, and payables or
receivables denominated in a foreign currency generally will be treated as
ordinary income and losses rather than capital gains and losses, although in
some cases elections may be available that would alter this treatment. Certain
uses of foreign currency and related options, futures or forward contracts that
are not directly-related to the Fund's investment in stocks or securities (or
options or futures with respect thereto), including the use of foreign currency
forwards, options or futures and the holding of foreign currency for speculative
rather than hedging purposes, will be limited in order to enable the Fund to
maintain its qualification
B-32
<PAGE>
as a regulated investment company. The Federal income tax rules applicable to
currency and interest rate swaps, floors, caps and collars are unclear in
certain respects, and the Fund may also be required to limit its transactions in
these instruments. The Fund may also limit its equity investments in certain
"passive foreign investment companies" and make a tax election, if available, or
adopt certain other strategies to avoid the imposition of a tax on the Fund with
respect to such investments.
The Fund's investment in zero coupon securities, deferred interest
securities, payment in kind securities, certain structured securities or other
securities with original issue discount or, if the Fund elects to include market
discount in income currently, market discount will generally cause it to realize
income prior to the receipt of cash payments with respect to these securities.
The mark to market rules described above may also require that income or gain be
recognized prior to the receipt of cash. In order to distribute this income or
gains, maintain its qualification as a regulated investment company, and avoid
federal income or excise tax on the Fund, the Fund may be required to liquidate
portfolio securities that it might otherwise have continued to hold.
U.S. SHAREHOLDER - DISTRIBUTIONS
Under the Code, distributions of net investment income, the excess of
net short-term capital gain over net long-term capital loss and certain net
foreign exchange gains are taxable to shareholders who are subject to tax as
ordinary income whether paid in cash or reinvested in additional shares. Net
investment income of the Fund (from the time of the immediately preceding
determination thereof) consists of the excess of (A) the sum of (i) accrued
interest or amortized discount on certain portfolio securities and (ii) any
income of the Fund from sources other than capital gains (including certain net
foreign currency gains) over (B) the sum of (i) amortized premium on certain
portfolio securities and (ii) the estimated expenses of the Fund applicable to
the period. Certain foreign currency losses, if any, that are taken into
account in determining net investment income for accounting purposes may not be
taken into account in determining the amount of income to be distributed, as
described above.
It is expected that no portion of the Fund's dividends or other
distributions will ordinarily qualify for the dividends-received deduction for
corporations because qualifying distributions may be made only from the Fund's
dividend income from stock in U.S. domestic corporations. The dividends-
received deduction 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 a corporate
shareholder's shares and may increase alternative minimum tax liability.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gains,
whether received in cash or in additional shares and regardless of the length of
time their shares of the Fund have been held.
Shareholders receiving a distribution in the form of newly issued
shares will be treated for U.S. Federal income tax purposes as receiving a
distribution in an amount equal to the amount of cash they would have received
had they elected to receive cash and will have a cost basis in each share
received equal to such amount divided by the number of shares received.
In determining the amount to be distributed, the Fund may determine
not to take into account net currency losses, if any, with the result that its
distributions for a year may exceed the sum of its earnings and profits for such
year and its accumulated earnings and profits, if any. Consequently, a portion
of such distributions may be a return of capital, nontaxable to the extent of a
shareholder's tax
B-33
<PAGE>
basis in its shares and, to the extent such basis is exceeded, generally being
treated as a taxable capital gain.
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.
U.S. SHAREHOLDERS - SALE OF SHARES
Any gain or loss realized upon a sale, redemption or exchange of
shares by a shareholder who holds the shares as capital assets will be treated
as a long-term capital gain or loss if the shares have been held for more than
one year, and otherwise generally as short-term capital gain or loss. However,
any loss realized upon the exchange or redemption of shares with a tax holding
period of 6 months or less will be treated as a long-term capital loss to the
extent of any distribution of net long-term capital gains with respect to such
shares. All or a portion of any sales load paid upon the purchase of shares of
the Fund will not be taken into account in determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent the redemption proceeds are reinvested or the exchange is effected
without payment of an additional sales load pursuant to the reinvestment or
exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. All or a portion of any loss realized upon
a taxable disposition of Fund shares may be disallowed under "wash sale" rules
if other shares of the Fund are purchased (whether through the reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after such disposition.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
all 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 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 withholding of Federal income tax
at the rate of 31% in the case of nonexempt shareholders who fail to furnish the
Fund with their taxpayer identification number and with certain required
certifications or if the Internal Revenue Service or a broker notifies the Fund
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. The 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 advisors about the
applicability of the backup withholding provisions.
All distributions, whether received in shares or cash, as well as
redemptions and exchanges, must be reported by each taxable shareholder on the
shareholder's Federal income tax return.
B-34
<PAGE>
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 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
the Fund which are designated as undistributed capital gains, to a shareholder
who is a non-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 the 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 a non-U.S. person upon a
sale or redemption of shares of the Fund will not be subject to U.S. federal
income or nonresident alien 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 the Fund with an IRS Form W-8 or
acceptable substitute (and to renew such form when it expires) may be subject to
backup withholding at the rate of 31% on capital gain dividends and the proceeds
of redemptions and exchanges. See "Backup Withholding" herein. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Fund.
STATE AND LOCAL TAXES
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those states
or localities which have income tax laws, the treatment of the Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in the Fund may have tax consequences for
shareholders different from those of a direct investment in the Fund's portfolio
securities. Shareholders should consult their own tax advisers concerning these
matters.
PERFORMANCE INFORMATION
The Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Thirty-day yield and average annual total return values are computed pursuant to
formulas specified by the Securities and Exchange Commission. The Fund may also
from time to time quote distribution rates in reports to shareholders and sales
literature.
B-35
<PAGE>
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.
Distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the annual compounded rate of return required to make a $1,000
investment (made at the maximum public offering price with all distributions
reinvested) at the beginning of such period equal to the actual total value of
such investment at the end of such period. Year-by-year total return and
cumulative total return for a specified period are each derived by calculating
the percentage rate required to make a $1,000 investment (made at the maximum
public offering price with all distributions reinvested) at the beginning of
such period equal to the actual total value of such investment at the end of
such period.
The following tables present thirty-day yield, distribution rate,
cumulative total return and average annual total return (capital plus
reinvestment of all distributions) for Class A Shares for the periods indicated.
Thirty-day yield, distribution rate, cumulative total return and average annual
total return are calculated separately for each class of shares of the Fund.
Each class of shares of the Fund is subject to different fees and expenses and
may have different returns for the same period. There were no Institutional
Shares or Administration Shares outstanding during the periods presented below.
Institutional Shares and Administration Shares are sold at net asset value
without the imposition of a sales charge. The following tables represent
historical performance data for the Class A Shares of the Fund only and do not
give effect to GSAM's and GSAM International's agreements (which were not in
effect during the periods shown in the following tables) to limit their advisory
and subadvisory fees and to reduce certain other expenses.
B-36
<PAGE>
FUND'S YIELD - CLASS A SHARES
<TABLE>
<CAPTION>
Investment Pro-Forma*
Period Yield Yield
------ ----- ----------
<S> <C> <C>
30-Days
ended
10/31/94 Assumes 4.5% sales charge 6.20% 5.96%
--------
</TABLE>
DISTRIBUTION RATE - CLASS A SHARES
<TABLE>
<CAPTION>
Investment Distribution Pro-Forma*
Period Rate Distribution Rate
------ ------------- ------------------
<S> <C> <C>
30-Days
ended
10/31/94 Assumes 4.5% sales charge 6.06% 5.82%
-------- Assumes no sales charge 6.34% 6.09%
</TABLE>
The above table should not be considered a representation of future
performance.
* Pro-forma yield and distribution rate are calculated as if the Distributor
had not voluntarily agreed to limit its fees pursuant to the Fund's Plan.
B-37
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Ending Redeem-
able Value
Investment Investment Amount of Investment
Date Period Invested at Period End Cumulative Average Annual
---------- ---------- -------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
8/2/91* ended 10/31/94 $1,000
Assumes 4.5% Sales Charge $1,120.69 12.07% 3.57%
Assumes No Sales Charge $1,173.50 17.35% 5.04%
4.5% Sales Charge and No Fee Waivers $1,111.60 11.16% 3.31%
No Sales Charge or Fee Waivers $1,164.01 16.40% 4.78%
11/1/93 ended 10/31/94 $1,000
Assumes 4.5% Sales Charge $ 912.15 -8.79% -8.79%
Assumes No Sales Charge $ 955.05 -4.49% -4.49%
4.5% Sales Charge and No Fee Waivers $ 909.79 -9.02% -9.02%
No Sales Charge or Fee Waivers $ 952.66 -4.73% -4.73%
</TABLE>
________________________
* Commencement of investment operations.
The above table should not be considered a representation of future
performance. 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.
B-38
<PAGE>
Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to compare a fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
From time to time the Fund may publish an indication of its past
performance as measured by independent sources, such as (but not limited to),
Barron's, The Wall Street Journal, Weisenberger Investment Companies Service,
-------- ----------------------- -----------------------------------------
Business Week, Changing Times, Financial World, Forbes, Fortune, Lipper
------------- -------------- --------------- ------ ------- ------
Analytical Services, Incorporated, Donoghue's Money Fund Report, The New York
--------------------------------- ---------------------------- ------------
Times, Personal Investor, Sylvia Porter's Personal Finance, and Money. The Fund
----- ----------------- --------------- ---------------- -----
may also advertise information which has been provided to the National
Association of Securities Dealers, Inc. for publication in regional and local
newspapers. In addition, the 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 such indices and the characteristics of such benchmark
investments are not identical to, and in some cases may be very different from,
those of the Fund's portfolio. These indices and averages, as well as the
averages set forth in Appendix B, are generally unmanaged and the items included
in the calculations of such indices and averages may not be identical to the
formulas used by the Fund to calculate its performance figures.
From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
The Fund may also from time to time summarize the substance of
discussions contained in shareholder reports in advertisements and publish the
Investment Adviser's or Subadviser's views as
B-39
<PAGE>
to markets, the rationale for the Fund's investments and discussions of the
Fund's current asset allocation.
The Fund's performance data will be based on historical results and is
not intended to indicate future performance. The Fund's total return, thirty-
day yield and distribution rate will vary based on market conditions, portfolio
expenses, portfolio investments and other factors. The value of the 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 the Fund's holdings available to investors upon
request.
OTHER INFORMATION
Shares of the Fund are sold at a maximum sales charge of 4.5%. Using
the offering price as of October 31, 1994, the maximum offering price of the
Fund's shares would be as follows:
<TABLE>
<CAPTION>
<S> <C>
Net Asset Value $13.43
Maximum Sales Charge $ 0.63
Offering Price to Public $14.06
</TABLE>
The Trust assumed its current name on March 22, 1991. Prior thereto,
the Trust's name was "Goldman Sachs--Short-Intermediate Government Fund."
Goldman Sachs has licensed the name "Goldman Sachs" and derivatives thereof to
the Trust (and the 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 with GSAM
and the Subadvisory Agreement with GSAM and GSAM International are no longer in
effect, the Trust has agreed that it will (to the extent it lawfully can) cease
using the name "Goldman Sachs."
The right of a shareholder to redeem shares and the date of payment by
the Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
Securities and Exchange Commission; or during any emergency, as determined by
the Securities and Exchange Commission, as a result of which it is not
reasonably practicable for the Fund to dispose of securities owned by it or
fairly to determine the value of its net assets; or for such other period as the
Securities and Exchange Commission may by order permit for the protection of
shareholders of the Fund.
The Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. The Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from the
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 with respect to the
securities offered thereby. Certain portions of the Registration Statement have
been omitted from the Prospectus and this Additional Statement pursuant to the
rules and regulations
B-40
<PAGE>
of the Securities and Exchange Commission. The Registration Statement including
the exhibits filed therewith may be examined at the office of the Securities and
Exchange Commission in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen
LLP contained in the Fund's Annual Report are hereby incorporated by reference
and attached hereto. A copy of this Annual Report 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.
B-41
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
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 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.
Standard & Poor's Ratings Group
-------------------------------
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 rated A-2 by Standard & Poor's is described as having a strong
degree of safety regarding timely payment.
1-A
<PAGE>
Fitch Investors Service, Inc.
-----------------------------
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+".
Duff & Phelps
-------------
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-A
<PAGE>
APPENDIX B
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.
CREDIT RATINGS FOR GOVERNMENT BONDS
-----------------------------------
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.
<TABLE>
<CAPTION>
Country Moody's S & P
------- ------- -----
<S> <C> <C>
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
</TABLE>
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-B
<PAGE>
APPENDIX B (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.
<TABLE>
<CAPTION>
Worst Performance Best Performance USA Performance
----------------- ---------------- ---------------
<S> <S> <C> <C> <C> <C>
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%
---------------------
</TABLE>
* Based on data for the United States and seven major countries.
Source: Salomon Brothers
2-B
<PAGE>
APPENDIX B (CONTINUED)
YIELD OF 5-YEAR GOVERNMENT BONDS AS OF SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Country Yield
------- -----
<S> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Country Percentage
------- ----------
<S> <C>
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
</TABLE>
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
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.
3-B
<PAGE>
APPENDIX C
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-C
<PAGE>
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.*
* According to Securities Data Corporation. Ranking
----------------------------------------
excludes REITS, Trusts, Rights and Closed-end Fund Offerings.
2-C
<PAGE>
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-C
<PAGE>
--------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
----------------------------------- -------------------------------------------
DEAR SHAREHOLDERS:
On behalf of Goldman Sachs, we welcome this opportunity to review the
performance and activity of the Goldman Sachs Global Income Fund for the 12-
month period ended October 31, 1994. In this letter, we will also discuss the
turbulence in the global bond markets this year and describe how it has affected
the fund.
To review briefly, the investment objective of the Goldman Sachs Global Income
Fund is to generate a high total return, composed of both current income and
capital appreciation. The fund may invest in government and other high-quality
(double-A or better), fixed income securities issued in the U.S. and in foreign
markets. The fund also engages in currency transactions to hedge exchange rate
risk and enhance return where possible.
HIGHER INTEREST RATES AFFECTED BOND MARKETS WORLDWIDE
The 12-month period starting November 1, 1993 began relatively well. With the
exception of U.S. bond prices, which had already shown signs of weakness, world
bond prices actually rose during November and December of 1993. However, 1994
marked a reversal of that trend, as short-term bond yields began to rise much
more rapidly than expected in Europe. The pace and severity of the short-term
increases affected long-term bond yields as well, causing bond prices to decline
rapidly. The dramatic rise in short-term bond yields did not logically follow
from the economic fundamentals. More specifically, the recovery in Europe was
driven by external demand while domestic demand remained weak and unemployment
levels remained high. This and other factors have kept inflation levels in
Europe low.
The economic picture was quite different in the U.S. A robust recovery, char-
acterized by healthy economic growth, strong corporate earnings, decreasing
unemployment, high plant capacity utilization and rising commodity prices,
coupled with a weakening dollar, caused the Federal Reserve to raise the federal
funds rate (the rate banks charge one another for overnight loans) five times by
a total of 1.75% to 4.75% during the period under review. Long-term interest
rates also rose, with the yields on 30-year U.S. Treasury bonds increasing from
5.79% to just over 8.00% by the end of October.
In Japan, the government stepped in with an aggressive fiscal stimulus program
that resulted in some patchy economic recovery; consumer demand remains weak in
Japan while export demand is relatively strong. During the 12 months ended
October 31, the yield on Japanese 10-year government bonds rose approximately 1%
to 4.6%.
THE FUND'S PERFORMANCE
For the 12-month period ended October 31, the fund's total return was -4.49%
based on net asset value (NAV) (6.86% from monthly distributions and -11.35%
from share price depreciation) compared with a return of -3.66% for the fund's
benchmark, the J. P. Morgan Global Government Bond Index (hedged into U.S. dol-
lars).
The Index, which has a duration of approximately five years, covers 14 major
bond markets and reflects their currency exposures. Under normal market condi-
tions, we expect to hedge the majority of the fund back to U.S. dollars to best
serve the needs of U.S. shareholders.
The sharp decline in world bond prices described above affected the fund and
the benchmark's performance. The fund underperformed the Index
----------------------------------- -------------------------------------------
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
--------------------------------------- ---------------------------------------
primarily because a greater percentage of its portfolio was invested in Euro-
pean bonds (43% versus 26.7% for the Index), which underperformed during the
first half of the period under review.
<TABLE>
<CAPTION>
The Portfolio's Bond Allocation
as of October 31, 1994
---------------------------------------
<S> <C>
Cash 3.5%
Australia 5.9%
Japan 8.6%
Canada 10.0%
Germany 3.1%
Italy 10.0%
France 13.8%
U.K. 16.2%
U.S. 28.9%
</TABLE>
. As of October 31, the fund's largest single-country position (28.9%) was in
U.S. bonds, about half the weight of the Index. This underweighting was
part of our defensive strategy in anticipation of further U.S. rate
increases.
. Just over 43% of the portfolio was invested in European bonds. We were sig-
nificantly overweighted in Italy (10.0% versus 4.6% for the Index), the
U.K. (16.2% versus 5.9% for the Index) and France (13.8% versus 7.2% for
the Index). But we were underweighted in Germany (3.1% versus 9.1% for the
Index).
. We added a new position of 5.9% in Australian bonds and maintained a
position of 10.0% in Canadian bonds based on our view that they offer
attractive potential based on their economy's subdued inflation and excess
capacity. We expect Canada and Australia to outperform the U.S. in the
coming months.
. In Japan, our portfolio weighting of 8.6% was approximately one-third lower
than that of the Index, reflecting our opinion that the 4.6% yield on 10-
year Japanese government bonds offers little protection against inflation
as the Japanese economy recovers.
. We maintained a cash position of 3.5% (in U.S. dollars) as a defensive po-
sition to protect the fund against further price declines in the world bond
markets.
. To help protect shareholder capital, we reduced the fund's duration from
3.20 years to 2.36 years compared with 4.62 years for the Index. (Duration
is a measurement of the fund's sensitivity to interest rate movements; the
lower the duration, the less the fund's NAV will move in relation to
interest rate fluctuations.)
. We have emphasized high credit quality: over 90% of the portfolio is in-
vested in securities with triple-A credit quality. With credit spreads
tight, we do not believe investors are being adequately compensated for
taking additional risk. In addition, higher quality securities generally
provide better liquidity in a rising rate environment.
. Currency Strategies: On the positive side, we correctly anticipated that
British pounds would appreciate relative to deutsche marks, which resulted
in profits for the fund. However, several other strategies were somewhat
less successful. Last October, based on our bullish view that the U.S.
dollar would appreciate
--------------------------------------- ---------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
-------------------------------------- ----------------------------------------
against European currencies, the portfolio was 10% overweighted in U.S.
dollars versus the Index. The U.S. dollar weakened significantly starting in
February. In addition, we were "long" in Italian lira and Swedish krona
versus the deutsche mark, believing both those currencies would appreciate
more. Instead, the central banks in Italy and Sweden unexpectedly raised
interest rates in June and July, stunning the market. Italy's government was
concerned about its inability to control its money supply and deficit, while
Sweden's actions were prompted by a much more robust economy than expected,
due to a sharp increase in exports to Europe and the Far East.
. Distribution Policy: During the period under review, the fund paid out
distributions of $0.99 per share, $0.61 of which was a return of capital as
a result of currency losses. The fund distributes substantially all of its
taxable income as is required for all investment companies.
OUR ECONOMIC OUTLOOK FOR THE GLOBAL MARKET
A strengthening worldwide economy and the need for capital to fuel growth are
likely to cause upward pressure on interest rates. As a result, the fund is
relatively defensively positioned. We are currently fully hedged back into U.S.
dollars. In the coming months, we will be looking for attractive opportunities
in France, the U.K. and Italy, while avoiding Sweden and Spain. In general, we
expect further volatility in 1995. In our opinion, the key to global bond mar-
kets lies in the U.S. If the Federal Reserve is successful in controlling in-
flationary pressures, the U.S. bond market will stabilize and other bond mar-
kets around the world, which are fundamentally more attractive, are likely to
rally.
In conclusion, we want to thank you for your support during this difficult pe-
riod. We will continue to do our best to find the most attractive relative
value in markets around the world.
Sincerely,
/s/ Stephen C. Fitzgerald
Stephen C. Fitzgerald
Portfolio Manager
Goldman Sachs Global Income Fund
London, December 15, 1994
-------------------------------------- ----------------------------------------
3
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1994. The
performance for the Goldman Sachs Global Income Fund ("GS Global Income")
(assuming both the maximum sales charge of 4.5% and no sales charge), is
compared to the J.P. Morgan Global Government Bond Index (unhedged--"J.P.
Morgan GGB Index" and hedged to U.S. Dollars "J.P. Morgan GGB Index--$
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
<TABLE>
<CAPTION>
GS Global Income GS Global Income
(w/sales charge) (no sales charge)
------------------------------------------------------------
<S> <C> <C>
9/1/91 $ 9,700 $10,000
10/31/91 $ 9,840 $10,144
10/31/92 10,703 11,034
10/31/93 11,853 12,220
10/31/94 11,321 11,671
</TABLE>
<TABLE>
<CAPTION>
J.P. Morgan GGB J.P. Morgan GGB
Index Index - $ Hedged
--------------------------------------------
<S> <C>
9/1/91 $10,000 $10,000
10/31/91 $10,467 $10,263
10/31/92 11,783 11,156
10/31/93 13,080 12,509
10/31/94 13,423 12,051
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------------------
One Year Since Inception/(b)/
-----------------------------------------------------------------
<S> <C> <C>
GS Global Income
excluding sales charge (4.49%) 5.04%
-----------------------------------------------------------------
GS Global Income
including sales charge (8.79%) 3.57%
-----------------------------------------------------------------
</TABLE>
(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 August 2, 1991.
--------------------------------------------------------------------------------
4
<PAGE>
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Trustees of Goldman Sachs Global Income Fund:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Global Income Fund (a portfolio of Goldman Sachs Trust, a Massa-
chusetts business trust), including the statement of investments, as of October
31, 1994, and the related statement of operations, the statements of changes in
net assets and the financial highlights for the periods presented. These finan-
cial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these finan-
cial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Oc-
tober 31, 1994 by correspondence with the custodian and brokers. As to securi-
ties purchased but not yet received, we requested confirmation from brokers
and, when replies were not received, we carried out alternative auditing proce-
dures. An audit also includes assessing the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall finan-
cial 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 Global Income Fund of the Goldman Sachs Trust as of October
31, 1994, the results of its operations, the changes in its net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts,
December 12, 1994
--------------------------------------------------------------------------------
5
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
October 31, 1994
-------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal
Amount(a) Description Value
-------------------------------------------------------------------------------
<C> <C> <S> <C>
DEBT OBLIGATIONS--93.9%
AUSTRALIAN DOLLARS--5.7%
Australia Commonwealth
AUD 33,650,000 9.00%, 09/15/04 $ 22,711,188
-------------------------------------------------------------------------------
BRITISH POUND STERLING--15.8%
United Kingdom Gilt
BPS 11,120,000 9.00%, 03/03/00 18,412,101
12,000,000 8.00%, 12/07/00 19,052,821
17,700,000 6.75%, 11/26/04 25,164,248
-------------------------------------------------------------------------------
62,629,170
-------------------------------------------------------------------------------
CANADIAN DOLLARS--9.8%
General Electric Capital Corp.
CAD 2,000,000 12.25%, 07/04/95 1,532,234
Government of Canada
55,500,000 7.50%, 12/01/03 37,215,774
-------------------------------------------------------------------------------
38,748,008
-------------------------------------------------------------------------------
DEUTSCHEMARKS--3.0%
Bundesschatzanw
DEM 17,200,000 8.75%, 12/20/95 11,805,558
-------------------------------------------------------------------------------
FRENCH FRANCS--13.4%
Government of France
FRF 148,500,000 8.50%, 03/28/00 29,616,369
120,000,000 8.50%, 04/25/03 23,669,094
-------------------------------------------------------------------------------
53,285,463
-------------------------------------------------------------------------------
ITALIAN LIRE--9.8%
Republic of Italy
ITL 19,000,000,000 12.00%, 10/01/95 12,472,740
28,500,000,000 12.00%, 09/01/97 18,728,775
11,000,000,000 9.00%, 10/01/98 6,662,040
1,500,000,000 8.50%, 04/01/99 876,030
-------------------------------------------------------------------------------
38,739,585
-------------------------------------------------------------------------------
JAPANESE YEN--8.3%
Japanese Development Bank
JPY 1,820,000,000 6.50%, 09/20/01 20,625,241
Oestereichische Kontrollbank
1,200,000,000 4.50%, 06/20/00 12,391,632
-------------------------------------------------------------------------------
33,016,873
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount(a) Description Value
-------------------------------------------------------------------------------
<C> <S> <C> <C>
UNITED STATES DOLLARS--28.1%
United Kingdom
USD 19,000,000 5.00%(b), 09/30/96 $ 18,977,200
United States Treasury Notes
18,750,000 6.88%, 07/31/99 18,307,688
46,550,000 8.50%, 11/15/00 48,644,750
28,200,000 6.25%, 02/15/03 25,648,746
-------------------------------------------------------------------------------
111,578,384
-------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(cost $370,074,345) $372,514,229
-------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS--3.4%
EURO-TIME DEPOSITS--3.4%
USD 13,415,827 State Street Bank & Trust Co.
4.69%, 11/01/94 $ 13,415,827
-------------------------------------------------------------------------------
TOTAL SHORT TERM OBLIGATIONS
(cost $13,415,827) $ 13,415,827
-------------------------------------------------------------------------------
TOTAL INVESTMENTS
(cost $383,490,172(c)) $385,930,056
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $ 6,909,911
Gross unrealized loss for investments in which cost exceeds value (4,470,027)
-------------------------------------------------------------------------------
Net unrealized gain $ 2,439,884
-------------------------------------------------------------------------------
</TABLE>
(a) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
AUD = Australian Dollars FRF = French Francs
BPS = British Pound Sterling ITL = Italian Lire
CAD = Canadian Dollars JPY = Japanese Yen
DEM = Deutschemarks USD = United States Dollar
(b) Floating rate security. Coupon rate disclosed is that which is in effect on
October 31, 1994.
(c) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentage shown for each investment category reflects the value of invest-
ments in that category as a percentage of total net assets.
-------------------------------------- ---------------------------------------
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(cost $383,490,172) $385,930,056
Receivables:
Investment securities sold 27,149,630
Interest 8,504,465
Forward foreign currency exchange contracts 2,322,619
Foreign tax withheld 290,273
Fund shares sold 87,695
Deferred organization expenses, net 107,650
Other assets 10,372
-------------------------------------------------------------------------------
TOTAL ASSETS 424,402,760
-------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 18,962,250
Forward foreign currency exchange contracts 5,557,825
Fund shares repurchased 2,671,824
Investment adviser fees 268,129
Administration fees 53,626
Distribution fees 88,473
Transfer agent fees 28,475
Accrued expenses and other liabilities 188,025
-------------------------------------------------------------------------------
TOTAL LIABILITIES 27,818,627
-------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital applicable to 29,518,871 outstanding shares, par
value $.001 per share (unlimited number of shares authorized) 414,558,869
Accumulated undistributed net investment income 1,318,755
Accumulated net realized loss on investment and option transac-
tions (18,599,348)
Accumulated net realized foreign currency gain 125,435
Net unrealized loss on investments (9,948,291)
Net unrealized gain on translation of assets and liabilities de-
nominated in foreign currencies 9,128,713
-------------------------------------------------------------------------------
NET ASSETS $396,584,133
-------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NET
ASSETS/SHARES OUTSTANDING) $13.43
-------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE
(NAV PER SHARE X 1.0471) $14.06
-------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1994
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income (net of $848,907 in foreign
withholding taxes) $ 42,597,424
-------------------------------------------------------------------------------
TOTAL INCOME 42,597,424
-------------------------------------------------------------------------------
EXPENSES(a):
Investment adviser fees 4,556,440
Administration fees 911,288
Distribution fees 1,518,814
Custodian fees 430,716
Transfer agent fees 132,123
Amortization of deferred organization expenses 61,394
Registration fees 41,967
Professional fees 41,590
Trustee fees 12,754
Other 57,886
-------------------------------------------------------------------------------
TOTAL EXPENSES 7,764,972
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 34,832,452
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT,
OPTION AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (30,985,479)
Option transactions 1,586,320
Foreign currency related transactions (12,649,508)
Net change in unrealized gain (loss) on:
Investments (29,611,804)
Options (1,542,789)
Translation of assets and liabilities denominated in foreign
currencies 7,363,987
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT, OPTION AND
FOREIGN CURRENCY TRANSACTIONS (65,839,273)
-------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(31,006,821)
-------------------------------------------------------------------------------
</TABLE>
(a) For the year ended October 31, 1994, the Distributor waived fees of
$1,518,814.
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
----------------------------------------------------
1994 1993
------------------------- -------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 34,832,452 $ 35,884,199
Net realized gain (loss) from investment, option
and futures transactions (29,399,159) 33,770,478
Net realized loss from foreign currency related
transactions (12,649,508) (19,132,993)
Net change in unrealized gain (loss) on
investments and options (31,154,593) 11,941,756
Net change in unrealized gain on translation of
assets and liabilities denominated in foreign
currencies 7,363,987 1,162,726
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (31,006,821) 63,626,166
---------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (8,807,313) (35,815,474)
Net realized gain on investment, option and
futures transactions (7,198,898) (10,978,812)
Paid in capital (25,765,213) --
---------------------------------------------------------------------------------------------------
Total distributions to shareholders (41,771,424) (46,794,286)
---------------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
<CAPTION>
SHARES SHARES
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net proceeds from sale of shares 9,067,823 133,966,890 11,896,541 174,639,617
Reinvestment of distributions 1,870,918 26,726,504 1,953,762 28,394,744
Cost of shares repurchased (26,266,551) (366,992,820) (9,089,025) (133,097,079)
---------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (15,327,810) (206,299,426) 4,761,278 69,937,282
---------------------------------------------------------------------------------------------------
Total increase (decrease) (279,077,671) 86,769,162
NET ASSETS:
Beginning of year 675,661,804 588,892,642
---------------------------------------------------------------------------------------------------
End of year $396,584,133 $ 675,661,804
---------------------------------------------------------------------------------------------------
Accumulated undistributed net
investment income $1,318,755 $227,711
---------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding
Throughout Each Period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31, For the Period
---------------------------------------- Ended
1994 1993 1992 October 31, 1991(a)
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $15.07 $14.69 $14.60 $14.55
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.84 0.85 1.14 0.25
Net realized and unrealized gain (loss) on
investments, options and futures (1.37) 1.07 0.45 0.23
Net realized and unrealized loss on foreign currency
related transactions (0.12) (0.42) (0.36) (0.19)
--------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (0.65) 1.50 1.23 0.29
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.22) (0.85) (1.14) (0.24)
Net realized gain on investment, option and futures
transactions (0.16) (0.27) -- --
Paid in capital (0.61) -- -- --
--------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.99) (1.12) (1.14) (0.24)
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net asset value (1.64) 0.38 0.09 0.05
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.43 $15.07 $14.69 $14.60
--------------------------------------------------------------------------------------------------------------------
Total return(b) (4.49)% 10.75% 8.77% 2.00%(c)
Ratio of net expenses to average net assets 1.28 % 1.30% 1.37% 0.38%(c)
Ratio of net investment income to average net assets 5.73 % 5.78% 7.85% 1.72%(c)
Portfolio turnover rate 343.74 % 313.88% 270.75% 34.22%(c)
Net assets at end of period $396,584,133 $675,661,804 $588,892,642 $388,744,486
Ratio information assuming no voluntary waiver of
distribution fees:
Ratio of expenses to average net assets 1.53 % 1.55% 1.62% 0.44%(c)
Ratio of net investment income to average net assets 5.48 % 5.53% 7.60% 1.66%(c)
</TABLE>
--------------------------------------------------------------------------------
(a) For the period from August 2, 1991 (commencement of operations) to October
31, 1991.
(b) Assumes investment at net asset value at the beginning of the period, rein-
vestment 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
charge. Total return would be reduced if a sales charge were taken into
account.
(c) Not annualized.
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 1994
--------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Global Income Fund ("the Fund") is a separate, non-diversified
portfolio of Goldman Sachs Trust ("the Trust"), a Massachusetts business trust.
The Trust is registered under the Investment Company Act of 1940, as amended,
as an open-end, management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund which are in conformity with those generally accepted in
the investment company industry.
A. Investment Valuation--
-------------------------
Investments in portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations provided by dealers in
such securities or furnished by a pricing service. Portfolio securities for
which accurate 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. Short-term debt obligations maturing in sixty days or less are valued
at amortized cost.
B. Foreign Currency Translations--
----------------------------------
The books and records of the Fund are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, 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.
C. Forward Foreign Currency Exchange Contracts--
------------------------------------------------
The Fund is authorized to enter into forward foreign exchange contracts for the
purchase 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 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 Statement 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.
--------------------------------------------------------------------------------
10
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
D. Security Transactions and Investment Income--
------------------------------------------------
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 and discounts
earned.
E. Federal Taxes--
------------------
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of its investment company taxable income 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 finan-
cial statements as either from or in excess of net investment income or net re-
alized gain on investment transactions, or from paid-in capital, depending on
the type of book/tax differences that may exist. During the year ended October
31, 1994, the Fund distributed $25,765,213 from paid-in capital resulting from
currency losses.
At October 31, 1994, the Fund had approximately $18,599,348 of capital loss
carryforward 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. The capital loss carryforward expires in 2002.
F. Deferred Organization Expenses--
-----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
G. Expenses--
-------------
Expenses incurred by the Trust that do not specifically relate to an individual
portfolio of the Trust are allocated to the portfolios based on each
portfolio's relative average net assets for the period.
H. Option Accounting Principles--
---------------------------------
When the Fund writes call or put options, an amount equal to the premium
received is recorded as an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a written option expires on its stipulated
expiration date, or the Fund enters into a closing purchase transaction, the
Fund realizes a gain or loss without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. When a written call option is exercised, the Fund realizes a gain
or loss from the sale of the underlying security, and the proceeds of the sale
are increased by the premium originally received. When a written put option is
exercised, the amount of the premium originally received will reduce the cost
of the security which the Fund purchases upon exercise.
Upon the purchase of a call option or a protective put option by the Fund, the
premium paid is recorded as an investment, and subsequently marked-to-market to
reflect the current market value of the option. If an option which the Fund has
purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount of the cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gain or loss, depending on whether
the sale proceeds from the closing sale transaction are greater or less than
the cost of the option. If the Fund exercises a purchased put option, the Fund
will realize a gain or loss from the sale of the underlying security, and the
proceeds from such sale will be decreased by the premium originally paid. If
the Fund exercises a purchased call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium originally paid.
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.
--------------------------------------------------------------------------------
11
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1994
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Futures Contracts--
----------------------
Upon entering into a futures contract, the Fund is required to deposit with a
broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Fund each day, depen-
dent on the daily fluctuations in the value of the underlying index, 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 val-
ued using methods approved by the Board of Trustees of the Fund.
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.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund's investment adviser
under an Investment Advisory Agreement. Goldman Sachs Asset Management
International ("GSAM International"), an affiliate of Goldman Sachs, acts as
subadviser under a Subadvisory Agreement. 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 Fund's portfolio. As
compensation for the services rendered under the Investment Advisory and
Subadvisory Agreements and the assumption of the expenses related thereto, GSAM
and GSAM International receive fees, computed daily and payable monthly, at an
annual rate equal to .25% and .50%, respectively, of the Fund's average daily
net assets.
GSAM serves as the Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement GSAM administers the Fund's
business affairs, including providing facilities. As compensation for the
services rendered under the Administration Agreement, the Fund pays GSAM a fee,
computed daily and payable monthly, at an annual rate equal to .15% of the
Fund's average daily net assets.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the sales load
imposed on the sale of Fund shares and has advised the Fund that it retained
approximately $350,000 during the year ended October 31, 1994.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1.
Under the Plan, Goldman Sachs is entitled to receive a quarterly distribution
fee equal to, on an annual basis, .50% of the Fund's average daily net assets.
Currently, Goldman Sachs has voluntarily agreed to limit the amount of the
distribution fee to .25% of the Fund's average daily net assets. The effect of
this voluntary limitation amounted to $1,518,814 during the year ended October
31, 1994. Goldman Sachs also serves as the Transfer Agent of the Fund for a
fee.
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities (excluding short-term investments
and options) for the year ended October 31, 1994 were $1,736,565,941 and
$1,835,357,177, respectively.
For the year ended October 31, 1994, option transactions in the Fund were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Premiums
Options Written Received
--------------------------------------------------------------------------------
<S> <C>
Balance outstanding, beginning of year.............................. $ --
Options written..................................................... 1,148,191
Options expired..................................................... (555,691)
Options repurchased................................................. (592,500)
--------------------------------------------------------------------------------
Balance outstanding, end of year.................................... $ --
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Options Purchased Cost
-------------------------------------------------------------------------------
<S> <C>
Balance outstanding, beginning of year............................ $ 1,437,703
Options purchased................................................. 6,982,761
Options expired................................................... (4,422,255)
Options sold...................................................... (3,998,209)
-------------------------------------------------------------------------------
Balance outstanding, end of year.................................. --
-------------------------------------------------------------------------------
</TABLE>
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, 1994, the Fund had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
PURCHASE CONTRACTS DATE VALUE GAIN/(LOSS)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
BRITISH POUND STERLING
Expiring 11/14/94 $40,584,980 $41,957,539 $1,372,559
-------------------------------------------------------------------------------
Total Foreign Currency Purchase Contracts 40,584,980 $41,957,539 $1,372,559
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------------------
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
SALE CONTRACTS DATE VALUE GAIN/(LOSS)
------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR
Expiring 11/21/94 $ 23,329,626 $ 23,288,074 $ 41,552
BRITISH POUND STERLING
Expiring 11/07/94 43,467,581 44,830,794 (1,363,213)
CANADIAN DOLLAR
Expiring 12/28/94 1,272,939 1,264,078 8,861
Expiring 12/28/94 38,461,584 38,632,767 (171,183)
DEUTSCHEMARK
Expiring 11/14/94 40,627,207 41,686,736 (1,059,529)
Expiring 12/30/94 12,854,701 12,787,546 67,155
FRENCH FRANC
Expiring 11/28/94 29,707,624 30,683,341 (975,717)
Expiring 11/28/94 23,896,647 24,516,068 (619,421)
ITALIAN LIRA
Expiring 11/25/94 39,706,566 39,562,809 143,757
JAPANESE YEN
Expiring 11/07/94 34,180,719 35,116,502 (935,783)
NETHERLANDS GUILDER
Expiring 01/23/95 27,540,692 27,410,371 130,321
------------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $315,045,886 $319,779,086 $(4,733,200)
------------------------------------------------------------------------------
</TABLE>
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, 1994, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
The 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 $2,322,619 and $5,557,825, respectively, in the
accompanying Statement of Assets and Liabilities. Included in the "Receivable
and Payable for forward foreign currency exchange contracts" are $558,414 and
$432,979, respectively, related to forward contracts closed but not settled as
of October 31, 1994.
--------------------------------------------------------------------------------
13
<PAGE>
Goldman Sachs Global Income Fund
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 1994
--------------------------------------------------------------------------------
5. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$34,184,229 from accumulated net realized foreign currency losses to accumulated
undistributed net investment income; $15,776,697 from accumulated net realized
foreign currency losses to accumulated net realized loss on investment and
option transactions; and $35,015,347 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 Fund's capital
accounts on a tax basis.
--------------------------------------------------------------------------------
14
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Global Income Fund Prospectus
which contains facts concerning the Fund's objectives and policies, management,
expenses and other information.
--------------------------------------------------------------------------------
15
<PAGE>
[LOGO OF GOLDMAN SACHS APPEARS HERE]
Goldman Sachs
1 New York Plaza
New York, NY 10004
BOARD OF DIRECTORS
Paul C. Nagel, Jr., Chairman
Ashok N. Bakhru
Marcia L. Beck
David B. Ford
Robert P. Mayo
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Marcia L. Beck, President
Stephen H. Hopkins, Vice 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
GIANN94/20K
[LOGO OF GOLDMAN SACHS APPEARS HERE]
GOLDMAN SACHS
GLOBAL INCOME
FUND
Annual Report
October 31, 1994
