<PAGE>
GS ADJUSTABLE RATE
GOVERNMENT AGENCY FUND
CLASS A SHARES
MANAGED BY
----------
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
AN AFFILIATE OF
GOLDMAN, SACHS & CO.
----------------
GS Adjustable Rate Government Agency Fund (the "Fund") is one fund in a
family of funds advised by Goldman Sachs Funds Management, L.P. (the
"Investment Adviser") or its affiliates, Goldman Sachs Asset Management and
Goldman Sachs Asset Management International. The Fund is organized as a
separate diversified portfolio of Goldman Sachs Trust (the "Trust"), an open-
end, management investment company.
The Fund seeks to provide investors with a high level of current income,
consistent with low volatility of principal. The Fund will seek to achieve its
objective through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Under normal circumstances, at
least 65% of the Fund's total assets will consist of adjustable rate mortgage
pass-through securities and other mortgage securities with periodic interest
rate resets, which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may also invest in other mortgage-
backed securities and other obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, as well as repurchase
agreements collateralized by U.S. Government securities. Under normal
circumstances, substantially all of the Fund's assets will be invested in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund seeks to minimize fluctuation in the value of its portfolio
securities and therefore its net asset value. It believes that it can achieve
this objective by investing primarily in guaranteed adjustable rate mortgage-
backed securities, maintaining a maximum duration equal to that of a two-year
U.S. Treasury security and a target duration in a range approximately equal to
that of a 6-month to one-year U.S. Treasury security (computed using the method
described herein) and utilizing certain active management techniques to hedge
interest rate risks and to enhance its return. These techniques include the use
of futures contracts (including options on futures), mortgage and interest rate
swaps and interest rate floors, caps and collars. The Fund's investment in
mortgage-backed securities and the use of active management techniques may
entail certain risks. See "Risk Factors."
----------------
(continued on next page)
CLASS A SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN CLASS A SHARES OF THE FUND
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
GOLDMAN, SACHS & CO.
----------------
The date of this Prospectus is May 12, 1995.
<PAGE>
The Fund seeks to provide investors with a higher level of current income
than they would receive from a money market fund. However, the Fund may not be
able to return dollar-for-dollar the amount of investment. Although the Fund's
net asset value will fluctuate more than that of a portfolio of money market
securities, the Fund will attempt to minimize the effect of interest rate
fluctuations on the Fund's net asset value. See "Risk Factors."
Goldman Sachs Funds Management, L.P., New York, New York, an affiliate of
Goldman, Sachs & Co., serves as the Fund's investment adviser. Goldman, Sachs &
Co. serves as the Fund's distributor and transfer agent. The Trust's custodian
is State Street Bank and Trust Company.
This Prospectus, which sets forth concisely the information about the Trust
and the Fund that a prospective investor ought to know before investing in
Class A Shares, should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 12, 1995,
containing further information about the Trust and the Fund which may be of
interest to investors, has been filed with the Securities and Exchange
Commission, is incorporated herein by reference in its entirety, and may be
obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below.
GOLDMAN SACHS TRUST GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
4900 Sears Tower Investment Adviser
Chicago, Illinois 60606 One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO. GOLDMAN, SACHS & CO.
Distributor Transfer Agent
85 Broad Street 4900 Sears Tower
New York, New York 10004 Chicago, Illinois 60606
<TABLE>
<S> <C>
Toll Free (in U.S.)...................... 800-526-7384
</TABLE>
2
<PAGE>
SUMMARY
INTRODUCTION
GS Adjustable Rate Government Agency Fund (the "Fund") is one fund in a
family of funds advised by Goldman Sachs Funds Management, L.P. (the
"Investment Adviser") or its affiliates, Goldman Sachs Asset Management and
Goldman Sachs Asset Management International. The Fund is organized as a
separate diversified portfolio of Goldman Sachs Trust (the "Trust"), an open-
end, management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide investors with a high
level of current income consistent with low volatility of principal. The Fund
seeks to achieve its objective by investing primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Under
normal circumstances, at least 65% of the Fund's total assets will consist of
adjustable rate mortgage pass-through securities and other mortgage securities
with periodic interest rate resets, which are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund may also invest in
other mortgage-backed securities and other obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities, as well as repurchase
agreements collateralized by U.S. Government securities. Under normal
circumstances, substantially all of the Fund's assets will be invested in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund may employ certain active management techniques to hedge the
interest rate risks associated with the Fund's portfolio securities, to enhance
its return and to minimize fluctuation in its net asset value. These include,
but are not limited to, the use of futures contracts (including options on
futures), mortgage and interest rate swaps and interest rate floors, caps and
collars. The Fund may also utilize portfolio securities lending, mortgage
dollar rolls and repurchase agreements in an attempt to enhance the return
achieved by the Fund. See "Investment Objective and Policies" and "Other
Investments and Practices." There can be no assurance that the Fund will
achieve its investment objective.
The Fund may, for temporary defensive purposes, hold or invest more than 35%
of its total assets in cash, U.S. Treasury securities or high quality money
market instruments, including commercial paper, bankers' acceptances,
repurchase agreements or other debt obligations with a remaining maturity of
one year or less.
INVESTMENT ADVISER
Pursuant to an Investment Advisory Agreement, Goldman Sachs Funds Management,
L.P., an affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the
Fund's investment adviser. The Fund's portfolio is managed by the Investment
Adviser's mortgage-backed securities team, which, as of January 31, 1995, was
responsible for managing approximately $5.2 billion in assets. In this
capacity, the Investment Adviser provides investment advisory and
administrative services and receives from the Fund a monthly fee equal on an
annual basis to 0.40% of the Fund's average daily net assets. Goldman Sachs
Funds Management, L.P. is registered with the Securities and Exchange
Commission (the "SEC") as an investment adviser. See "Investment Adviser" and
"Management--Investment Adviser."
PURCHASE AND REDEMPTION OF CLASS A SHARES
Class A Shares of the Fund may be bought through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other
3
<PAGE>
financial services firms that have sales agreements with Goldman Sachs (the
"Authorized Dealers"). The minimum initial investment in Class A Shares of the
Fund is currently $1,500, except in connection with the special investment
programs described under "Purchase of Shares" and purchases by certain
institutional investors, and except that this requirement may be waived at the
discretion of the Trust's officers. Class A Shares of the Fund may be purchased
at the current net asset value per share plus any applicable sales charge. The
sales charge is to be paid at the time of purchase of Class A Shares of the
Fund. The maximum sales charge is currently 1.5% of the purchase price with
reduced sales charges for purchases of shares of $500,000 or more. See
"Purchase of Shares--Offering Price." The sales charge is waived for specified
classes of investors described under "Purchase of Shares--Offering Price" and
in connection with exchanges of Class A Shares. The Fund and Goldman Sachs
reserve the right to modify the minimum investment requirement, the manner in
which Class A Shares are offered or the sales charge rates applicable to future
purchases of Class A Shares. See "Purchase of Class A Shares." The Fund will
redeem its Class A Shares upon request of a shareholder on any Business Day, as
defined below, at the net asset value next determined after receipt of such
request in proper form. See "Redemption of Class A Shares."
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs serves as the distributor to and transfer agent for the Fund.
Under the Distribution Agreement with the Fund, Goldman Sachs acts as agent for
the Fund in the sale of its shares. Under the Transfer Agency Agreement with
the Fund, Goldman Sachs provides transfer agency services and responds to
shareholder inquiries. See "Management--Distributor and Transfer Agent."
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
The Trust, on behalf of the Class A Shares of the Fund, has adopted a
Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"), and an Authorized
Dealer Service Plan. Under the Distribution Plan, Goldman Sachs is entitled to
a quarterly fee for distribution services with respect to the Fund's Class A
Shares that is equal, on an annual basis, to 0.25% of the Fund's average daily
net assets attributable to Class A Shares. Currently, Goldman Sachs has
voluntarily agreed to waive its entire fee under the Distribution Plan. Goldman
Sachs has no current intention of modifying or discontinuing such waiver, but
may do so in the future at its discretion. Under the Authorized Dealer Service
Plan, the Fund will pay a quarterly fee for personal and account maintenance
services with respect to the Fund's Class A Shares that is equal, on an annual
basis, 0.25% of the average daily net assets attributable to Class A Shares.
See "Distribution and Authorized Dealer Service Plans."
RISK FACTORS
GENERAL. While the Fund seeks to provide investors with a high level of
current income, consistent with low volatility of principal, the Fund's current
income and net asset value per share will fluctuate. The inherent volatility
risk of the Fund is such that, during any particular period, if shares of the
Fund are redeemed, an investor could suffer a loss of principal.
INVESTMENT IN MORTGAGE-BACKED SECURITIES GENERALLY. The Fund's investments in
mortgage pass-through securities and other securities representing an interest
in or collateralized by adjustable rate and fixed rate mortgage loans
("Mortgage-Backed Securities") entail certain risks. These risks include the
failure of an issuer or guarantor to meet its obligations, adverse interest
rate changes, adverse economic, real estate or unemployment trends, failures in
connection with processing of transactions and the effects of prepayments on
mortgage cash flows. The Fund's policy of investing primarily in securities
4
<PAGE>
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
however, is designed to minimize credit and performance related risks otherwise
associated with Mortgage-Backed Securities.
YIELD CHARACTERISTICS. The yield characteristics of the Mortgage-Backed
Securities in which the Fund will invest differ from those of traditional fixed
income securities. The major differences typically include more frequent
interest and principal payments (usually monthly) on Mortgage-Backed
Securities, the adjustability of interest rates, and the possibility that
prepayments of principal may be made at any time.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, the Fund may fail to recoup fully its
investment in some of the Mortgage-Backed Securities it holds notwithstanding a
direct or indirect governmental or agency guarantee. The Fund's investments in
Mortgage-Backed Securities are subject to more rapid repayment than their
stated maturity dates would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. Such repayment may increase
the volatility of an investment in Mortgage-Backed Securities relative to
similarly rated debt securities and, therefore, may increase the volatility of
the Fund's net asset value. The Fund intends to use hedging techniques to
control these risks. See "Investment Objective and Policies" and "Other
Investments and Practices." When the Fund reinvests amounts representing
scheduled payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on its existing portfolio of
adjustable rate mortgage pass-through securities. Thus, Mortgage-Backed
Securities, and adjustable rate mortgage pass-through securities in particular,
may be less effective than other types of U.S. Government securities as a means
of "locking in" interest rates.
MARKET RISKS. The securities in the Fund's portfolio will tend to decrease in
value when interest rates rise and increase in value when interest rates fall.
Because the Fund's investments are interest rate sensitive, the Fund's
performance will depend in large part upon the ability of the Fund to respond
to fluctuations in market interest rates and to utilize appropriate strategies
to maximize returns to the Fund, while attempting to minimize the associated
risks to its invested capital. Operating results will also depend upon the
availability of opportunities for the investment of the Fund's assets,
including purchases and sales of suitable securities.
The market value of the Fund's adjustable rate Mortgage-Backed Securities may
be adversely affected if interest rates increase faster than the rates of
interest payable on such securities or on the adjustable rate mortgage loans
underlying such securities. Furthermore, adjustable rate Mortgage-Backed
Securities or the mortgage loans underlying such securities may contain
provisions limiting the amount by which rates may be adjusted upward and
downward and may limit the amount by which monthly payments may be increased or
decreased to accommodate upward and downward adjustments in interest rates.
These provisions may increase the sensitivity of such Mortgage-Backed
Securities to changes in value resulting from interest rate fluctuations.
Certain adjustable rate mortgage loans may provide for periodic adjustments
of scheduled payments in order to fully amortize the mortgage loan by its
stated maturity. Other adjustable rate mortgage loans may permit such stated
maturity to be extended or shortened in accordance with the portion of each
payment that is applied to interest in accordance with the periodic interest
rate adjustments.
Although having less risk of decline in value during periods of rising
interest rates, adjustable rate Mortgage-Backed Securities have less potential
for capital appreciation than fixed rate Mortgage-Backed Securities, because
their coupon rates will decline in response to market interest rate declines.
The
5
<PAGE>
market value of fixed rate Mortgage-Backed Securities may be adversely affected
as a result of increases in interest rates and, because of the risk of
unscheduled principal prepayments, may benefit less than other fixed rate
securities of similar maturity from declining interest rates. Finally, a higher
than anticipated rate of unscheduled principal prepayments on Mortgage-Backed
Securities purchased at a premium or a lower than anticipated rate of
unscheduled principal payments on Mortgage-Backed Securities purchased at a
discount may result in a lower yield than was anticipated at the time the
securities were purchased.
OTHER INVESTMENTS AND PRACTICES. The Fund may invest in other instruments,
including obligations of the United States, and notes, bonds and discount notes
of U.S. Government agencies or instrumentalities. The Fund may engage in
certain other investment practices that also involve special risks. These
include, but are not limited to, the use of futures contracts (including
options on futures), mortgage and interest rate swaps and interest rate floors,
caps and collars, making forward commitments, lending portfolio securities and
entering into mortgage dollar rolls and repurchase agreements. See "Other
Investments and Practices."
CONFLICTS OF INTEREST. The involvement of Goldman Sachs, its divisions and
affiliates (including the Investment Adviser), partners and officers, in the
investment activities and business operations of the Fund may present certain
conflicts of interest, as described under "Management--Investment Adviser."
DIVIDEND POLICY
The Fund intends to declare a daily dividend determined with the objective of
distributing the majority of net investment income while enhancing the
stability of principal. Such dividends will accrue to shareholders entitled to
receive a dividend as of 3:00 p.m. Chicago time, and will be paid monthly. Over
the course of the fiscal year, dividends accrued and paid will constitute all
or substantially all of the Fund's net investment income. From time to time a
portion of such dividends may constitute a return of capital. The Fund also
intends that net realized capital gains, if any, after offset by any available
capital loss carryforwards from prior taxable years, will be declared as a
dividend at least annually. Class A Shareholders will receive dividends in
additional Class A Shares of the Fund or may elect to receive cash, Class A
Shares (or an equivalent class) of certain designated mutual funds sponsored by
Goldman Sachs whose shares are subject to an initial sales charge (the "Goldman
Sachs Portfolios") or ILA Service Units of the Prime Obligations Portfolio or
the Tax-Exempt Diversified Portfolio of Goldman Sachs Money Market Trust (the
"ILA Portfolios"). For further information concerning dividends, see
"Dividends."
FEES AND EXPENSES
(Class A Shares)*
<TABLE>
<CAPTION>
GS ADJUSTABLE RATE
GOVERNMENT AGENCY FUND
----------------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases............... 1.50%**
Maximum Sales Charge Imposed on Reinvested Dividends.... None
Redemption Fees......................................... None***
Exchange Fees........................................... None***
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees........................................ 0.40%
Distribution (Rule 12b-1) Fees (after waiver).......... 0.00%****
Authorized Dealer Service Fee.......................... 0.25%
Other Expenses (after expense limitation).............. 0.05%*****
----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE LIMITA- 0.70%
TION)................................................... ====
</TABLE>
6
<PAGE>
Example:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment (including the
sales charge), assuming (1) a 5% annual
return and (2) redemption at the end of each
time period:................................. $22 $37 $53 $101
</TABLE>
- --------
* The information set forth in the foregoing table and hypothetical example
is based on estimated amounts for the current year and relates only to
Class A Shares of the Fund. See "Shares of the Trust." Institutional
Shares, Administration Shares and Service Shares of the Fund are subject to
different fees and expenses. Institutional Shares are sold at net asset
value without a sales charge and are not subject to any administration,
service, authorized dealer service or distribution fees. Administration
Shares are sold at net asset value without a sales charge and are subject
to an administration fee of up to .25% of average daily net assets. Service
Shares are sold at net asset value without a sales charge and are subject
to a service fee of up to .50% of average daily net assets. All other
expenses related to Institutional Shares, Administration Shares and Service
Shares are the same as for Class A Shares.
** As a percentage of the offering price. No sales charge is imposed on
purchases by certain classes of investors. See "Purchase of Class A
Shares."
*** A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Portfolios or units of the ILA Portfolios
and free automatic exchanges pursuant to the Automatic Exchange Program,
six free exchanges are permitted in each twelve month period. A fee of
$12.50 may be charged for each subsequent exchange during such period. See
"Purchase of Shares--Exchange Privilege." A contingent deferred sales
charge may be imposed in connection with certain redemptions of Class A
Shares sold without an initial sales charge to certain participant
directed plans. See "Purchase of Class A Shares--Participant Directed
Plans."
**** Goldman Sachs has agreed to waive the entire distribution fee payable by
the Fund. Goldman Sachs has no current intention of modifying or
discontinuing such limitation but may do so in the future at its
discretion.
***** The Investment Adviser voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, fees payable under
Administration, Service, Distribution and Authorized Dealer Service
Plans, taxes, interest and brokerage and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceeded 0.05%
per annum of the Fund's average net assets. If Goldman Sachs and the
Investment Adviser had not agree to waive the distribution fee payable by
the Fund and to reduce or otherwise limit certain "Other Expenses" of the
Fund to 0.05% of such assets, these expenses attributable to Class A
Shares would be 0.25% and 0.09%, respectively, of its average daily net
assets and total operating expenses attributable to Class A Shares would
be 0.99%. See "Management--Investment Adviser" and "Distribution and
Authorized Dealer Service Plans." Annual operating expenses incurred by
the Institutional Shares of the Fund during the fiscal year ended October
31, 1994 (expressed as a percentage of average daily net assets after fee
adjustments) were as follows: Management Fees and Other Expenses of 0.40%
and 0.06% (including .01% of nonrecurring interest expense),
respectively.
Investors should be aware that, due to the distribution fees, a long-term
shareholder in Class A Shares of the Fund may pay over time more than the
economic equivalent of the maximum front-end sales charge permitted under the
rules of the NASD.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Fund that an investor in Class A Shares
of the Fund will bear directly or indirectly. The costs and expenses included
in the table and hypothetical example above are based on estimated expenses for
the current fiscal year and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or less
than 5%. See "Management" and "Distribution and Authorized Dealer Service
Plans."
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to Institutional Shares and Administration
Shares of the Fund outstanding during the periods indicated has been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report incorporated by reference and attached to the Additional Statement from
the Fund's annual report to shareholders for the fiscal year ended October 31,
1994 (the "Annual Report"). No Class A Shares or Service Shares were
outstanding during the periods presented and, accordingly no financial
highlights exits for Class A Shares or Service Shares. This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by writing to any of the addresses on the inside cover of this
Prospectus.
<TABLE>
<CAPTION>
DISTRIBUTIONS
INCOME FROM INVESTMENT OPERATIONS TO SHAREHOLDERS
----------------------------------------- --------------------
NET
NET ASSET REALIZED AND TOTAL FROM NET ASSET RATIO OF NET
VALUE AT NET UNREALIZED INCOME FROM NET IN EXCESS VALUE AT EXPENSES TO
BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT OF NET END TOTAL AVERAGE NET
OF PERIOD INCOME ON INVESTMENTS (a) OPERATIONS INCOME INCOME OF PERIOD RETURN (b) ASSETS
--------- ---------- ------------------ ----------- ---------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1994-
Institutional
Shares.......... $10.00 $0.4341 $(0.2455) $0.1886 ($0.4486) -- $9.74 1.88% 0.46%
1994-
Administration
Shares.......... 10.00 0.4211 (0.2572) 0.1639 (0.4239) -- 9.74 1.63 0.71
1993-
Institutional
Shares.......... 10.04 0.4397 (0.0376) 0.4021 (0.4397) (0.0024) 10.00 4.13 0.45
1993-
Administration
Shares (d)...... 10.02 0.2146 (0.0173) 0.1973 (0.2146) (0.0027) 10.00 2.01(f) 0.70(e)
1992-
Institutional
Shares.......... 10.03 0.5599 (0.0029) 0.5570 (0.5470) -- 10.04 6.12 0.42
FOR THE PERIOD JULY 17, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
1991-Institu-
tional Shares... 10.00 0.1531 0.0322 0.1853 (0.1553) -- 10.03 2.14(f) 0.20(e)
<CAPTION>
RATIOS
ASSUMING NO
WAIVER OF
ADVISORY FEES
OR EXPENSE
LIMITATION
-------------------------
RATIO OF NET NET RATIO OF NET
INVESTMENT ASSETS AT RATIO OF INVESTMENT
INCOME TO PORTFOLIO END EXPENSES TO INCOME TO
AVERAGE NET TURNOVER OF PERIOD AVERAGE NET AVERAGE NET
ASSETS RATE (c) (IN 000'S) ASSETS ASSETS
------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1994-
Institutional
Shares.......... 4.38% 37.81% $ 942,523 0.49%(g) 4.35%
1994-
Administration
Shares.......... 4.27 37.81 6,960 0.74 4.24
1993-
Institutional
Shares.......... 4.36 103.74 2,760,871 0.48 4.33
1993-
Administration
Shares (d)...... 3.81(e) 103.74 5,326 0.73(e) 3.78(e)
1992-
Institutional
Shares.......... 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH OCTOBER 31,
1991-Institu-
tional Shares... 7.31(e) 145.67(e) 239,642 1.02(e) 6.49(e)
</TABLE>
- ----
(a) Includes balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Administration share activity commenced on April 15, 1993.
(e) Annualized.
(f) Not annualized.
(g) Includes .01% of interest expenses.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide investors with a high level of
current income, consistent with low volatility of principal. The Fund seeks to
achieve its objective through investment in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. Under normal
circumstances, at least 65% of the Fund's total assets will consist of
adjustable rate mortgage pass-through securities and other mortgage securities
with periodic interest rate resets, which are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The primary issuers or
guarantors of such securities currently include the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"),
although the Fund may invest in securities issued or guaranteed by other
agencies or instrumentalities in the future. The Fund may invest up to 35% of
its total assets in other Mortgage-Backed Securities and other obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
as well as repurchase agreements collateralized by U.S. Government securities.
The Fund may, for temporary defensive purposes, hold or invest more than 35% of
its total assets in cash, U.S. Treasury securities or high quality money market
instruments, including commercial paper, bankers' acceptances, repurchase
agreements or other debt obligations with a remaining maturity of one year or
less. Under normal circumstances, substantially all of the Fund's assets will
be invested in securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The Fund may also employ certain active management techniques to hedge the
interest rate risks associated with the Fund's portfolio securities, to
minimize fluctuation in its net asset value and to enhance its return. These
techniques include, but are not limited to, futures contracts (including
options on futures), mortgage and interest rate swaps and interest rate floors,
caps and collars. The Fund may also employ other investment techniques to
enhance returns, such as loans of portfolio securities, mortgage dollar rolls
and repurchase agreements.
The Fund will maintain a maximum duration approximately equal to that of a
two-year U.S. Treasury security. Under normal interest rate conditions, the
Fund's actual duration is expected to be in a range approximately equal to that
of a 6-month to one-year U.S. Treasury security. The Fund's duration is a
measure of the price sensitivity of the portfolio, including expected cash
flows and mortgage prepayments under a wide range of interest rate scenarios.
Maturity measures only the time until final payment is due on a bond or other
debt security; it takes no account of the pattern of a security's cash flows
over time, including how cash flow is affected by prepayments and by changes in
interest rates. In computing the duration of its portfolio, the Fund will have
to estimate the duration of obligations that are subject to prepayment or
redemption by the issuer taking into account the influence of interest rates on
prepayments and coupon flows. This method of computing duration is known as
option-adjusted duration. The Fund may use various techniques to shorten or
lengthen the option-adjusted duration of its portfolio, including the use of
futures contracts (including options on futures), the acquisition of debt
obligations at a premium or discount, mortgage and interest rate swaps and
interest rate floors, caps and collars.
When interest rates decline, the value of a portfolio invested in fixed rate
debt securities can be expected to rise. Conversely, when interest rates rise,
the value of a portfolio invested in fixed rate debt securities can be expected
to decline. In contrast, since interest rates on adjustable rate mortgage loans
are reset periodically, yields of portfolio securities representing interests
in such loans will gradually align themselves to reflect changes in market
interest rates, causing the value of such securities to fluctuate less
dramatically in response to interest rate fluctuations than would fixed rate
debt securities. The
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Investment Adviser expects the Fund's net asset value to be relatively stable
during normal market conditions. This is because the Fund's portfolio will
consist primarily of guaranteed adjustable rate Mortgage-Backed Securities and
because the Fund will maintain a maximum option-adjusted duration approximately
equal to that of a two-year U.S. Treasury security and will utilize certain
interest rate hedging techniques. However, a sudden and extreme increase in
prevailing interest rates may cause a decline in the Fund's net asset value.
Conversely, a sudden and extreme decline in interest rates could result in an
increase in the Fund's net asset value.
Except as otherwise stated under "Investment Restrictions," the Fund's
investment objective and policies are not fundamental and may be changed
without a vote of shareholders. If there is a change in the Fund's investment
objective, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs. There
can be no assurance that the Fund will be successful in achieving its
investment objective. An investment in shares of the Fund does not constitute a
complete investment program. Investors may wish to complement an investment in
the Fund with other types of investments.
INVESTMENT ADVISER
The Fund's investment adviser is Goldman Sachs Funds Management, L.P., an
affiliate of Goldman Sachs. The management services provided by the Investment
Adviser are subject to the general supervision of the Trust's Board of
Trustees. The Investment Adviser and its affiliates serve a wide range of
clients including private and public pension funds, endowments, foundations,
banks, thrifts, insurance companies, corporations, and private investors and
family groups.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in virtually
every field of investing and financing, participating in financial markets
worldwide and serving individuals, institutions, corporations and governments.
Goldman Sachs is headquartered in New York and has offices throughout the
United States and in Beijing, Frankfurt, George Town, Hong Kong, London,
Madrid, Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich.
The Investment Adviser is able to draw on the research and market expertise
of Goldman Sachs, whose investment research effort is one of the largest in the
industry. The in-depth information and analyses generated by Goldman Sachs'
research analysts, economists and portfolio strategists are available to the
Investment Adviser.
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ADJUSTABLE AND FIXED RATE MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES IN
WHICH THE FUND WILL INVEST
THE NATURE OF ADJUSTABLE AND FIXED RATE MORTGAGE LOANS
The following is a general description of the adjustable and fixed rate
mortgage loans which may be expected to underlie the Mortgage-Backed Securities
in which the Fund will invest. Since a wide variety of mortgage loans are
available to borrowers, the actual mortgage loans underlying any particular
issue of Mortgage-Backed Securities may differ materially from those described
below. In addition, the Fund will be permitted to invest in Mortgage-Backed
Securities that become available in the future to the extent such investments
are consistent with its investment objective and policies.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). ARMs included in a mortgage pool
will generally provide for a fixed initial mortgage interest rate for a
specified period of time. Thereafter, the interest rates (the "Mortgage
Interest Rates") may be subject to periodic adjustment based on changes in the
applicable index rate (the "Index Rate"). The adjusted rate would be equal to
the Index Rate plus a gross margin, which is a fixed percentage spread over the
Index Rate established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime
maximum rate or below an applicable lifetime minimum rate for such ARM. Certain
ARMs may also be subject to limitations on the maximum amount by which the
Mortgage Interest Rate may adjust for any single adjustment period (the
"Maximum Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide
instead or as well for limitations on changes in the monthly payment on such
ARMs. Limitations on monthly payments can result in monthly payments which are
greater or less than the amount necessary to amortize a Negatively Amortizing
ARM by its maturity at the Mortgage Interest Rate in effect in any particular
month. In the event that a monthly payment is not sufficient to pay the
interest accruing on a Negatively Amortizing ARM, any such excess interest is
added to the principal balance of the loan, causing negative amortization, and
will be repaid through future monthly payments. It may take borrowers under
Negatively Amortizing ARMs longer periods of time to achieve equity and may
increase the likelihood of default by such borrowers. In the event that a
monthly payment exceeds the sum of the interest accrued at the applicable
Mortgage Interest Rate and the principal payment which would have been
necessary to amortize the outstanding principal balance over the remaining term
of the loan, the excess (or "accelerated amortization") further reduces the
principal balance of the ARM. Negatively Amortizing ARMs do not provide for the
extension of their original maturity to accommodate changes in their Mortgage
Interest Rate. As a result, unless there is a periodic recalculation of the
payment amount (which there generally is), the final payment may be
substantially larger than the other payments. These limitations on periodic
increases in interest rates and on changes in monthly payments protect
borrowers from unlimited interest rate and payment increases.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury Bill rate,
the 180-day Treasury Bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one year London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market
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interest rate levels. Others, such as the 11th District Federal Home Loan Bank
Cost of Funds index, tend to lag behind changes in market rate levels and tend
to be somewhat less volatile. The degree of volatility in the market value of
the Fund's portfolio and therefore in the net asset value of the Fund's shares
will be a function of the length of the interest rate reset periods and the
degree of volatility in the applicable indices.
FIXED RATE MORTGAGE LOANS. Generally, fixed rate mortgage loans included in a
mortgage pool (the "Fixed Rate Mortgage Loans") will bear simple interest at
fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed Rate Mortgage Loans generally provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain fixed rate mortgage loans provide for a large final "balloon"
payment upon maturity.
REGULATION OF MORTGAGE LOANS. Mortgage loans are subject to a variety of
state and federal laws and regulations designed to protect mortgagors, which
may impair the ability of the mortgage lender to enforce its rights under the
mortgage documents. These laws and regulations include legal restraints on
foreclosures, homeowner rights of redemption after foreclosure, federal and
state bankruptcy and debtor relief laws, restrictions on enforcement of
mortgage loan "due on sale" clauses and state usury laws. Even though the Fund
may invest in Mortgage-Backed Securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, these regulations may adversely
affect the Fund's investments by delaying the Fund's receipt of payments
derived from principal of or interest on mortgage loans affected by such laws
and regulations.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities are
securities that directly or indirectly represent participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
The investment characteristics of adjustable and fixed rate Mortgage-Backed
Securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on Mortgage-Backed
Securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if the Fund purchases Mortgage-Backed
Securities at a premium, a faster than expected prepayment rate will reduce
both the market value and the yield to maturity from those which were
anticipated. A prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity and market value. Conversely,
if the Fund purchases Mortgage-Backed Securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity and market value. The Investment Adviser will seek to
manage these potential risks and benefits by investing in a variety of
Mortgage-Backed Securities and by using certain hedging techniques. See "Other
Investments and Practices."
Prepayments on a pool of mortgage loans are influenced by a variety of
factors, including economic conditions, changes in mortgagors' housing needs,
job transfers, unemployment, mortgagors' net equity in the mortgaged properties
and servicing decisions. The timing and level of prepayments cannot be
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predicted. Generally, however, prepayments on adjustable rate mortgage loans
and fixed rate mortgage loans will increase during a period of falling mortgage
interest rates and decrease during a period of rising mortgage interest rates.
Accordingly, the amounts of prepayments available for reinvestment by the Fund
are likely to be greater during a period of declining mortgage interest rates.
If general interest rates also decline, such prepayments are likely to be
reinvested at lower interest rates than the Fund was earning on the Mortgage-
Backed Securities that were prepaid.
GUARANTEED MORTGAGE-BACKED SECURITIES IN WHICH THE FUND INVESTS
All of the Fund's investments in Mortgage-Backed Securities will be issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities,
including but not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. Ginnie
Mae securities are backed by the full faith and credit of the U.S. Government,
which means that the U.S. Government guarantees that the interest and principal
will be paid when due. Fannie Mae securities and Freddie Mac securities are not
backed by the full faith and credit of the U.S. Government; however, the
ability of these agencies to borrow from the U.S. Treasury makes their
securities high quality securities with minimal credit risks. There are several
types of guaranteed Mortgage-Backed Securities currently available, including
guaranteed mortgage pass-through certificates and multiple-class securities,
which include guaranteed Real Estate Mortgage Investment Conduit ("REMIC")
pass-through certificates and stripped Mortgage-Backed Securities. The Fund
will be permitted to invest in other types of Mortgage-Backed Securities that
may be available in the future to the extent investment in such securities is
consistent with its investment policies and objective, which require the Fund
to invest primarily in guaranteed adjustable rate Mortgage-Backed Securities.
1. GUARANTEED MORTGAGE PASS-THROUGH SECURITIES
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the mortgage loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether
or not received, to Certificate holders. Fannie Mae also is obligated
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to distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly-held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participations in mortgage loans (a "Freddie Mac Certificate group") purchased
by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate (whether or not received on the underlying loans). Freddie Mac also
guarantees to each registered Certificate-holder ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal. The
obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are
obligations solely of Freddie Mac.
CONVENTIONAL MORTGAGE LOANS. The conventional mortgage loans underlying the
Freddie Mac and Fannie Mae Certificates will consist of adjustable rate or
fixed rate mortgage loans with original terms to maturity of between five and
thirty years. Substantially all of these mortgage loans are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the law
creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate group may include
whole loans, participation interests in whole loans and undivided interests in
whole loans and participations comprising another Freddie Mac Certificate
group.
2. MULTIPLE CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS
The Fund may also invest in multiple class securities issued by U.S.
Government agencies and instrumentalities such as Fannie Mae or Freddie Mac,
including guaranteed collateralized mortgage obligations ("CMOs") and REMIC
pass-through or participation certificates. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code"), and invests in certain mortgages principally secured by interests in
real property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by Fannie Mae and Freddie Mac are types of multiple class pass-through
securities. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests or "residual" interests. The Fund does not intend
to purchase residual interests in REMICs. The REMIC Certificates represent
beneficial ownership interests in a REMIC trust, generally consisting of
mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage
pass-through certificates (the "Mortgage Assets"). The obligations of Fannie
Mae or Freddie Mac under their respective guaranty of the REMIC Certificates
are obligations solely of Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
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For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely payment
of interest, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal on certain PCs.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final scheduled distribution date. Principal prepayments on the
Mortgage Loans or the Mortgage Assets underlying the CMOs or REMIC Certificates
may cause some or all of the classes of CMOs or REMIC Certificates to be
retired substantially earlier than their final distribution dates. Generally,
interest is paid or accrues on all classes of CMOs or REMIC Certificates on a
monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets
generally are applied to the classes of CMOs or REMIC Certificates in the order
of their respective final distribution dates. Thus no payment of principal will
be made on any class of sequential pay CMOs or REMIC Certificates until all
other classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates which generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments
of the Mortgage Assets are then required to be applied to one or more other
classes of the Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying mortgage assets. These tranches tend
to have market prices and yields that are much more volatile than the PAC
classes.
3. STRIPPED MORTGAGE-BACKED SECURITIES
The Fund may invest in stripped mortgage-backed securities ("SMBS"), which
are derivative multiclass mortgage securities. The Fund may only invest in SMBS
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
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SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions from a pool of Mortgage
Assets. A common type of SMBS will have one class receiving all of the interest
from the Mortgage Assets, while the other class will receive all of the
principal. However, in some instances, one class will receive some of the
interest and most of the principal while the other class will receive most of
the interest and the remainder of the principal. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. Although
the market for such securities is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for purposes of the Fund's
limitation on investments in illiquid securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from Mortgage Assets are generally higher
than prevailing market yields on other Mortgage-Backed Securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped. The Investment Adviser will seek
to manage these risks (and potential benefits) by investing in a variety of
such securities and by using certain hedging techniques. See "Other Investments
and Practices."
YIELD, MARKET VALUE AND RISK CONSIDERATIONS OF
MORTGAGE-BACKED SECURITIES
The Fund may invest in certain Mortgage-Backed Securities, such as interest-
only and principal-only SMBS, that are extremely sensitive to changes in
prepayments and interest rates. Even though such securities have been issued or
guaranteed by an agency or instrumentality of the U.S. Government, under
certain interest rate or prepayment rate scenarios, the Fund may fail to fully
recover its investment in such securities.
The investment characteristics of Mortgage-Backed Securities differ from
those of traditional fixed income securities. The major differences typically
include more frequent interest and principal payments, usually monthly, and the
possibility that unscheduled prepayments of principal may be made at any time.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. As with fixed rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater prepayment rate in a declining
interest rate environment. The yields to maturity of the Mortgage-Backed
Securities in which the Fund invests will be affected by the actual rate of
payment (including prepayments) of principal of the underlying mortgage loans.
The mortgage loans underlying such securities generally may be prepaid at any
time without penalty. In a fluctuating interest rate environment, a predominant
factor affecting the prepayment rate on a pool of mortgage loans is the
difference between the interest rates on the mortgage loans and prevailing
mortgage loan interest rates (giving consideration to the cost of any
refinancing). In general, if interest rates on new mortgage loans fall
sufficiently below the interest rates existing on fixed rate mortgage loans
underlying mortgage pass-through securities, the rate of prepayment would be
expected to increase. Conversely, if mortgage loan interest rates rise above
the interest rates on the fixed rate mortgage loans underlying the mortgage
pass-through securities, the rate of prepayment may be expected to decrease.
The rate of principal prepayments with respect to ARMs has fluctuated in
recent years. As is the case with fixed rate mortgage loans, ARMs may be
subject to a greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly, ARMs
could
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be subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed rate mortgage loans at competitive
interest rates may encourage mortgagors to refinance their ARMs to "lock-in" a
lower fixed interest rate. Conversely, if prevailing interest rates rise
significantly, ARMs may prepay at lower rates than if prevailing rates remain
at or below those in effect at the time such ARMs were originated due, for
example, to the unavailability of lower rate alternatives. As with fixed rate
mortgages, there can be no certainty as to the rate of prepayments on the ARMs
in either stable or changing interest rate environments. In addition, there can
be no certainty as to whether increases in the principal balances of the ARMs
due to the addition of deferred interest may result in a default rate higher
than that on ARMs that do not provide for negative amortization. Other factors
affecting prepayment of ARMs include changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgage properties and
servicing decisions.
The Fund's reinvestment of principal payments and prepayments received on a
mortgage pass-through security may be made at rates higher or lower than the
rate payable on such security, thus affecting the return realized by the Fund.
In addition, the receipt of interest payments monthly rather than semi-annually
by the Fund has a compounding effect that may increase the yield to the Fund
relative to debt obligations that pay interest semi-annually. Due to these
factors, Mortgage-Backed Securities may also be less effective than U.S.
Treasury securities of similar maturity at maintaining yields during periods of
changing interest rates. Prepayments may have a disproportionate effect on
certain Mortgage-Backed Securities such as SMBS and certain other multiple
class pass-through securities. The Fund may purchase Mortgage-Backed Securities
at a premium or at a discount.
RISKS ASSOCIATED WITH DERIVATIVE MORTGAGE-BACKED SECURITIES. Derivative
Mortgage-Backed Securities are subject to different combinations of interest
rate and/or prepayment risks. In addition, particular derivative securities may
be leveraged such that their exposure (i.e., price sensitivity) to interest
rate and/or prepayment risk is magnified. The Investment Adviser may use
derivative Mortgage-Backed Securities and other derivative securities
consistent with the Fund's investment objective for a variety of purposes
including adjusting the average duration or interest rate sensitivity of the
Fund's portfolio or attempting to enhance the Fund's total return. The
Investment Adviser manages the risks and benefits of derivative Mortgage-Backed
Securities and other derivative securities by prudent analysis, selection and
monitoring of such securities included in the Fund's portfolio.
The risk of faster than anticipated prepayments generally adversely affects
interest-only securities (IOs), super floaters and premium priced Mortgage-
Backed Securities. The risk of slower than anticipated prepayments generally
adversely affects principal-only securities (POs), floating rate securities
subject to interest rate caps, support tranches and discount priced Mortgage-
Backed Securities.
RISKS ASSOCIATED WITH OTHER DERIVATIVE FLOATING RATE SECURITIES. Other types
of floating rate derivative securities present more complex types of interest
rate risks. For example, range floaters are subject to the risk that the coupon
will be reduced to below market rates if a designated interest rate floats
outside of a specified interest rate band or collar. Dual index or yield curve
floaters are subject to lower prices in the event of an unfavorable change in
the spread between two designated interest rates.
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OTHER INVESTMENTS AND PRACTICES
INVERSE FLOATING RATE SECURITIES. The Fund may invest in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
OTHER INVESTMENTS. The Fund may also invest in other instruments including
obligations of the United States, notes, bonds, and discount notes of other
U.S. Government agencies or instrumentalities, including but not limited to:
Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, Federal Home Loan Banks,
Bank for Cooperatives, Farm Credit Banks, Tennessee Valley Authority, Federal
Financing Bank, Small Business Administration and Federal Agricultural Mortgage
Corporation.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CAPS, FLOORS AND COLLARS. The Fund may
enter into interest rate swaps and mortgage swaps for hedging purposes and to
increase total return. The Fund may also enter into other types of interest
rate swap arrangements such as caps, floors and collars. Interest rate swaps
involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payment of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates. Since interest rate swaps, mortgage
swaps, caps, floors and collars are individually negotiated, the Fund expects
to achieve an acceptable degree of correlation between its portfolio
investments and its swap, cap, floor and collar positions entered into for
hedging purposes.
The Fund will enter into interest rate swaps and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps and mortgage swaps is limited to the net
amount of payments that the Fund is contractually obligated to make. If the
other party to an interest rate swap or mortgage swap defaults, the Fund's risk
of loss consists of the net amount of payments that the Fund is contractually
entitled to receive, if any. To the extent the net amount of an interest rate
swap or mortgage swap is held in a segregated account, consisting of cash and
liquid, high grade debt securities, the Fund and the Investment Adviser believe
that swaps do not constitute senior securities under the Investment Company Act
of 1940, as amended (the "Act") and, accordingly, will not treat them as being
subject to the Fund's borrowing restriction.
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The Fund will not enter into any interest rate swap, mortgage swap, or
interest rate cap, floor or collar transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party is rated either
AA or A-1 or better by Standard & Poor's Ratings Group ("S&P") or Aa or P-1 or
better by Moody's Investors Service, Inc. ("Moody's"), or, if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser.
The use of interest rate swaps and mortgage swaps, as well as interest rate
floors, caps and collars, is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Investment Adviser is incorrect in
its forecasts of market values and interest rates, the investment performance
of the Fund would be less favorable than it would have been if these investment
techniques were not used. The staff of the SEC considers interest rate swaps
and mortgage swaps, as well as interest rate caps, floors and collars, to be
illiquid securities for purposes of the Fund's 15% limitation on illiquid
investments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To hedge against changes
in interest rates or securities prices 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 will
engage in futures and related options transactions only for bona fide hedging
purposes as defined in regulations of the Commodity Futures Trading Commission
or to seek to increase total return to the extent permitted by such
regulations.
The Fund may not purchase or sell futures contracts or purchase or sell
related options to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial margin
deposits and premiums paid on the Fund's outstanding positions in futures and
related options entered into for the purpose of seeking to increase total
return would exceed 5% of the market value of the Fund's net assets.
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, require the Fund to segregate cash
and liquid, high-grade debt securities with a value equal to the amount of the
Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while the Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates or securities prices may result in a poorer overall performance for the
Fund than if it had not entered into any futures contracts or options
transactions. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The use of futures may increase the volatility of the Fund's net asset value.
The profitability of the Fund's trading in futures to increase total return
will depend on the Investment Adviser's ability to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to the Fund. Further, futures trading
may be illiquid, and exchanges may limit fluctuations in futures contract
prices during a single day.
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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. The Fund's transactions in options and futures
contracts may be limited by the requirements of the Internal Revenue Code of
1986 (the "Code") for qualification as a regulated investment company.
RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions in interest rate
and mortgage swaps, interest rate caps, floors and collars, futures and options
on futures involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from the margin requirements and related
leverage factors associated with such transactions. The use of these management
techniques to seek to increase total return also involves a risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in
securities prices or interest rates.
LENDING OF PORTFOLIO SECURITIES. The Fund may also seek to increase its
income by lending portfolio securities. Under present regulatory policies, such
loans may be made to institutions, such as certain broker-dealers, and are
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis in an amount at least
equal to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. If the Investment Adviser determines to make
securities loans, the value of the securities loaned may not exceed 33 1/3% of
the value of the total assets of the Fund. See "Investment Restrictions" in the
Additional Statement. The Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase
securities on a when-issued basis. When-issued transactions arise when
securities are purchased by the Fund with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous price
and yield to the Fund at the time of entering into the transaction. The Fund
may also purchase securities on a forward commitment basis. In a forward
commitment transaction, the Fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time. The Fund is required
to hold and maintain in a segregated account until the settlement date cash or
liquid, high-grade debt obligations in an amount sufficient to meet the
purchase price. Alternatively, the Fund may enter into offsetting contracts for
the forward sale of other securities that it owns. The purchase of securities
on a when-issued or forward commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
Although the Fund would generally purchase securities on a when-issued or
forward commitment basis with the intention of actually acquiring securities
for its portfolio, the Fund may dispose of a when-issued security or forward
commitment prior to settlement if the Investment Adviser deems it appropriate
to do so.
MORTGAGE DOLLAR ROLLS. The Fund may enter into mortgage "dollar rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity), but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund would benefit to the
extent of any difference between the price received for the securities sold and
the lower forward price for the future purchase (often referred to as the
"drop") or fee income plus the interest earned on the cash proceeds of the
securities sold until the settlement date
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of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of the Fund compared
with what such performance would have been without the use of mortgage dollar
rolls. All cash proceeds will be invested in instruments that are permissible
investments for the Fund. The Fund will hold and maintain in a segregated
account until the settlement date cash or liquid, high-grade debt securities in
an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Fund treats mortgage dollar
rolls as two separate transactions; one involving the purchase of a security
and a separate transaction involving a sale. The Fund does not currently intend
to enter into mortgage dollar rolls that are accounted for as a financing.
Mortgage dollar rolls involve certain risks including the following: if the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which the Fund is
required to repurchase may be worth less than an instrument which the Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Investment Adviser's ability to manage its interest rate and mortgage
prepayments exposure. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
dealers in U.S. Government securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. In a repurchase agreement, the Fund
purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date (ordinarily a
week or less). The resale price generally exceeds the purchase price by an
amount which reflects an agreed-upon market interest rate for the term of the
repurchase agreement. The primary risk is that, if the seller defaults, the
Fund might suffer a loss to the extent that the proceeds from the sale of the
underlying securities and other collateral held by the Fund in connection with
the related repurchase agreement are less than the repurchase price. Repurchase
agreements maturing in more than seven days are considered by the Fund to be
illiquid. In addition, the Fund, together with other registered investment
companies having advisory agreements with the Investment Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.
ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets
in securities which are illiquid, including securities that are not readily
marketable, repurchase agreements maturing in more than seven days, interest
rate and mortgage swaps, interest rate caps, floors and collars, certain SMBS
and securities that are restricted as to resale. However, a restricted security
is not considered to be illiquid if the Trustees of the Trust determine, based
upon the Investment Adviser's continuing review of the trading markets for the
specific restricted security, under guidelines adopted by the Trustees of the
Trust and subject to the Trustees' oversight and ultimate responsibility, that
such restricted security eligible for resale under Rule 144A under the
Securities Act of 1933 is liquid. In addition, a repurchase agreement which by
its terms can be liquidated before its nominal fixed term on seven days or less
notice is regarded as a liquid instrument. Subject to the 15% limitation on
illiquid securities investments, the Fund may acquire U.S. Government
securities in a private placement.
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Since it is not possible to predict with assurance exactly how this market
for restricted securities sold and offered under Rule 144A will develop, the
Board of Trustees will carefully monitor the Fund's investments in these
securities, focusing on such important factors, among others, as valuation,
credit quality, liquidity and availability of information. This investment
practice could have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
OTHER INVESTMENT COMPANIES. The Fund reserves the right to invest up to 10%
of its total assets, calculated at the time of purchase, in the securities of
other investment companies, including business development companies and small
business investment companies. The Fund may not invest more than 5% of its
total assets in the securities of any one investment company or acquire more
than 3% of the voting securities of any other investment company. Pursuant to
an exemptive order obtained from the SEC, other investment companies in which
the Fund may invest include money market funds for which the Investment Adviser
or any of its affiliates serves as investment adviser. The Fund will indirectly
bear its proportionate share of any management fees and other expenses paid by
investment companies in which it invests in addition to the advisory fees paid
by the Fund. However, to the extent that the Fund invests in a money market
fund for which the Investment Adviser or any of its affiliates acts as adviser,
the advisory fees payable by the Fund to the Investment Adviser will be reduced
by an amount equal to the Fund's proportionate share of the advisory fees paid
by such money market fund to the Investment Adviser or any of its affiliates.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which, as described in
more detail in the Additional Statement, are fundamental policies that cannot
be changed without the approval of a majority of the outstanding shares of the
Fund. Among other restrictions, the Fund may not, with respect to 75% of its
total assets, purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if more than 5% of its total assets would be invested in such issuer, or invest
more than 25% of its total assets in the securities of issuers (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) in any one industry. The Fund may borrow money but only as a
temporary measure for extraordinary or emergency purposes, provided that the
Fund maintains asset coverage of 300% for all such borrowings. As a matter of
non-fundamental policy, the Fund may not purchase securities while such
borrowings exceed 5% of the value of the Fund's total assets.
PORTFOLIO TURNOVER
It is anticipated that the portfolio turnover rate of the Fund will vary from
year to year. The portfolio turnover rate is computed by dividing the lesser of
the amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by the Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for
the Fund consistent with the Fund's investment objective and portfolio
management policies. A higher rate of portfolio turnover results in increased
transaction costs to the Fund. The portfolio turnover rate includes the effect
of entering into mortgage dollar rolls.
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MANAGEMENT
TRUSTEES AND OFFICERS
The Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Adviser, distributor and
transfer agent. The officers of the Trust conduct and supervise the Fund's
daily business operations. The Additional Statement contains information as to
the identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISER
Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New York
10004, a Delaware limited partnership which is an affiliate of Goldman Sachs,
acts as the investment adviser of the Fund. Goldman Sachs Funds Management,
L.P. was registered as an investment adviser in 1990. As of January 31, 1995,
the Investment Adviser, together with its affiliates, acted as investment
adviser, administrator or distributor for approximately $48.7 billion in
assets.
Under its Investment Advisory Agreement with the Fund, Goldman Sachs Funds
Management, L.P., subject to the general supervision of the Board of Trustees,
manages the Fund's portfolio and provides for the administration of all of the
Fund's other affairs. It is the responsibility of the Investment Adviser to
make investment decisions for the Fund and to place purchase and sale orders
for the Fund's portfolio transactions. Such orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
Goldman Sachs or its affiliates. Goldman Sachs has agreed to permit the Fund to
use the name "Goldman Sachs" or a derivative thereof as part of the Fund's name
for as long as the Investment Advisory Agreement is in effect.
The Fund's portfolio managers are Jonathan A. Beinner and Theodore T. Sotir.
Mr. Beinner specializes in investing in a particular type of security the Fund
may hold. Mr. Sotir helps with overall portfolio strategy and is a member of
the Investment Adviser's risk control team. Mr. Beinner joined the Investment
Adviser in 1990 and is currently a Vice President, after working in the trading
and arbitrage group of Franklin Savings Association. Mr. Sotir joined the
Investment Adviser in 1993 and is currently a Vice President, after working as
a portfolio manager at Fidelity Management Trust Company. Prior to joining
Fidelity, Mr. Sotir worked for Goldman Sachs in the mortgage securities
department for six years.
As compensation for the services rendered to the Fund by the Investment
Adviser pursuant to the Investment Advisory Agreement, and the assumption by
the Investment Adviser of the expenses related thereto, the Fund pays the
Investment Adviser a fee, computed daily and payable monthly, at an annual rate
equal to 0.40% of the Fund's average daily net assets. For the fiscal year
ended October 31, 1994, the Fund paid an advisory fee to the Investment Adviser
equal to 0.40% of the Fund's average daily net assets.
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
certain expenses of the Fund (excluding advisory fees, fees payable under
Administration, Service, Distribution and Authorized Dealer Service Plans,
taxes, interest and brokerage and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.05% annually of
the Fund's average net assets. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified by
the Investment Adviser at its discretion at any time. The Investment Adviser
has also agreed
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to reduce its fees payable (to the extent of such fees) by the amount the
Fund's expenses would, absent the fee reduction, exceed the applicable expense
limitations imposed by state securities administrators. See "Management--
Expenses" in the Additional Statement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Adviser, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts and
other activities of Goldman Sachs may present conflicts of interest with
respect to the Fund or limit its investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Fund and/or which engage in
and compete for transactions in the same types of securities and instruments as
the Fund. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strategies,
or the activities or strategies used for other accounts managed by them, for
the benefit of the management of the Fund and it is not anticipated that the
Investment Adviser will have access to proprietary information for the purpose
of managing the Fund. The results of the Fund's investment activities,
therefore, may differ from those of Goldman Sachs and its affiliates and it is
possible that the Fund could sustain losses during periods in which Goldman
Sachs and its affiliates and other accounts achieve significant profits on
their trading for proprietary or other accounts. From time to time, the Fund's
activities may be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. See "Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York, serves as the exclusive
distributor of the Fund's shares. Goldman Sachs, 4900 Sears Tower, Chicago,
Illinois, also serves as the Fund's transfer agent (the "Transfer Agent").
Shareholders of record with inquiries regarding the Fund should contact Goldman
Sachs (as Transfer Agent) at the address or the telephone number set forth on
the inside front cover page of this Prospectus.
NET ASSET VALUE
The net asset value per share is calculated by the Fund's custodian as of the
close of regular trading on the New York Stock Exchange (normally 3:00 p.m.
Chicago time, 4:00 p.m. New York time), immediately after determination of the
income to be declared as a dividend on each Business Day (as such term is
defined under "Additional Information"). Net asset value per share of each
class is calculated by determining the net assets attributable to each class
and dividing by the number of outstanding shares of that class.
Investments in Mortgage-Backed Securities and other debt obligations are
valued at fair value, based on yield equivalents, a pricing matrix or other
sources, under valuation procedures established by the Trust's Board of
Trustees. Other portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations furnished by pricing
services or provided by dealers in such securities. Portfolio securities for
which accurate market quotations are not readily available are valued in
accordance with the Trust's valuation procedures. Debt obligations with a
remaining maturity of
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60 days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time the Fund may publish yield and average annual total return
in advertisements and communications to shareholders or prospective investors.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the net
asset value per share on the last day of the relevant period. The results are
compounded on a bond equivalent (semi-annual) basis and then annualized. Net
investment income per share is equal to the dividends and interest earned
during the period, reduced by accrued expenses for the period. The calculation
of net investment income for these purposes may differ from the net investment
income determined for accounting purposes.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at net asset value.
The total return calculation assumes a complete redemption of the investment at
the end of the relevant period. The Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. Any
performance data which is based upon the Fund's net asset value per share would
be reduced if the sales charges applicable to Class A Shares were taken into
account. In addition to the above, the Fund may from time to time advertise its
performance relative to certain performance rankings and indices.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the ending net asset value or
maximum public offering price as the last day of the period for which the
distribution rates are being calculated.
The investment results of the Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided in
shareholder reports, the Fund may, in its discretion, from time to time make a
list of its holdings available to investors upon request.
Yield, total return and distribution rate will be calculated separately for
each class of shares in existence. Because each class of shares may be subject
to different expenses, the yield, total return and distribution rate
calculations with respect to each class of shares of the Fund for the same
period will differ. Due to the fees payable under the Distribution, Authorized
Dealer Service, Service and the Administration Plans, the investment
performance, for any period, of the Institutional Shares will always be higher
than that of the Class A Shares, Service Shares and the Administration Shares.
The investment performance of the Administration Shares will always be higher
than that of the Service Shares. The investment performance of the Class A
Shares will be affected by the payment of a sales charge. Without giving effect
to sales charges, the investment performance of Class A Shares will be
identical to the
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Administration Shares as long as Goldman Sachs continues to waive its fee under
the Distribution Plan. See "Shares of the Trust" below.
SHARES OF THE TRUST
The Fund is a series of Goldman Sachs Trust, which was organized under the
laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement the Trustees are
authorized to issue an unlimited number of shares of beneficial interest, $.001
par value per share. The Trustees of the Trust are responsible for the overall
management and supervision of its affairs. The Trustees of the Trust have
authority under the Trust Agreement to create and classify shares of beneficial
interest in separate series, without further action by shareholders. As of the
date of this Prospectus, the Trustees have authorized shares of the Fund and
six other series. Additional series may be added in the future. The Trustees
also have authority to classify or reclassify any series or portfolio of shares
into one or more classes. Pursuant thereto, the Trustees have authorized the
issuance of four classes of shares of the Fund. These classes are:
Institutional Shares, Administration Shares, Service Shares and Class A Shares.
As of October 31, 1994, no Service Shares or Class A Shares of the Fund were
outstanding.
Each Institutional Share, Administration Share, Service Share and Class A
Share of the Fund represents an equal proportionate interest in the assets
belonging to the Fund. All Fund expenses are based on a percentage of the
Fund's aggregate average net assets, except that the respective fees under
Administration, Service, Distribution and Authorized Dealer Service Plans
relating to a particular class, will be borne exclusively by that class.
Class A Shares of a Fund may be bought at net asset value plus a sales
charge of up to 1.5% of the purchase price through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. ("NASD") and certain other financial service firms that have
entered into a sales agreement with Goldman Sachs ("Authorized Dealers"). The
minimum investment requirements, services, programs and purchase and redemption
options for shares purchased through a particular Authorized Dealer may be
different from those available to investors purchasing through other Authorized
Dealers. Class A Shares bear the cost of fees under a Distribution Plan at the
annual rate of up to 0.25% of the average daily net asset of such Class A
Shares. Goldman Sachs has agreed to waive the distribution fee payable by the
Fund. Goldman Sachs has no current intention of modifying or discontinuing such
waiver, but may do so in the future at its discretion. Class A Shares also bear
to cost of fees under an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average dialy net assets attributable to Class A Shares.
It is contemplated that most Administration Shares and Service Shares will be
held in accounts of which the record owner is a bank or other institution
acting, directly or through an agent, as nominee for its customers who are the
beneficial owners of the shares or another organization designated by such bank
or institution. Administration Shares and Service Shares will each be marketed
only to such institutional investors, at net asset value with no sales load.
Institutional Shares may be purchased for accounts in the name of an investor
or institution that is not compensated by the Fund for services provided to the
institution's customers. Administration Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
services to its customers, including maintenance of account records and
processing orders to purchase, redeem or exchange Administration
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Shares. Administration Shares bear the cost of account administration fees at
the annual rate of up to 0.25% of the average daily net assets of such
Administration Shares. Service Shares may be purchased for accounts held in the
name of an institution that provides certain account administration and
shareholder liaison services to its customers, including maintenance of account
records and processing orders to purchase, redeem or exchange Service Shares,
responding to customer inquiries and assisting customers with investment
procedures. Service Shares bear the cost of service fees at the annual rate of
up to 0.50% of the average daily net assets of such Service Shares.
(Institutions that provide services to holders of Administration or Service
Shares are referred to in this Prospectus as "Service Organizations").
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration, Service and Class A
Shares) to its customers and thus receive different compensation with respect
to different classes of shares of the Fund. Administration Shares, Service
Shares and Class A Shares may each have certain exclusive voting rights on
matters relating to their respective plans. Shares of each class may be
exchanged only for shares of the same class in another fund and certain money
market funds sponsored by Goldman Sachs. The Fund may amend such policy in the
future. Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time on the same day
and will be in the same amount, except for differences caused by the fact that
the respective fees under Administration, Service and Distribution Plans
relating to a particular class will be borne exclusively by that class.
Similarly, the net asset value per share will vary depending on the class of
shares purchased.
Certain aspects of the shares may be altered, after advance notice to
shareholders, if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the 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.
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
provisions intended to limit such liability and to provide indemnification out
of Trust property of any shareholder charged or held personally liable for
obligations or liabilities of the Trust solely by reason of being or having
been a shareholder of the Trust and not because of such shareholder's acts or
omissions or for some other reason. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations.
Unless otherwise required by the Act, ordinarily it will not be necessary for
the Trust to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of Trustees or the appointment of
independent accountants. Shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Trust's outstanding shares and the Trustees
must promptly call a meeting
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for such purpose when requested to do so in writing by the record holders of
not less than 10% of the outstanding shares of the Trust. Shareholders may,
under certain circumstances, communicate with other shareholders in connection
with requesting a special meeting of shareholders. The Board of Trustees,
however, will call a special meeting for the purpose of electing Trustees if,
at any time, less than a majority of Trustees holding office at the time were
elected by shareholders.
In the interest of economy and convenience, the Trust does not issue share
certificates. Instead, the Transfer Agent maintains a record of each
shareholder's ownership. Each shareholder receives confirmation of purchase and
redemption orders from the Transfer Agent. Shares and any dividends and
distributions paid by the Fund are reflected in account statements from the
Transfer Agent.
TAXATION
FEDERAL TAXES
The Fund is treated as a separate entity for tax purposes. The Fund has
qualified and elected to be treated as a regulated investment company under
Subchapter M of the Code and intends to continue to qualify for such treatment.
To qualify for treatment as a regulated investment company, the Fund must
satisfy certain requirements relating to the sources of its income,
diversification of its assets and distribution of its income to shareholders.
As a regulated investment company, the Fund will not be subject to federal
income or excise tax on any net investment income and net realized capital
gains that are distributed to its shareholders in accordance with certain
timing requirements of the Code.
Dividends paid by the Fund from net investment income, the excess of net
short-term capital gain over net long-term capital loss and original issue
discount or certain market discount income will be taxable to shareholders as
ordinary income. Dividends paid by the Fund from the excess of net long-term
capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long the shareholders have held their shares.
These tax consequences will apply regardless of whether distributions are
received in cash or reinvested in shares. Certain distributions paid by the
Fund in January of a given year may be taxable to shareholders as if received
the prior December 31. Shareholders will be informed annually about the amount
and character of distributions received from the Fund for federal income tax
purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events on which a shareholder
may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish the Fund with their correct taxpayer
identification number and certain certifications or if they are otherwise
subject to backup withholding. Individuals, corporations and other shareholders
that are not U.S. persons under the Code are subject to different tax rules and
may be subject to nonresident alien withholding at the rate of 30% (or a lower
rate provided by an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund.
28
<PAGE>
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local or
foreign taxes on payments received from the Fund. A state income (and possibly
local income and/or intangible property) tax exemption is generally available
to the extent the Fund's distributions are derived from interest on (or, in the
case of intangibles taxes, the value of its assets is attributable to) certain
U.S. Government obligations, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
Shareholders should consult their own tax advisers with respect to the
federal, state, local and foreign tax consequences of investing in the Fund in
their particular circumstances. See the Additional Statement for a further
discussion of certain tax consequences of investing in shares of the Fund.
ADDITIONAL INFORMATION
The term "majority of the outstanding shares" of the Fund means the vote of
the lesser of (i) 67% or more of the shares present at the meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
29
<PAGE>
REPORTS TO SHAREHOLDERS
Class A shareholders will receive an annual report containing audited
financial statements and a semi-annual report. Each Class A shareholder will
also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual quarterly account statement. A year-to-
date statement for any account will be provided upon request made to Goldman
Sachs. The Fund does not generally provide sub-accounting services in
connection with Class A Shares.
DIVIDENDS
The Fund intends to declare a daily dividend determined with the objective of
distributing the majority of net investment income while enhancing the
stability of principal. Such dividend will accrue to shareholders entitled to
receive a dividend as of 3:00 p.m. Chicago time, and will be paid monthly. Over
the course of the fiscal year, dividends accrued and paid will constitute all
or substantially all of the Fund's net investment income. From time to time a
portion of such dividends may constitute a return of capital. The Fund also
intends that all net realized long-term and short-term capital gains will be
declared as a dividend at least annually. In determining amounts of capital
gains to be distributed, capital losses including any available capital loss
carryovers from prior taxable years will be offset against capital gains.
The Fund's net investment income is determined on a daily basis. On days on
which net asset value is calculated, such determination is made immediately
prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago
time. On days on which net asset value is not calculated, such determination is
made as of 3:00 p.m. Chicago time.
Payment of dividends from net investment income will be made on the last
calendar day of each month (i) in additional Class A Shares of the Fund or (ii)
in Class A Shares (or an equivalent class) of any of the Goldman Sachs
Portfolios or units of the ILA Portfolios, as described under "Purchase of
Shares--Cross-Reinvestment of Dividends and Distributions," unless cash
distributions are elected, in which case payment will be made on the first
Business Day of the succeeding month. Payment of dividends with respect to
capital gains, if any, when declared will be made in additional shares of the
Fund at the net asset value on the payment date, unless cash distributions are
elected. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gains
distributions will be reinvested in Class A Shares of the Fund. If cash
dividends are elected with respect to the Fund's net investment income
dividends then cash dividends must also be elected with respect to the non-
long-term capital gains component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of Class A Shares of the Fund a portion
of the net asset value per share may be represented by undistributed income of
the Fund or realized or unrealized appreciation of the Fund's portfolio
securities. Therefore, subsequent distributions (or portions thereof) of
taxable income or realized appreciation on such Class A Shares may be taxable
to the investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the cost of such shares and the
distribution (or portions thereof) represent a return of a portfolio of the
purchase price.
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<PAGE>
PURCHASE OF CLASS A SHARES
Class A Shares of the Fund may be purchased in any amount (subject to the
minimum investment requirement) through any Authorized Dealer (including
Goldman Sachs) on any Business Day (as defined under "Additional Information")
at the net asset value next determined after receipt of an order, plus the
applicable sales charge. The sales charge will vary with the size of the
purchase as shown in the table below and under certain other conditions as
described below. The Fund receives the net asset value per share, while the
sales charge is divided between Goldman Sachs and the Authorized Dealer. If, by
the close of regular trading on the New York Stock Exchange (currently 3:00
p.m. Chicago time, 4.00 p.m. New York time), a purchase order is received by
Goldman Sachs or an Authorized Dealer, the price per share will be based on the
net asset value computed on the day the purchase order is received. See "Net
Asset Value." If a purchase order is received by an Authorized Dealer by 3:00
p.m., Chicago time and payment is made by wire transfer or ACH transfer, Class
A Shares will be issued and dividends will begin to accrue on the purchased
Shares on the later of (i) the Business Day after receipt by the Authorized
Dealer of the purchase order or (ii) the date of receipt of payment for the
Shares. If a purchase order is received by an Authorized Dealer by 3:00 p.m.,
Chicago time and payment is made by check, Federal Reserve draft or bank wire,
Class A Shares will be issued and dividends will begin to accrue on the
Business Day after the date payment is received.
PURCHASE PROCEDURES
Purchases of Class A Shares may be made by check (except that a check drawn
on a foreign bank will not be accepted), Federal Reserve draft, Federal Funds
wire, ACH transfer or bank wire. Checks or Federal Reserve drafts should be
made payable as follows: (i) to an investor's Authorized Dealer, if purchased
through such Authorized Dealer, or (ii) to "Goldman Sachs Trust--GS Adjustable
Rate Government Agency Fund" and should be directed to Goldman Sachs Trust--GS
Adjustable Rate Government Agency Fund--Class A Shares, c/o National Financial
Data Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
Federal Funds wires, ACH transfers and bank wires should be sent to State
Street Bank and Trust Company ("State Street"). Payment by check, Federal
Reserve draft, Federal Funds wire, ACH transfer or bank wire must be received
within five business days of receipt of the purchase order by the Fund, Goldman
Sachs or an Authorized Dealer. An investor's Authorized Dealer is responsible
for forwarding payment promptly to the Fund.
In order to make an initial investment in Class A Shares of the Fund, an
investor must establish an account with the Fund by furnishing the necessary
information to the Fund, Goldman Sachs or any Authorized Dealer. An Account
Information Form, a copy of which is attached to this Prospectus, should be
used to establish such an account. The Fund reserves the right to refuse to
open an account for, or to close the account of, any investor who fails to (1)
provide a social security number or other taxpayer identification number, or
(2) certify that such number is correct (if required to do so under applicable
law) in establishing an account. Subsequent purchases of shares may be made in
the manner set forth in the preceding paragraph.
The minimum initial investment in Class A Shares of the Fund is currently
$1,500, except in connection with the special investment programs described
below and purchases by certain institutional investors as described below, and
in conjunction with various monthly accumulation plans established with certain
Authorized Dealers. The minimum initial investment in Class A Shares of the
Fund is currently $50,000 for unitholders or shareholders of Goldman Sachs
Money Market Trust, GS Core Fixed Income Fund, GS Short-Term Government Agency
Fund, GS Short Duration Tax-Free Fund or the Fund that are
31
<PAGE>
banks, trust companies or other types of depository institutions. These
requirements may be waived at the discretion of the Trust's officers. Except in
connection with certain investment programs, a minimum of $50 is required for
subsequent investments. The Fund reserves the right to redeem Class A Shares of
any shareholder whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of a
shareholder's account falls below the minimum account balance solely as a
result of market conditions. The Fund will give sixty (60) days' prior written
notice to shareholders whose shares are being redeemed to allow them to
purchase sufficient additional Class A Shares of the Fund to avoid such
redemption. In addition, the Fund and Goldman Sachs reserve the right to modify
the minimum investment, the manner in which shares are offered and the sales
charge rates applicable to future purchases of shares.
OFFERING PRICE
The offering price for Class A Shares of the Fund is the next determined net
asset value per share plus a sales charge, if any, paid at the time of purchase
of Class A Shares as shown in the following table or as set forth under
"Participant--Directed Plans":
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCUDING SALES CHARGE, IF ANY)L OFFERING PRICE INVESTED OFFERING PRICE
- -------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Less than $500,000................ 1.50% 1.52% 1.25%
$500,000 up to (but less than) $1
million.......................... 1.00 1.01 0.75
$1 million or more................ 0.00 0.00 0.00
</TABLE>
In addition to concessions allowed to Authorized Dealers, Goldman Sachs may,
from time to time, assist Authorized Dealers by among other things, providing
sales literature to and holding informational programs for the benefit of
Authorized Dealers' registered representatives. Authorized Dealers may limit
the participation of registered representatives in such informational programs
by means of sales incentive programs which may require the sale of minimum
dollar amounts of shares of the Goldman Sachs Portfolios. Goldman Sachs may
also provide additional promotional incentives to Authorized Dealers in
connection with sales of shares of the Goldman Sachs Portfolios. These
incentives may include payment for travel expenses, including lodging, incurred
in connection with trips taken by qualified registered representatives and
members of their families within or without the United States. Incentive
payments will be provided for out of the sales charge and distribution fees or
out of Goldman Sachs' other resources. Other than sales charges and
distribution fees, the Fund and its shareholders do not bear distribution
expenses. An Authorized Dealer receiving such incentives may be deemed to be an
underwriter under the 1933 Act. In some instances, such incentives may be made
available only to certain Authorized Dealers whose representatives have sold or
are expected to sell significant amounts of shares.
Class A Shares of the Fund may be sold at net asset value without payment of
any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of the
above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of any
32
<PAGE>
Authorized Dealer or their respective spouses and minor children; (e)
institutional investors, including insurance companies, broker-dealers,
discretionary accounts of investment advisers with at least $100 million under
management for the last twelve months and business entities that have either
gross assets of at least $100 million or publicly traded securities
outstanding; (f) unitholders or shareholders of Goldman Sachs Money Market
Trust, the Fund, GS Core Fixed Income Fund, GS Short-Term Government Agency
Fund or GS Short Duration Tax-Free Fund that are banks, trust companies or
other types of depository institutions; (g) any state, county or city, or any
instrumentality, department, authority or agency thereof, which is prohibited
by applicable investment laws from paying a sales charge or commission in
connection with the purchase of shares of the Fund; (h) pension and profit
sharing plans, pension funds or other benefit plans sponsored by state and
municipal governments and by certain business entities, and Taft-Hartley plans,
provided any such plan has a minimum of $25 million under management; (i)
qualified non-profit organizations, foundations and endowments that have gross
assets of at least $100 million; and (j) to shareholders whose purchase is
attributable to redemption proceeds (subject to appropriate documentation) from
a registered open-end management investment company not distributed or managed
by Goldman Sachs or its affiliates, if such redemption has occurred no more
than 60 days prior to the purchase of shares of the Fund and the shareholder
either (i) paid an initial sales charge or (ii) was at some time subject to a
deferred sales charge with respect to the redemption proceeds. In order to take
advantage of these exemptions, a purchaser must certify its eligibility for an
exemption to Goldman Sachs on its Account Information Form and must certify on
such Form that it will notify Goldman Sachs if, at the time of an additional
purchase, it is no longer eligible for an exemption. Goldman Sachs reserves the
right to request additional certification or information from a purchaser in
order to verify that such purchaser is eligible for an exemption. Goldman Sachs
reserves the right to limit the participation in the Fund of its partners and
employees. In addition, under certain circumstances, dividends and
distributions from any Goldman Sachs Portfolio may be reinvested in Class A
Shares of the Fund at net asset value, as described under "Cross-Reinvestment
of Dividends and Distributions."
PARTICIPANT-DIRECTED PLANS
Participant-directed qualified retirement plans, including 401(k), 403(b),
457 and tax-sheltered annuity plans, may purchase Class A Shares of the Fund at
net asset value per share plus a sales charge, except as set forth below, at
the time of purchase of Class A Shares, as shown in the following table.
<TABLE>
<CAPTION>
AMOUNT OF
PURCHASE SALES CHARGE MAXIMUM DEALER
(INCLUDING SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
SALES PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE
--------------- --------------- ------------- --------------
<S> <C> <C> <C>
Less than $500,000............... 1.50% 1.52% 1.25%
$500,000 or more................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable by participant-directed plans at the time of
purchase on investments of $500,000 or more, but for such investments a
contingent deferred sales charge, as described below, may be imposed in the
event of certain redemptions within one year of purchase.
33
<PAGE>
** Goldman Sachs may pay a one-time commission equal to a percentage of the
amount of shares purchased to Authorized Dealers who initiate or are
responsible for purchases by participant-directed plans of $500,000 or more
of Class A Shares of the Funds, at the rates shown in the following table:
<TABLE>
<CAPTION>
MAXIMUM DEALER
COMMISSION AS
PERCENTAGE OF
AMOUNT OF PURCHASE AMOUNT OF PURCHASE
------------------ ------------------
<S> <C>
$500,000 up to (but less than) $2 million................. 1.00%
$2 million up to (but less than) $3 million............... 0.80
$3 million up to (but less than) $50 million.............. 0.50
$50 million up to (but less than) $100 million............ 0.25
$100 million or more...................................... 0.15
</TABLE>
Participant-directed plans are defined as qualified employee benefit plans
not affiliated with Goldman Sachs which allow their participants to select
among one or more investment options, including the Fund's Class A Shares. In
order to take advantage of the reduced sales charge rate described herein, the
sponsor of a participant-directed plan must submit an investment authorization
form to Goldman Sachs (the "Authorization Form") which establishes the Fund as
an eligible investment for the plan.
CUMULATIVE QUANTITY DISCOUNTS. For purposes of determining the amount of pur-
chase and the sales charge rate applicable to purchases by participant-directed
plans, Class A Shares of the Fund and any other Goldman Sachs Portfolio will be
combined with shares purchased or held for all participants in the same partic-
ipant-directed plan. Participant-directed plans may qualify for cumulative
quantity discounts by using the right of accumulation and statement of inten-
tion in the manner described in this Prospectus. If a plan does not purchase
the entire amount of Class A Shares contemplated by a statement of intention,
Goldman Sachs may elect not to pursue the recovery of any additional sales
charge due if the amount of the sales charge or the investment shortfall is
considered de minimis by Goldman Sachs.
CONTINGENT DEFERRED SALES CHARGE. Purchases by participant-directed plans of
$500,000 or more of Class A Shares of the Fund will be made at net asset value
with no initial sales charge. However, if, within 12 months after the effective
date of the applicable Authorization Form, the plan sponsor notifies Goldman
Sachs that it is terminating the eligibility of the Fund as an investment for
its plan, a contingent deferred sales charge ("CDSC") will be imposed on all
redemptions resulting from such termination. Any CDSCs will be paid to the
Fund's principal distributor, Goldman Sachs. The amount of the CDSC will be
equal to 1% of the current market value or the original purchase cost of the
redeemed Class A Shares, whichever is less. No CDSC will be imposed on in-
creases in account value above the initial purchase price, including any divi-
dends that have been reinvested in additional Class A Shares. In determining
whether a CDSC applies to a redemption, the calculation will be made in a man-
ner that results in the lowest possible CDSC.
EXCHANGES. No CDSC is imposed upon exchanges between the Fund and another
Goldman Sachs Portfolio or an ILA Portfolio. However, Class A Shares acquired
in an exchange will be subject to the CDSC to the same extent as if there had
been no exchange. (As stated above, no CDSC will be imposed unless the plan
sponsor terminates the eligibility of the Fund as an investment for the plan
within the first twelve months). For purposes of determining whether the CDSC
is applied, the length of time a plan has owned Class A Shares acquired by ex-
change will be measured from the date the plan acquired the original Class A
Shares and will not be affected by any subsequent exchange.
34
<PAGE>
OTHER PURCHASE INFORMATION
Information concerning purchases of Class A Shares through an Authorized
Dealer should be obtained directly from the Authorized Dealer. In the case of
purchases made through the investor's Authorized Dealer, it is the
responsibility of such Authorized Dealer to promptly forward payment to the
Fund for Class A Shares being purchased. Authorized Dealers who receive a
portion of the sales charge applicable to the purchase of Class A Shares of the
Fund will not be permitted to impose any other fees in connection with the
purchase of such shares.
If Class A Shares of the Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Fund will have no record of the beneficial owner's transactions, a beneficial
owner of Class A Shares should contact the Authorized Dealer to purchase,
redeem or exchange Class A Shares, to make changes in or give instructions
concerning the account or to obtain information about the account. The transfer
of shares in a "street name" account to an account with another dealer or to an
account directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the Class A
Shares in the account from the Authorized Dealer.
The Fund and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). The Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Class A Shares by a
particular purchaser or group, for example, when a pattern of frequent
purchases and sales of Class A Shares of the Fund is evident, or if the
purchase and sale or exchange orders are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of the Fund.
Goldman Sachs may from time to time, at its own expense, provide compensation
to certain Authorized Dealers for performing administrative services for their
customers. These services include maintaining account records, processing
orders to purchase, redeem and exchange Class A Shares and responding to
certain customer inquiries. The amount of such compensation may be up to .1125%
annually of the average net assets of the Fund attributable to Class A Shares
held by customers of such Authorized Dealers. In addition, Goldman Sachs may
from time to time, at its own expense, provide compensation to certain
Authorized Dealers who perform administrative services with respect to
depository institutions whose customers purchase Class A Shares of the Fund.
These services include responding to certain inquiries from and providing
written materials to depository institutions about the Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required
to conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions. The amount of such compensation may be up to .08%
annually of the average net assets of the Fund attributable to Class A Shares
purchased through, and held by the customers of, such depository institutions.
Such compensation does not represent an additional expense to the Fund or its
Class A shareholders, since it will be paid from the assets of Goldman Sachs or
its affiliates.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder whose Class A Shares are redeemed may reinvest at net asset
value any portion or all of his redemption proceeds (plus that amount necessary
to acquire a fractional share to round off his purchase to the nearest full
share) in Class A Shares of the Fund or any other Goldman Sachs Portfolio.
35
<PAGE>
Shareholders should obtain and read the applicable prospectuses of such other
funds and consider their objectives, policies and applicable fees carefully
before investing in any of such funds. This reinvestment privilege is subject
to the condition that the Class A Shares redeemed have been held for at least
thirty (30) days before the redemption and that the reinvestment is effected
within ninety (90) days after such redemption. Class A Shares are sold to a
reinvesting shareholder at the net asset value next determined following timely
receipt by Goldman Sachs or an Authorized Dealer of a written purchase order
indicating that the shares are eligible for reinvestment at net asset value.
A reinvesting shareholder may realize a gain or loss for federal tax purposes
as a result of such redemption. If the redemption occurs within ninety (90)
days after the original purchase of the Class A Shares, any sales charge paid
on the original purchase cannot be taken into account by a shareholder
reinvesting at net asset value pursuant to the reinvestment privilege for
purposes of determining gain or loss realized on the redemption, but instead
will be added to the tax basis of the Class A Shares received in the
reinvestment. To the extent that any loss is realized and shares of the same
Fund are purchased within thirty (30) days before or after the redemption, some
or all of the loss generally may not be allowed as a deduction depending upon
the number of shares purchased. Class A shareholders should consult their own
tax advisers concerning the tax consequences of a reinvestment. Upon receipt of
a written request, the reinvestment privilege may be exercised once annually by
a shareholder, except that there is no such limit as to the availability of
this privilege in connection with transactions the sole purpose of which is to
reinvest the proceeds at net asset value in a tax-sheltered retirement plan.
RIGHT OF ACCUMULATION
A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Fund and shares of any other Goldman Sachs Portfolio total the requisite amount
for receiving a discount. For example, if a shareholder owns Class A Shares
with a current market value of $460,000 and purchases additional Class A Shares
of the Fund with a purchase price of $40,000, the sales charge for the $40,000
purchase would be 1.00% (the rate applicable to a single purchase of $500,000).
Shares purchased without the imposition of a sales charge may not be aggregated
with shares purchased subject to a sales charge. Class A Shares of the Fund and
any other Goldman Sachs Portfolio purchased (i) by an individual, his spouse
and his minor children, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for such right of
accumulation and, if qualifying, the applicable sales charge level. For
purposes of applying the right of accumulation, Class A Shares of the Fund and
any other Goldman Sachs Portfolio purchased by an existing client of the
Private Client Services Division of Goldman Sachs will be combined with Class A
Shares held by any other account over which such client or client's spouse
exercises investment or voting power. In addition, Class A Shares of the Fund
and shares of any other Goldman Sachs Portfolio purchased by partners,
directors, officers or employees of the same business organization or by groups
of employees of the same business organization or by groups of individuals
represented by and investing on the recommendation of the same accounting firm
or other similar organization (collectively, "eligible persons") may be
combined for the purpose of determining whether a purchase will qualify for the
right of accumulation and, if qualifying, the applicable sales charge level.
This right of accumulation is subject to the following conditions: (i) the
business organization's or firm's agreement to cooperate in the offering of the
Fund's shares to eligible persons; and (ii) notification to the Fund at the
time of purchase that the investor is eligible for this right of accumulation.
36
<PAGE>
STATEMENT OF INTENTION
If a shareholder anticipates purchasing at least $500,000 of Class A Shares
of the Fund alone or in combination with shares of any other Goldman Sachs
Portfolio within a 13-month period, the shareholder may purchase Class A Shares
of the Fund at a reduced sales charge by submitting a Statement of Intention
(the "Statement"). See Appendix A of the Prospectus. Class A Shares purchased
pursuant to a Statement will be eligible for the same sales charge discount
that would have been available if all of the purchases had been made at the
same time. The shareholder or his Authorized Dealer must inform Goldman Sachs
that the Statement is in effect each time shares are purchased. There is no
obligation to purchase the full amount of Class A Shares indicated in the
Statement. A shareholder may include the value of all Class A Shares on which a
sales charge has been previously paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on
Class A Shares previously purchased within ninety (90) days before submitting
the Statement. The Statement authorizes the Transfer Agent to hold in escrow a
sufficient number of shares which can be redeemed to make up any difference in
the sales charge on the amount actually invested. For purposes of satisfying
the amount specified on the Statement, the gross amount of each investment,
exclusive of any appreciation on shares previously purchased, will be taken
into account.
AUTOMATIC INVESTMENT PLAN
Systematic cash investments in Class A Shares may be made through a
shareholder's bank via the Automated Clearing House Network or a shareholder's
checking account via bank draft each month. Required forms are available from
Goldman Sachs or any Authorized Dealer. A minimum investment of $50 is required
for Automatic Investment Plans.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A Class A shareholder in the Fund may elect to cross-reinvest dividends and
capital gain distributions paid by the Fund at net asset value without a sales
charge in Class A Shares (or an equivalent class) of any other Goldman Sachs
Portfolio or units of the ILA Portfolios. In addition, shareholders of any
other Goldman Sachs Portfolio may elect to cross-reinvest dividends and capital
gains distributions paid by such Goldman Sachs Portfolio at net asset value
without a sales charge in Class A Shares of the Fund. Such cross-reinvestments
are subject to the following conditions: (i) the value of the shareholder's
account(s) in the paying fund must equal or exceed $10,000 and (ii) the value
of the account in the acquired fund must equal or exceed the acquired fund's
minimum initial investment requirement or the shareholder must elect to have
dividends and capital gain distributions paid on the paying and acquired fund
shares automatically reinvested in additional acquired fund shares, until the
value of acquired fund shares in the shareholder's account equals or exceeds
the acquired fund's minimum initial investment requirement. A Fund shareholder
may elect cross-reinvestment into an identical account or an account registered
in a different name or with a different address, social security or other
taxpayer identification number, provided that the account in the acquired fund
has been established, appropriate signatures have been obtained and the minimum
initial investment requirement has been satisfied. A Fund shareholder should
obtain and read the prospectus relating to any other Goldman Sachs Portfolio or
ILA Portfolio and its shares or units and consider its investment objective,
policies and applicable fees before electing cross-reinvestment into that fund.
The election to cross-reinvest dividends and capital gain distributions will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
acquired fund. Such reinvestment
37
<PAGE>
of dividends and distributions in shares of other Goldman Sachs Portfolios or
in units of ILA Portfolios is available only in states where such reinvestment
may legally be made.
TAX-SHELTERED RETIREMENT PLANS
The Fund will offer Class A Shares for purchase by retirement plans,
including Individual Retirement Account Plans for individuals and their
nonemployed spouses and defined contribution plans such as 401(k) Salary
Reduction Plans. See "Participant--Directed Plans".
Detailed information concerning these plans and copies of the plans may be
obtained from the Transfer Agent. This information should be read carefully,
and consultation with an attorney or tax adviser may be advisable. The
information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under all
plans, dividends and distributions will be automatically reinvested in
additional Class A Shares of the Fund or, if so directed by the shareholder, in
cash, in shares of another Goldman Sachs Portfolio or in units of the ILA
Portfolios. An initial investment minimum of $250 applies to purchases in
connection with tax-sheltered retirement plans.
AUTOMATIC EXCHANGE PROGRAM
Class A shareholders of the Fund may elect on the Account Information Form to
automatically exchange a specified dollar amount of Class A Shares of the Fund
at net asset value without an additional sales charge for Class A Shares (or an
equivalent class) of any other Goldman Sachs Portfolio. Shareholders of any
other Goldman Sachs Portfolio may similarly elect to automatically exchange a
specified dollar amount of shares of such Goldman Sachs Portfolio at net asset
value without an additional sales charge for Class A Shares of the Fund. These
automatic exchanges are made monthly on the fifteenth day of each month or the
first Business Day thereafter and are subject to the following conditions. The
minimum dollar amount for automatic exchanges must be at least $50 per month.
At the time the election is made (i) the value of the shareholder's account in
the fund from which the exchange is made must equal or exceed $10,000 and (ii)
the value of the account in the acquired fund must equal or exceed the acquired
fund's minimum initial investment requirement or, if the shareholder has
elected the automatic exchange privilege and the value of the acquired fund
does not equal the acquired fund's minimum, such election must continue until
the minimum initial investment requirement is met. A Fund shareholder may elect
to automatically exchange a specified dollar amount of Class A Shares of the
Fund for shares of any other Goldman Sachs Portfolio into an identical account
or an account registered in a different name or with a different address,
social security or other taxpayer identification number, provided that the
account in the acquired fund has been established, appropriate signatures have
been obtained and the minimum initial investment requirement has been
satisfied. A Fund shareholder should obtain and read the prospectus relating to
any other Goldman Sachs Portfolio and its shares and consider its investment
objective, policies and applicable fees and expenses before electing an
automatic exchange into that Goldman Sachs Portfolio.
EXCHANGE PRIVILEGE
Class A Shares of the Fund may be exchanged at net asset value without an
additional sales charge for: (i) shares of any Goldman Sachs Portfolio; and
(ii) units of the ILA Portfolios. A shareholder should obtain and read the
prospectus relating to a fund and its shares or units and consider its
investment objective, policies and applicable fees before making an exchange
into that fund. The shares or units of these other funds acquired by an
exchange may later be exchanged for Class A Shares of the Fund at the next
determined net asset value without a sales charge if the dollar amount in the
Fund resulting from such exchanges is below the shareholder's all-time highest
dollar amount on which it has previously paid
38
<PAGE>
a sales charge. Shares or units of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for Class A Shares
of the Fund without a sales charge. In addition to free automatic exchanges
pursuant to the Automatic Exchange Program, six free exchanges are permitted in
each twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations (see "Purchase of Shares").
An exchange may be made by either writing to Goldman Sachs, Attention:
Goldman Sachs Trust--GS Adjustable Rate Government Agency Fund, Shareholder
Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711 or, if
previously elected in the Fund's Account Information Form, by telephone at 800-
526-7384 (8:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are employed
to prevent unauthorized or fraudulent exchange requests as set forth under
"Redemption of Shares." Under the telephone exchange privilege, shares may be
exchanged among accounts with different names, addresses and social security or
other taxpayer identification numbers only if the exchange request is in
writing and is received in accordance with the procedures set forth under
"Redemption of Shares." In times of drastic economic or market changes the
telephone exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange is treated as a sale of the
Class A Shares surrendered in the exchange, on which an investor may realize a
gain or loss, followed by a purchase of shares or units received in the
exchange. If such sale occurs within ninety (90) days after the purchase of
such shares, to the extent a sales charge that would otherwise apply to the
shares or units received in the exchange is not imposed, the sales charge paid
on such purchase cannot be taken into account by the exchanging shareholder for
purposes of determining gain or loss realized on such sale for federal income
tax purposes, but instead will be added to the tax basis of the shares or units
received in the exchange. Class A shareholders should consult their own tax
advisers concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a fund must satisfy
the minimum investment requirements of the fund into which the shares are being
exchanged. Exchanges are available only in states where exchanges may legally
be made.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN. The Trust, on behalf of the Fund, has adopted a
Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
Act and a Authorized Dealer Service Plan (the "Service Plan"). Under the
Distribution Plan, Goldman Sachs is entitled to a quarterly fee for
distribution services equal, on an annual basis, to 0.25% of the Fund's average
daily net assets attributable to Class A Shares. Currently, Goldman Sachs has
voluntarily agreed to waive its entire distribution fee. Goldman Sachs has no
current intention of modifying or discontinuing such waiver, but may do so in
the future at its discretion.
Goldman Sachs may use the fee for its expenses of distribution of Class A
Shares of the Fund. In addition, Goldman Sachs may pay up to the entire amount
of such fee to Authorized Dealers for providing services in connection with the
sale of Class A Shares of the Fund. The types of expenses for which
39
<PAGE>
Goldman Sachs and Authorized Dealers may be compensated for distribution
services under the Distribution Plan include compensation paid to and expenses
incurred by their respective officers, employees and sales representatives,
allocable overhead, telephone and travel expenses, the printing of prospectuses
for prospective shareholders, preparation and distribution of sales literature,
advertising of any type and all other expenses incurred in connection with
activities primarily intended to result in the sale of Class A Shares of the
Fund. If the fee received by Goldman Sachs exceeds its expenses, Goldman Sachs
may realize a profit from these arrangements. The Distribution Plan will be
reviewed and is subject to approval annually by the Board of Trustees of the
Trust. The aggregate compensation that may be received under the Distribution
Plan for distribution services may not exceed the limitations imposed by the
NASD's Rules of Fair Practice.
AUTHORIZED DEALER SERVICE PLAN. The Trust, on behalf of the Fund, has adopted
a non-Rule 12b-1 Service Plan pursuant to which Goldman Sachs and Authorized
Dealers are compensated for providing personal and account maintenance
services. The Fund pays a fee under the Service Plan equal on an annual basis
to .25% of its average daily net assets attributable to Class A Shares. The fee
for personal and account maintenance services may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives and
employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their Class A Shares or their accounts or
similar services not otherwise provided on behalf of the Fund. The Service Plan
will be reviewed and subject to approval annually by the Board of Trustees.
REDEMPTION OF CLASS A SHARES
The Fund will redeem its Class A Shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form. See "Net Asset Value." Redemption proceeds will
normally be mailed by check to shareholders within seven (7) days of receipt of
a properly executed request. If Class A Shares to be redeemed were recently
purchased by check, the Fund may delay transmittal of redemption proceeds until
such time as it has assured itself that good funds have been collected for the
purchase of such shares. This may take up to fifteen (15) days. Redemption
requests may be made by writing to or calling the Transfer Agent at the address
or telephone number set forth on the inside front cover page of this Prospectus
or an Authorized Dealer.
A Class A shareholder may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form
accompanying this Prospectus. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. In an effort to
prevent unauthorized or fraudulent redemption and exchange requests by
telephone, Goldman Sachs and NFDS each employ reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Consequently,
proceeds of telephone redemption requests will only be sent to the
shareholder's address of record or authorized bank account designated in the
Account Information Form and exchanges of shares will be only made to an
identical account. Telephone requests will also be recorded. The Trust may
implement other procedures from time to time. If reasonable procedures are not
implemented, the Trust may be liable for any loss due to unauthorized or
fraudulent transactions. In all other cases, neither the Fund, the Trust nor
Goldman Sachs will be responsible for the authenticity of instructions received
by telephone. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account
40
<PAGE>
Information Form, unless the shareholder provides written instructions
(accompanied by a signature guarantee) indicating another address. Class A
Shares earn dividends accrued through the day on which such Class A Shares are
redeemed.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan association,
a building and loan association, a cooperative bank, a federal savings bank or
association, a national securities exchange, a registered securities
association or a clearing agency, provided that such institution satisfies the
standards established by the Transfer Agent.
The Fund will also arrange for the proceeds of redemptions of Class A Shares
effected by any means to be wired as Federal Funds to the bank account
designated in the shareholder's Account Information Form. Redemption proceeds
will normally be wired on the next Business Day in Federal Funds (for a total
one business-day delay) following receipt of a properly executed wire transfer
redemption request. Wiring of redemption proceeds may be delayed one additional
Business Day if the Federal Reserve Bank is closed on the day redemption
proceeds would ordinarily be wired. A transaction fee of $7.50 may be charged
for payments of redemption proceeds from Class A Shares by wire. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs or an Authorized
Dealer, neither the Fund, the Trust, Goldman Sachs nor any Authorized Dealer
assumes any further responsibility for the performance of intermediaries or the
shareholder's bank in the transfer process. If a problem with such performance
arises, the shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
Except with respect to Class A Shareholders whose account balances are less
than $50 or who have not provided a social security number or other taxpayer
identification number and certification (if required) that such number is
correct, Class A Shares are not redeemable at the option of the Fund unless the
Board of Trustees of the Trust determines in its sole discretion that failure
to so redeem may have material adverse consequences to the shareholders of the
Fund. The Fund, however, assumes no responsibility to compel redemptions.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Systematic Withdrawal Plan") will be
available to Class A Shareholders of the Fund whose Class A Shares are worth at
least $10,000. The Systematic Withdrawal Plan provides for monthly payments to
the participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the Systematic
Withdrawal Plan are reinvested in additional full and fractional Class A Shares
of the Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any
41
<PAGE>
time. Goldman Sachs reserves the right to initiate a fee of up to $5 per
withdrawal, upon thirty (30) days written notice to the shareholder. Withdrawal
payments should not be considered to be dividends, yield or income. If periodic
withdrawals continuously exceed new purchases and reinvested dividends and
capital gains distributions, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Furthermore, each withdrawal
constitutes a redemption of shares, and any gain or loss realized must be
reported for federal and state income tax purposes. A Class A shareholder
should consult his or her own tax adviser with regard to the tax consequences
of participating in the Systematic Withdrawal Plan. For further information or
to request a Systematic Withdrawal Plan, please write or call the Transfer
Agent.
42
<PAGE>
APPENDIX A
STATEMENT OF INTENTION
(APPLICABLE ONLY TO SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $500,000 or more of Class A Shares of
the Fund alone or in combination with shares of another fund described in this
Prospectus within a 13-month period, the shareholder may obtain Class A Shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Information Form.
Instructions for issuance of shares in the name of a person who does not sign
the Account Information Form must be accompanied by a written statement stating
that the shares were paid for by a person who signed the Account Information
Form.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman, Sachs & Co. that this Statement of Intention is
in effect each time Class A Shares are purchased.
Subject to the conditions mentioned below, each purchase will be made at the
public offering price applicable to a single transaction of the dollar amount
specified on the Account Information Form, as described in the Prospectus. The
investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of Class A Shares credited toward
completion do not total the sum specified, he will pay the increased amount of
the sales charge prescribed in the Escrow Agreement.
Income dividends and capital gain distributions taken in additional Class A
Shares will apply toward the completion of this Statement of Intention.
This Statement of Intention is not effective until accepted by Goldman, Sachs
& Co.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Information Form shall be held in escrow
by the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his order.
When the minimum investment so specified is completed (either prior to or by
the end of the thirteenth month), the shareholder will be notified and the
escrowed shares will be released.
If the intended investment is not completed, the investor will be asked to
remit to Goldman, Sachs & Co. any difference between the sales charge on the
amount specified and on the amount actually attained. If the investor does not
within 20 days after written request by Goldman, Sachs & Co. pay such
difference in the sales charge, the Transfer Agent will redeem an appropriate
number of the escrowed shares in order to realize such difference. Shares
remaining after any such redemption will be released by the Transfer Agent.
In signing the Account Information Form, the investor irrevocably constitutes
and appoints the Transfer Agent his attorney to surrender for redemption any or
all escrowed shares with full power of substitution in the premises.
A-1
<PAGE>
APPENDIX B
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Social Security
or Other Taxpayer Identification Number (TIN), regardless of whether you file
tax returns. Failure to do so may subject you to penalties. Failure to provide
your correct TIN, to check the appropriate boxes in, and to sign your name in
the Social Security Number or Other Taxpayer Identification Number
Certification section (the "Certification Section") of the Account Information
Form could result in withholding of 31% by the Fund for the federal backup
withholding tax on distributions, redemptions, exchanges and other payments
relating to your account. The Fund reserves the right to refuse to open an
account for, or to close the account of, any investor who fails to (1) provide
a TIN or (2) certify that such TIN is correct (if required to do so under
applicable law) in establishing an account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal Revenue
Service (IRS). If you do not have a TIN but have applied for or intend to apply
for one, you should check the first box in the Certification Section. In this
event, you should provide your TIN and required certifications within 60 days.
Backup withholding could also apply to payments relating to your account prior
to the Fund's receipt of your TIN and required certifications.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
Section.
If you are an exempt recipient, you should furnish your TIN and check the
second box in the Certification Section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, check the third box in the
Certification Section and provide a completed Form W-8 to the Fund in order to
avoid backup withholding on certain payments. Other payments to you may be
subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
B-1
<PAGE>
ACCOUNT INFORMATION FORM THE GOLDMAN SACHS PORTFOLIOS
This Account Information Form Should be Forwarded Promptly to Goldman, Sachs &
Co. or any Authorized Dealer
- --------------------------------------------------------------------------------
SEND TO: The Goldman Sachs Portfolios
c/o NFDS
P.O. Box 419711
Kansas City, MO 64141-6711
For additional information call 1-800-526-7384
Date: __________
- --------------------------------------------------------------------------------
INITIAL INVESTMENT-- [_]Asia Growth Fund (#380) [_]Global Income Fund
$1,500 MINIMUM Class A (#118)
[_]Balanced Fund (#670) [_]Government Income Fund
(#112)
[_]Capital Growth Fund [_]Municipal Income Fund
(#07) (#116)
[_]Growth & Income Fund [_]Other Fund
(#114)
[_]International Equity GOLDMAN SACHS MONEY MARKET
Fund (#115) TRUST*
[_]Select Equity Fund [_]ILA/Prime Obligations
Class A (#117) Portfolio Service Units
(#16)
[_]Small Cap Equity Fund [_]ILA/Tax-Exempt Diversified
(#119) Portfolio Service Units
[_]Adjustable Rate (#120)
Government Agency
Fund Class A (#113)
*$10,000 minimum or balance
of existing account
- --------------------------------------------------------------------------------
1. ACCOUNT Please Print
REGISTRATION INDIVIDUAL
---------------------------------------- --------------
First Name Initial Last SS# or Tax ID#
JOINT TENANTS
The account will be registered as "Joint Tenants with
Right of Survivorship" unless otherwise specified.
---------------------------------------- --------------
First Name Initial Last SS# or Tax ID#
---------------------------------------- --------------
First Name Initial Last SS# or Tax ID#
GIFT TO MINORS
--------------------------------------------------------
Custodian's Name (Only one can be named)
---------------------------------------- --------------
Minor's Name (Only one) SS#
Under the _________ (State of Residence) Uniform Gift to
Minors Act
CORPORATION, TRUST, OR OTHER ENTITY
---------------------------------------- --------------
Name of Corporation, Trust or other Tax ID#
Non-Person Entity
--------------------------------------------------------
Attention:
--------------------------------------------------------
Date of Trust Instrument: Name of Beneficiary (If to be
included in the registration)
--------------------------------------------------------
Name(s) of Trustee(s) (If to be included in the
registration)
- --------------------------------------------------------------------------------
2. MAILING ADDRESS ( )
------------------------------------ ------------------
Street Daytime Phone
--------------------------------------------------------
City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
3. TO PURCHASE SHARES Check appropriate box(es).
[_] A check for $_ is enclosed. Check(s) should be
payable to the Fund(s) selected.
[_] An order # for shares or $_________ was placed
on ________________________.
[_] I certify that I am an entity exempt from the sales
charge according to the section in the Fund
Prospectus "Purchase of Shares" and I am, therefore,
entitled to purchase shares of the Fund at net asset
value. By checking this box, the undersigned agrees
that I will notify Goldman, Sachs & Co. at or prior
to purchase if I am no longer in one of the
categories of eligible investors.
Reason for exemption _______________________________.
- --------------------------------------------------------------------------------
4. DIVIDEND AND Choose how you wish to receive dividends. If no boxes
DISTRIBUTION are checked, Option A will be assigned.
OPTIONS A. [_] All income and capital gains dividends
reinvested in the account.
B. [_] All income and short-term capital gains dividends
in cash and long-term capital gains reinvested in
the account. (COMPLETE CASH DIVIDENDS SECTION
BELOW.)
C. [_] All income and capital gains dividends paid in
cash. (COMPLETE CASH DIVIDENDS SECTION BELOW.)
D. [_] All dividends and capital gains reinvested in
another Goldman Sachs Portfolio account: (See
prospectus regarding limitations on this
privilege.)
Fund Name _________________
Account Name ______________ Account Number ____________
Please send cash dividends to (if no special payee,
cash dividends will be sent to the account registration
address):
[_] Account registration address.
[_] Check to special payee as follows: [_] Deposit to
bank (attach
voided check)
Name of Payee ________________ Account No.
(if applicable) ________
Street Address _________________________________________
City _____________________________ State ____ Zip ______
- --------------------------------------------------------------------------------
5. RIGHT OF ACCUMULATION
See "Purchase of Shares"
Cumulative quantity discounts are applicable if a
shareholder's current value of existing shares of the
Fund alone or in combination with shares of any other
fund described in the Prospectus, on which a sales
charge was paid, total the requisite amount for
receiving a discount as described in the accompanying
Prospectus. Below are listed all the accounts (account
name, Fund and number) which should be aggregated for a
right of accumulation.
Name _____________ Name _____________ Name _____________
Fund _____________ Fund _____________ Fund _____________
Acct No. _________ Acct No. _________ Acct No. _________
- --------------------------------------------------------------------------------
6. STATEMENT OF INTENTION
See "Purchase of Shares"
Although not obligated to do so, it is the undersigned's
intention to invest, over a 13-month period from this
date, in shares of the Fund alone or in combination with
shares of any other fund, on which a sales charge was
paid, described in the Prospectus which qualify for a
quantity discount as described in the accompanying
Prospectus, in an amount that will equal or exceed:
[_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000
[_] $1,000,000 [_] $3,000,000
I agree to the Statement of Intention and Escrow
Agreement set forth in the Appendices to the accompanying
Prospectus and incorporated by reference herein.
<PAGE>
- --------------------------------------------------------------------------------
7. AUTOMATIC See "Purchase of Shares"
INVESTMENT PLAN Check One: [_] Monthly [_] Quarterly [_] 5th of each
(ATTACH VOIDED month [_] 15th of each month
CHECK) (Unless otherwise indicated, will default to the 15th of
each month.)
Beginning with ______ (month) and every month/quarter
thereafter, I/We authorize State Street Bank (the
custodian for the Fund) to debit the amount requested
below from my/our bank account for investment in the
Fund. I/We understand that my/our participation in the
Automatic Investment Plan (the "Plan") is subject to the
terms and conditions of such plan as amended from time
to time.
---------------------------------------------------------
Bank Name Bank Account Number (if assigned)
---------------------------------------------------------
Amount of each monthly investment Name of Fund
(minimum $50)
---------------------------------------------------------
Amount of each monthly investment Name of Fund
(minimum $50)
---------------------------------------------------------
Authorized Signature (as shown on bank records)
---------------------------------------------------------
Authorized Signature (if joint bank account both sign)
- --------------------------------------------------------------------------------
8. TELEPHONE EXCHANGE [_] I/We authorize Goldman, Sachs & Co. to accept and act
upon telephone instructions from myself or any other
person for the exchange of shares of the Fund into any
fund described in the accompanying Prospectus. I/We
understand and agree that neither the Fund nor
Goldman, Sachs & Co. will be liable for any loss,
expense, or cost arising out of any telephone request
effected hereunder.
- --------------------------------------------------------------------------------
9. TELEPHONE See "Redemption of Shares"
REDEMPTION
(ATTACH VOIDED [_Goldman,]Sachs & Co. is hereby authorized to honor
CHECK) telephone, telegraphic, or other instructions, without
signature guarantee, from any person for the
redemption of shares for the above account, without an
obligation on behalf of Goldman, Sachs & Co., to
verify that such person is the shareholder of record
or authorized to give redemption instructions,
provided that the proceeds are transmitted to the
following bank account only or are mailed to the
account registration address. Absent its own gross
negligence, neither the Fund nor Goldman, Sachs & Co.
shall be liable for such redemption or for payments
made to any unauthorized account.
---------------------------------------------------------
Bank Name ABA Routing #
---------------------------------------------------------
Street Address City State Zip
---------------------------------------------------------
Account Name Account Number
- --------------------------------------------------------------------------------
10. AUTOMATIC EXCHANGES
The originating fund's balance must be at least $10,000.
"See prospectus regarding additional limitations on this
privilege."
I hereby authorize automatic exchanges of $_______ (exact
dollars--$50 minimum) into my identically registered
account:
Exchange from __________________________ (Name of Fund)
to __________________________ (Name of Fund)
Account No. (if known) __________________
Account Name ____________________________
Please make exchanges on the 15th (or next business day)
beginning the month of ____________.
- --------------------------------------------------------------------------------
11. CHECKWRITING See "Check Redemption Privilege"
PRIVILEGE
[_] Check the box if you would like an application for
checkwriting sent to you.
The checkwriting privilege is available to holders of
ILA/Prime Obligations Portfolio Service Units or
ILA/Tax-Exempt Diversified Portfolio Service Units ONLY.
<PAGE>
- --------------------------------------------------------------------------------
12. SOCIAL SECURITY . By the execution of this Account Information Form, the
NUMBER OR OTHER undersigned represents and warrants that it has full
TAXPAYER right, power and authority to make the investment
IDENTIFICATION applied for pursuant to this Form and is acting for
NUMBER itself or in some fiduciary capacity in making such
CERTIFICATION AND investment.
SIGNATURE THE UNDERSIGNED AFFIRMS THAT IT HAS RECEIVED A CURRENT
AUTHORIZATION PROSPECTUS FOR THE FUND AND HAS REVIEWED THE SAME.
The undersigned understands that a lesser degree of
flexibility concerning the timing of a redemption of its
investment in Goldman Sachs Adjustable Rate Mortgage
Fund, Goldman Sachs Global Income Fund, Goldman Sachs
Municipal Income Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs
Select Equity Fund, Goldman Sachs Small Cap Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Asia Growth Fund
and Goldman Sachs Balanced Fund, as well as all other
non-money market funds, increases the likelihood that
the shareholder will be required to redeem shares under
unfavorable market conditions. If shares are redeemed at
a disadvantageous time, the value of the Fund's shares
upon redemption may be less than the price at which the
Fund's shares were purchased. Since none of the Funds
listed in this paragraph is a money market fund or
maintains a constant net asset value per share, the
undersigned may experience a loss of principal on its
investments in any such Fund during any particular
period.
. Fill in boxes below
Taxpayer Identification No.: ___________________________
(For joint tenants, first listed individual should
provide his/her number and sign below.) Under penalties
of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number
to be issued to me), and
(2) I am not subject to backup withholding because (a) I
am exempt from backup withholding, or (b) I have not
been notified by the Internal Revenue Service (IRS)
that I am subject to backup withholding as a result
of a failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instruction: You must cross out item (2)
above if you have been notified by the IRS that you are
currently subject to federal backup withholding because
of underreporting interest or dividends on your federal
tax return. (Also see the "Guidelines for Certification
of Taxpayer Identification Number on Account Information
Form" contained in the Appendices to the accompanying
Prospectus).
NOTE: FAILURE TO COMPLETE THIS SECTION MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO
YOU.
By checking only the appropriate box and signing below,
I certify under penalties of perjury that:
[_]I do not have a taxpayer identification number, but
I have applied for or intend to apply for one. I
understand that the required 31% withholding may
apply before I provide such number and
certifications, which should be provided within 60
days.
or [_]I am an exempt recipient.
or [_]I am neither a citizen nor a resident of the United
States for the purpose of the Internal Revenue
Code. I am a resident of __________________ .
All recipients, including exempt recipients, must report
their taxpayer identification numbers and provide the
certifications requested to prevent backup withholding.
Sign Here:
--------------------------------------------------------
Signature Name (print) and Title (if any)
Date:
<PAGE>
- -------------------------------------------------------------------------------
See "Redemption of Shares"
13. SYSTEMATIC Minimum account balance must be $10,000. Withdrawal
WITHDRAWAL PLAN minimum is $50.
Check One: [_] Monthly [_] Quarterly
Please make payments via ACH (Bank must be ACH
affiliated. Attach voided check). (I understand that I
may change the date of redemption, via ACH, or the
amount at any time in writing to the Fund at the
address stated above.)
BANK INFORMATION:
Please withdraw $___________ from my account on the
___________ of the month.
Bank Account Registration: _____________________________
Routing #: _____________ Bank Account #: ______________
Bank Name/Branch Name: _________________________________
Bank Street Address: ___________________________________
Bank Telephone Number: _________________________________
If you require payment by check or if the check is to
be made payable to person(s) other than the registered
owner, complete this section. (Payments made via check
are withdrawn from your account on or about the 25th of
each month/quarter.)
--------------------------------------------------------
Name of check recipient
--------------------------------------------------------
Address City State Zip
- -------------------------------------------------------------------------------
14. FOR DEALER ONLY Investment dealer's signature is required for
Systematic Withdrawal Plan or Statement of Intention.
If a Systematic Withdrawal Plan is being opened, we
believe that the amount to be withdrawn is reasonable
in light of the investor's circumstances and we
recommend establishment of the account.
--------------------------------------------------------
Name of Dealer Firm Home Office Location
--------------------------------------------------------
City State Zip
--------------------------------------------------------
Branch Office Location Branch Number/Branch Phone
--------------------------------------------------------
Authorized Signature State Zip
--------------------------------------------------------
Reg. Rep. NumberReg. Rep.'s Name
<PAGE>
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- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE TRUST OR THE FUND SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Financial Highlights...................................................... 8
Investment Objective and Policies......................................... 9
Investment Adviser........................................................ 10
Adjustable and Fixed Rate Mortgage Loans and Mortgage-Backed Securities in
Which the Fund Will Invest............................................... 11
Yield, Market Value and Risk Considerations of Mortgage-Backed Securities. 16
Other Investments and Practices .......................................... 18
Investment Restrictions................................................... 22
Portfolio Turnover........................................................ 22
Management................................................................ 23
Net Asset Value........................................................... 24
Performance Information................................................... 25
Shares of the Trust....................................................... 26
Taxation.................................................................. 28
Additional Information.................................................... 29
Reports to Shareholders................................................... 30
Dividends................................................................. 30
Purchase of Class A Shares................................................ 31
Exchange Privilege........................................................ 38
Distribution and Authorized Dealer Service Plans.......................... 39
Redemption of Class A Shares.............................................. 40
Appendix A................................................................ A-1
Appendix B................................................................ B-1
Account Information Form
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GS ADJUSTABLE RATE
GOVERNMENT AGENCY FUND
CLASS A SHARES
MANAGED BY
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
AN AFFILIATE OF
GOLDMAN, SACHS & CO.
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
ARG 1/25K/0595
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GS ADJUSTABLE RATE GOVERNMENT AGENCY FUND
CLASS A SHARES
SUPPLEMENT DATED JUNE 1, 1995 TO
PROSPECTUSES DATED MAY 12, 1995
Effective June 7, 1995, purchases and redemptions of Class A Shares of the
Fund must be settled within three Business Days of the receipt by the Fund of a
complete purchase order or properly executed redemption request. Except for the
requirement that the Fund receive payment for any Class A Shares within three
Business Days (previously five Business Days) of receipt of a purchase order,
the purchase procedures described in the accompanying Prospectus have not
changed. Redemption proceeds to be paid by check will normally be mailed within
three Business Days after receipt of a properly executed redemption request.
Redemption proceeds paid by wire will normally be wired on the next Business
Day following receipt of a properly executed redemption request but may be paid
up to three Business Days after receipt of a properly executed redemption
request.
Under the section entitled "Purchase of Shares--Offering Price," the
following replaces the third paragraph:
Class A Shares of the Fund may be sold at net asset value without
payment of any initial sales charge to (a) Goldman, Sachs, its
affiliates or their respective officers, partners, directors or
employees (including retired employees and former partners), any
partnership of which Goldman Sachs is a general partner, any Trustee or
officer of the Trust and designated family members of any of the above
individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs
or an affiliate acts as sponsor; (d) any employee or registered
representative of any Authorized Dealer or their respective spouses and
children; (e) banks, trust companies or other types of depository
institutions investing for their own account or investing for accounts
for which they have investment discretion; (f) banks, trust companies
or other types of depository institutions investing for accounts for
which they do not have investment discretion, provided they have
entered into an agreement with GSAM specifying aggregate minimums and
certain operating policies and standards; (g) any state, county or
city, or any instrumentality, department, authority or agency thereof,
which is prohibited by applicable investment laws from paying a sales
charge or commission in connection with the purchase of shares of the
Fund; (h) pension and profit sharing plans, pension funds and other
company-sponsored benefit plans having either 200 eligible employees or
at least $500,000 under management with GSAM and its affiliates; (i)
qualified non-profit organizations, foundations and endowments that
have at least $1,000,000 under management with GSAM and its affiliates;
(j) shareholders whose purchase is attributable to redemption proceeds
(subject to appropriate documentation) from a registered open-end
management investment company not distributed or managed by Goldman
Sachs or its affiliates, if such redemption has occurred no more than
60 days prior to the purchase of shares of the Fund and the shareholder
either (i) paid an initial sales charge or (ii) was at some time
subject to deferred sales charge with respect to the redemption
proceeds; (k) "wrap" accounts for the benefit of clients of broker-
dealers, financial institutions or financial planners, provided that
they have entered into an agreement with GSAM specifying aggregate
minimums and certain operating policies and standards; (l) registered
investment advisers who have entered
<PAGE>
into an agreement with GSAM specifying aggregate minimums and certain
operating policies and standards. Purchasers must certify eligibility
for an exemption on the Account Information Form and notify Goldman
Sachs if, the shareholder is no longer eligible for an exemption.
Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Goldman Sachs reserves the right to limit the
participation in the Fund of its partners and employees. In addition,
under certain circumstances, dividends or distributions from any of the
Goldman Sachs Portfolios may be reinvested in Class A Shares of the
Fund at net asset value, as described under "Cross-Reinvestment of
Dividends and Distributions."
2
