<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS-INSTITUTIONAL LIQUID ASSETS
(PRIME OBLIGATIONS PORTFOLIO)
(TAX-EXEMPT DIVERSIFIED PORTFOLIO)
ILA SERVICE UNITS
ILA CLASS B UNITS
ILA CLASS C UNITS
4900 Sears Tower
Chicago, Illinois 60606
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company (a "mutual fund") which includes the Goldman Sachs-Institutional
Liquid Assets portfolios. This Prospectus relates to the offering of ILA
Service shares of beneficial interest ("ILA Service Units") of the Prime
Obligations and Tax-Exempt Diversified Portfolios (the "Portfolios"), and ILA
Class B and Class C shares of beneficial interest ("ILA Class B Units" and
"ILA Class C Units," respectively) of the Prime Obligations Portfolio. ILA
Class B Units and ILA Class C Units will typically be issued only upon an
exchange of Class B or Class C Shares, respectively, of any mutual fund
sponsored by Goldman Sachs ("Goldman Sachs Funds"). Goldman Sachs Asset
Management, a separate operating division of Goldman, Sachs & Co., serves as
each Portfolio's investment adviser. Goldman, Sachs & Co. serves as each
Portfolio's distributor and transfer agent.
The Prime Obligations Portfolio seeks to maximize current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity by investing exclusively in high quality money market instruments.
The Portfolio pursues its objective by investing in a diversified portfolio of
securities of the U.S. Government, its agencies, authorities and
instrumentalities, obligations of U.S. banks, commercial paper and other
short-term obligations of U.S. companies, states, municipalities and other
entities, and repurchase agreements.
The Tax-Exempt Diversified Portfolio seeks to the extent consistent with the
preservation of capital and prescribed portfolio standards, a high level of
income excluded from gross income for federal income tax purposes, by
investing primarily in municipal instruments. The Portfolio pursues its
objective by investing in a diversified portfolio of municipal obligations
issued by or on behalf of states, territories and possessions of the United
States and their political subdivisions, agencies, authorities and
instrumentalities, and the District of Columbia.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER UNIT.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION.................................. Toll Free:
800-526-7384
This Prospectus provides you with information about the Portfolios that you
should know before investing. It should be read and retained for future
reference. If you would like more detailed information, the Statement of
Additional Information dated August 15, 1997, as amended or supplemented from
time to time, is available upon request without charge by calling the
telephone number listed above or by writing Goldman Sachs, Attention:
Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois
60606. The Statement of Additional Information, which is incorporated by
reference into this Prospectus, has been filed with the Securities and
Exchange Commission. The Portfolios may not be available in certain states.
Please call the phone number above to determine availability in your state.
The SEC maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information and other information regarding the Trust.
- -------------------------------------------------------------------------------
UNITS OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT IN-
SURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A PORTFOLIO INVOLVES INVEST-
MENT 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 15, 1997.
<PAGE>
UNITHOLDER AND PORTFOLIO EXPENSES
<TABLE>
<CAPTION>
PRIME OBLIGATIONS TAX-EXEMPT
PORTFOLIO DIVERSIFIED
------------------------------------------- PORTFOLIO
(ILA SERVICE) (ILA CLASS B+) (ILA CLASS C+) (ILA SERVICE)
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
UNITHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases.. None None None None
Sales Charge Imposed on
Reinvested
Distributions......... None None None None
Deferred Sales Load
Imposed on
Redemptions........... None 5.0%(1) 1.0%(2) None
Exchange Fee........... None None None None
ANNUAL OPERATING
EXPENSES (3)
(as a percentage of
average daily net
assets)
Management Fees (after
limitations) (4)...... 0.35% 0.35% 0.35% 0.26%
Distribution (Rule 12b-
1) Fees............... None 0.75% 0.75% None
Other Expenses
Service Fees.......... 0.40% None None 0.40%
Authorized Dealer
Service Fees......... None 0.25% 0.25% None
Other Expenses (after
expense limitation)
(5).................. 0.07% 0.07% 0.07% 0.06%
---- ---- ---- ----
TOTAL OPERATING EXPENSES
(6).................... 0.82% 1.42% 1.42% 0.72%
==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a hypothetical $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Prime Obligations Portfolio
ILA Service Units...................................... $ 8 $26 $46 $101
ILA Class B Units......................................
--Assuming complete redemption at end of period....... $64 $75 $98 $148*
--Assuming no redemption.............................. $14 $45 $78 $148*
ILA Class C Units......................................
--Assuming complete redemption at end of period....... $24 $45 $78 $170
--Assuming no redemption.............................. $14 $45 $78 $170
Tax-Exempt Diversified Portfolio
ILA Service Units...................................... $ 7 $23 $40 $ 89
</TABLE>
- -------
+ Investors wishing to purchase units of the Prime Obligations Portfolio are
generally required to purchase ILA Service Units. ILA Class B and Class C
Units of the Prime Obligations Portfolio will typically be issued only in
exchange for Class B or Class C shares, respectively, of any other Goldman
Sachs Fund.
(1) A contingent deferred sales charge is imposed on units redeemed within six
years of purchase (or initial investment in a Goldman Sachs Fund from
which an exchange is made) at a rate of 5% in the first year, declining to
1% in the sixth year, and eliminated thereafter. See "Additional Servic-
es--Offering Price--ILA Class B Units".
(2) A contingent deferred sales charge is imposed on units redeemed within 12
months of purchase (or initial investment in a Goldman Sachs Fund from
which an exchange is made). See "Additional Services--Offering Price--ILA
Class C Units".
(3) Based on estimated amounts for the current fiscal year.
* ILA Class B Units convert to ILA Service Units eight years after purchase;
therefore, ILA Class B expenses in the hypothetical example above assume
this conversion.
2
<PAGE>
(4) The Adviser has voluntarily agreed that a portion of the management fee
would not be imposed on the Tax-Exempt Diversified Portfolio equal to
.09%. Without such limitation, management fees for the Portfolio would be
0.35%.
(5) The Adviser has voluntarily agreed to reduce or limit certain other ex-
penses (excluding management fees, fees payable to Service Organizations,
as defined herein, distribution and authorized dealer service fees, taxes,
interest and brokerage and litigation, indemnification and other extraor-
dinary expenses) to the extent such expenses exceed 0.07% of the Prime Ob-
ligations Portfolio's average daily net assets and 0.06% of the Tax-Exempt
Diversified Portfolio's average daily net assets.
(6) Without the limitations described above, "Other Expenses" and "Total Oper-
ating Expenses" of the Portfolios for the current fiscal year are esti-
mated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Prime Obligations Portfolio (ILA Service Units)........... .08% 0.83%
Prime Obligations Portfolio (ILA Class B Units)........... .08% 1.43%
Prime Obligations Portfolio (ILA Class C Units)........... .08% 1.43%
Tax-Exempt Diversified Portfolio (ILA Service Units)...... .06% 0.81%
</TABLE>
The information set forth in the foregoing table and hypothetical example
relates only to ILA Service Units of the Prime Obligations and Tax-Exempt Di-
versified Portfolios and ILA Class B and Class C Units of the Prime Obliga-
tions Portfolio. The Portfolios also offer ILA Units and ILA Administration
Units. The other classes of the Portfolios are subject to different fees and
expenses (which affect performance) and are entitled to different services.
Information regarding any other class of the Portfolios may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
front cover of this Prospectus.
Service Organizations may charge other fees to their customers who are the
beneficial owners of ILA Service Units in connection with their customers' ac-
counts. Due to the Distribution Plan, a long-term shareholder may pay more
than the economic equivalent of the maximum front-end sales charge permitted
by the National Association of Securities Dealers, Inc.'s ("NASD") rules re-
garding investment companies. Such fees, if any, may affect the return such
customers realize with respect to their investments.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Portfolio that an investor will bear di-
rectly or indirectly. The information on fees and expenses included in the ta-
ble and the hypothetical example above are based on each Portfolio's estimated
fees and expenses and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Portfo-
lio's actual performance will vary and may result in an actual return of less
than 5%. See "Management--Investment Adviser."
FINANCIAL HIGHLIGHTS
The following data with respect to a unit (of the class specified) of the
Prime Obligations and Tax-Exempt Diversified Portfolios outstanding during the
periods indicated have been audited by Arthur Andersen LLP, independent
auditors, as indicated in their report incorporated by reference and attached
to the Statement of Additional Information from the annual report to
unitholders for the fiscal year ended December 31, 1996 (the "Annual Report"),
and should be read in conjunction with the financial statements and related
notes incorporated by reference and attached to the Statement of Additional
Information. During the periods shown, the Trust did not offer Class C Units
of any Portfolio. Accordingly, there are no financial highlights for this
Class.
3
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Unit Outstanding Throughout Each Period
Prime Obligations Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1.00 $0.0511 -- $0.0511 $(0.0511) $1.00 5.22% 0.41% 5.11%
1996-ILA Admin-
istration units. 1.00 0.0497 -- 0.0497 (0.0497) 1.00 5.06 0.56 4.97
1996-ILA Service
units........... 1.00 0.0474 -- 0.0474 (0.0474) 1.00 4.80 0.81 4.74
1996-ILA B
units (b)....... 1.00 0.0262 -- 0.0262 (0.0262) 1.00 3.97(d) 1.41(d) 4.09(d)
1995-ILA units.. 1.00 0.0566 -- 0.0566 (0.0566) 1.00 5.79 0.41 5.66
1995-ILA Admin-
istration units. 1.00 0.0551 -- 0.0551 (0.0551) 1.00 5.63 0.56 5.51
1995-ILA Service
units........... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.37 0.81 5.22
1994-ILA units.. 1.00 0.0394 -- 0.0394 (0.0394) 1.00 4.07 0.40 3.94
1994-ILA Admin-
istration units. 1.00 0.0379 -- 0.0379 (0.0379) 1.00 3.91 0.55 3.79
1994-ILA Service
units........... 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.66 0.80 3.65
1993-ILA units.. 1.00 0.0291 0.0002 0.0293 (0.0293) 1.00 2.97 0.40 2.91
1993-ILA Admin-
istration units. 1.00 0.0275 0.0003 0.0278 (0.0278) 1.00 2.82 0.55 2.75
1993-ILA Service
units........... 1.00 0.0250 0.0001 0.0251 (0.0252) 1.00 2.56 0.80 2.50
1992-ILA units.. 1.00 0.0364 0.0010 0.0374 (0.0374) 1.00 3.75 0.40 3.64
1992-ILA Admin-
istration units. 1.00 0.0339 0.0010 0.0349 (0.0349) 1.00 3.60 0.55 3.39
1992-ILA Service
units........... 1.00 0.0311 0.0010 0.0321 (0.0320) 1.00 3.34 0.80 3.11
1991-ILA units.. 1.00 0.0591 0.0003 0.0594 (0.0594) 1.00 6.10 0.40 5.91
1991-ILA Admin-
istration units. 1.00 0.0568 0.0003 0.0571 (0.0571) 1.00 5.94 0.55 5.68
1991-ILA Service
units........... 1.00 0.0558 0.0003 0.0561 (0.0561) 1.00 5.68 0.80 5.58
1990-ILA units.. 1.00 0.0793 -- 0.0793 (0.0793) 1.00 8.21 0.38 7.93
1990-ILA Admin-
istration
units (c)....... 1.00 0.0438 -- 0.0438 (0.0438) 1.00 7.81(d) 0.55(d) 7.62(d)
1990-ILA Service
units (c)....... 1.00 0.0425 -- 0.0425 (0.0425) 1.00 7.56(d) 0.80(d) 7.25(d)
1989-ILA units.. 1.00 0.0890 -- 0.0890 (0.0890) 1.00 9.27 0.40 8.90
1988-ILA units.. 1.00 0.0714 -- 0.0714 (0.0714) 1.00 7.48 0.40 7.14
1987-ILA units.. 1.00 0.0634 -- 0.0634 (0.0634) 1.00 6.50 0.40 6.34
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1,154,787 0.43% 5.09%
1996-ILA Admin-
istration units. 23,738 0.58 4.95
1996-ILA Service
units........... 84,707 0.83 4.72
1996-ILA B
units (b)....... 346 1.43(d) 4.07(d)
1995-ILA units.. 1,261,251 0.43 5.64
1995-ILA Admin-
istration units. 63,018 0.58 5.49
1995-ILA Service
units........... 227,233 0.83 5.20
1994-ILA units.. 1,963,846 0.42 3.92
1994-ILA Admin-
istration units. 149,234 0.57 3.77
1994-ILA Service
units........... 170,453 0.82 3.63
1993-ILA units.. 2,332,771 0.42 2.89
1993-ILA Admin-
istration units. 189,431 0.57 2.73
1993-ILA Service
units........... 137,804 0.82 2.48
1992-ILA units.. 3,444,591 0.42 3.62
1992-ILA Admin-
istration units. 257,321 0.57 3.37
1992-ILA Service
units........... 22,044 0.82 3.09
1991-ILA units.. 3,531,736 0.42 5.89
1991-ILA Admin-
istration units. 198,417 0.57 5.66
1991-ILA Service
units........... 18,789 0.82 5.56
1990-ILA units.. 2,833,541 0.38 7.93
1990-ILA Admin-
istration
units (c)....... 209,272 0.55(d) 7.62(d)
1990-ILA Service
units (c)....... 19,039 0.80(d) 7.25(d)
1989-ILA units.. 3,761,964 0.40 8.90
1988-ILA units.. 3,799,628 0.40 7.14
1987-ILA units.. 5,814,280 0.40 6.34
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)ILA Class B unit activity commenced during May of 1996.
(c)ILA Administration and Service unit activity commenced during June of 1990.
(d)Annualized.
4
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt Diversified Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------
NET RATIO OF NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT
VALUE AT NET GAIN (LOSS) ON INCOME FROM VALUE AT EXPENSES TO INCOME TO
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1.00 $0.0320 $ -- $0.0320 $(0.0320) $1.00 3.25% 0.31% 3.20%
1996-ILA Admin-
istration units. 1.00 0.0306 -- 0.0306 (0.0306) 1.00 3.09 0.46 3.06
1996-ILA Service
units........... 1.00 0.0279 -- 0.0279 (0.0279) 1.00 2.84 0.71 2.79
1995-ILA units.. 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.72 0.31 3.65
1995-ILA Admin-
istration units. 1.00 0.0351 -- 0.0351 (0.0352) 1.00 3.57 0.46 3.51
1995-ILA Service
units........... 1.00 0.0324 -- 0.0324 (0.0325) 1.00 3.31 0.71 3.24
1994-ILA units.. 1.00 0.0264 -- 0.0264 (0.0264) 1.00 2.71 0.30 2.64
1994-ILA Admin-
istration units. 1.00 0.0250 -- 0.0250 (0.0250) 1.00 2.55 0.45 2.50
1994-ILA Service
units........... 1.00 0.0220 -- 0.0220 (0.0220) 1.00 2.30 0.70 2.20
1993-ILA units.. 1.00 0.0222 -- 0.0222 (0.0222) 1.00 2.25 0.30 2.22
1993-ILA Admin-
istration units. 1.00 0.0207 -- 0.0207 (0.0207) 1.00 2.09 0.45 2.08
1993-ILA Service
units........... 1.00 0.0183 -- 0.0183 (0.0183) 1.00 1.84 0.70 1.83
1992-ILA units.. 1.00 0.0277 -- 0.0277 (0.0277) 1.00 2.82 0.30 2.77
1992-ILA Admin-
istration units. 1.00 0.0266 -- 0.0266 (0.0266) 1.00 2.67 0.45 2.66
1992-ILA Service
units........... 1.00 0.0243 -- 0.0243 (0.0243) 1.00 2.41 0.70 2.43
1991-ILA units.. 1.00 0.0424 -- 0.0424 (0.0424) 1.00 4.33 0.32 4.24
1991-ILA Admin-
istration units. 1.00 0.0406 -- 0.0406 (0.0406) 1.00 4.17 0.47 4.06
1991-ILA Service
units........... 1.00 0.0386 -- 0.0386 (0.0386) 1.00 3.91 0.72 3.86
1990-ILA units.. 1.00 0.0550 (0.0001) 0.0549 (0.0549) 1.00 5.64 0.40 5.50
1990-ILA Admin-
istration
units (c)....... 1.00 0.0301 -- 0.0301 (0.0300) 1.00 5.43(b) 0.55(b) 5.40(b)
1990-ILA Service
units (c)....... 1.00 0.0259 -- 0.0259 (0.0259) 1.00 5.17(b) 0.80(b) 5.16(b)
1989-ILA units.. 1.00 0.0591 (0.0001) 0.0590 (0.0590) 1.00 6.07 0.40 5.91
1988-ILA units.. 1.00 0.0487 0.0003 0.0490 (0.0490) 1.00 5.03 0.40 4.87
1987-ILA units.. 1.00 0.0413 (0.0003) 0.0410 (0.0410) 1.00 4.23 0.40 4.13
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET RATIO OF NET
ASSETS AT RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME TO
PERIOD AVERAGE NET AVERAGE NET
(IN 000'S) ASSETS ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS
ENDED DECEMBER
31,
1996-ILA units.. $1,514,443 0.41% 3.10%
1996-ILA Admin-
istration units. 59,097 0.56 2.96
1996-ILA Service
units........... 28,921 0.81 2.69
1995-ILA units.. 1,342,585 0.42 3.54
1995-ILA Admin-
istration units. 48,773 0.57 3.40
1995-ILA Service
units........... 49,647 0.82 3.13
1994-ILA units.. 1,434,965 0.41 2.53
1994-ILA Admin-
istration units. 97,778 0.56 2.39
1994-ILA Service
units........... 36,492 0.81 2.09
1993-ILA units.. 1,769,477 0.41 2.11
1993-ILA Admin-
istration units. 99,896 0.56 1.97
1993-ILA Service
units........... 45,172 0.81 1.72
1992-ILA units.. 1,333,925 0.42 2.65
1992-ILA Admin-
istration units. 50,225 0.57 2.54
1992-ILA Service
units........... 29,534 0.82 2.31
1991-ILA units.. 1,044,986 0.42 4.14
1991-ILA Admin-
istration units. 37,567 0.57 3.96
1991-ILA Service
units........... 52,399 0.82 3.76
1990-ILA units.. 603,895 0.40 5.50
1990-ILA Admin-
istration
units (c)....... 42,498 0.55(b) 5.40(b)
1990-ILA Service
units (c)....... 56,810 0.80(b) 5.16(b)
1989-ILA units.. 688,556 0.40 5.91
1988-ILA units.. 907,782 0.40 4.87
1987-ILA units.. 965,714 0.40 4.13
</TABLE>
- ----
(a)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the investment
at the net asset value at the end of the period.
(b)Annualized.
(c)ILA Administration and Service unit activity commenced during June and July
of 1990, respectively.
5
<PAGE>
AN INTRODUCTION TO THE PORTFOLIOS
THE TRUST: The Trust is an open-end, management investment company regis-
tered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). Each Portfolio is a separate pool of assets which pursues its
investment objective through separate investment policies, as described below.
THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Portfolios' invest-
ment adviser (the "Adviser" or "GSAM").
THE DISTRIBUTOR: Goldman Sachs, which serves as the Portfolios' distributor
and transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.
THE PORTFOLIOS: Each Portfolio's securities are valued by the amortized cost
method as permitted by a rule ("Rule 2a-7") of the Securities and Exchange
Commission ("SEC"). Under such rule, each Portfolio may invest only in securi-
ties that are determined to present minimal credit risk and meet certain other
criteria.
INVESTMENT OBJECTIVES AND POLICIES FOR PRIME OBLIGATIONS PORTFOLIO: To
seek to maximize current income to the extent consistent with the preserva-
tion of capital and the maintenance of liquidity by investing exclusively
in high quality money market instruments.
INVESTMENT OBJECTIVES AND POLICIES FOR TAX-EXEMPT DIVERSIFIED
PORTFOLIO: To seek to the extent consistent with the preservation of capi-
tal and prescribed portfolio standards, a high level of income exempt from
federal income tax by investing primarily in Municipal Instruments, as de-
fined herein.
NET ASSET VALUE: Each Portfolio seeks to maintain a stable net asset value
of $1.00 per unit.
MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.
DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.
FIRST TIER SECURITIES: Each Portfolio may purchase securities which are
rated (or that have been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class, com-
parable in priority and quality with such securities) in the highest short-
term rating category by at least two NRSROs (as defined below), or if only one
NRSRO has assigned a rating, by that NRSRO. U.S. Government Securities as de-
fined herein are considered First Tier Securities.
SECOND TIER SECURITIES: The Tax-Exempt Diversified Portfolio may purchase
securities which are not First Tier Securities but which are rated in the top
two short-term rating categories by at least two NRSROs, or if only one NRSRO
has assigned a rating, by that NRSRO. The Prime Obligations Portfolio will not
invest in a security which is a Second Tier Security at the time of purchase.
UNRATED SECURITIES: To the extent permitted by Rule 2a-7, unrated securities
may be purchased if they are deemed to be of comparable quality to First Tier
Securities, or, to the extent that a Portfolio may purchase Second Tier Secu-
rities, comparable in quality to Second Tier Securities.
NRSROS: Nationally Recognized Statistical Rating Organizations include Stan-
dard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Lim-
ited and its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a descrip-
tion of each NRSRO's rating categories, see Appendix A to the Statement of Ad-
ditional Information.
6
<PAGE>
INVESTMENT POLICIES MATRIX
<TABLE>
<CAPTION>
PRIME OBLIGATIONS PORTFOLIO TAX-EXEMPT DIVERSIFIED PORTFOLIO
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
US Treasury Obligations []
- ---------------------------------------------------------------------------------------------
US Government Securities []
- ---------------------------------------------------------------------------------------------
Bank Obligations
[]
US banks Only
- ---------------------------------------------------------------------------------------------
Commercial Paper [] []
Tax-exempt only
- ---------------------------------------------------------------------------------------------
Short-Term Obligations of
Corporations and Other []
Entities US entities only
- ---------------------------------------------------------------------------------------------
Repurchase Agreements []
- ---------------------------------------------------------------------------------------------
Asset-Backed & Receivables- []
Backed Securities+
- ---------------------------------------------------------------------------------------------
Taxable Municipals []
- ---------------------------------------------------------------------------------------------
Tax-Exempt Municipals []
At least 80% of net assets in
Municipal Instruments (except in
extraordinary circumstances)
- ---------------------------------------------------------------------------------------------
Credit Quality**** First Tier First or Second Tier
- ---------------------------------------------------------------------------------------------
Investment Companies [] []
Up to 10% of total Up to 10% of total assets in
assets in other other investment companies
investment companies
- ---------------------------------------------------------------------------------------------
Unrated Securities [] []
- ---------------------------------------------------------------------------------------------
Summary of Taxation for Taxable federal and Tax-exempt federal and taxable
Distributions* state** state***
- ---------------------------------------------------------------------------------------------
Miscellaneous May (but does not currently
intend to) invest up to 20% in
AMT securities and may
temporarily invest in the taxable
money market instruments
described herein
</TABLE>
Note: See "Description of Securities and Investment Techniques" for a descrip-
tion of, and certain criteria applicable to, each of these categories of
investments.
+ To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of NRSROs.
* See "Taxes" below for an explanation of the tax consequences summarized
in the table above.
** Taxable in many states except for distributions from U.S. Treasury obli-
gation interest income and certain U.S. Government securities interest
income.
*** Taxable except for distributions from interest on obligations of an in-
vestor's state of residence in certain states.
**** To the extent permitted by Rule 2a-7, a Portfolio holding a security fully
supported by a guarantee may substitute the credit quality of the guarantee
in determining the credit quality of the security.
7
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. TREASURY OBLIGATIONS
"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.
U.S. GOVERNMENT SECURITIES
"U.S. Government Securities" are obligations issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. Unlike U.S.
Treasury Obligations, securities issued or guaranteed by U.S. Government agen-
cies, authorities or instrumentalities are supported either by (a) the full
faith and credit of the U.S. Government (such as securities of the Government
National Mortgage Association), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Student Loan Marketing Association), (c)
the discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation), or (d) only the credit of the
issuer. No assurance can be given that the U.S. Government will provide finan-
cial support to U.S. Government agencies, authorities or instrumentalities in
the future. U.S. Government Securities may include zero coupon bonds. Such
bonds may be purchased when yields are attractive.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are deemed to include (a) secu-
rities for which the payment of principal and interest is backed by an irrevo-
cable letter of credit issued by the U.S. Government, its agencies, authori-
ties or instrumentalities and (b) participations in loans made to foreign gov-
ernments or their agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations may therefore
be regarded as illiquid.
Each Portfolio may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
CUSTODIAL RECEIPTS
Each Portfolio may also acquire securities issued or guaranteed as to prin-
cipal and interest by the U.S. Government, its agencies, authorities or in-
strumentalities in the form of custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain notes or bonds
issued by the U.S. Government, its agencies, authorities or instrumentalities.
For certain securities law purposes, custodial receipts are not considered ob-
ligations of the U.S. Government.
U.S. BANK OBLIGATIONS
The Prime Obligations Portfolio may invest in "U.S. Bank Obligations" lim-
ited to securities issued or guaranteed by U.S. banks (including certificates
of deposit, commercial paper, unsecured bank promissory notes and bankers' ac-
ceptances) which have more than $1 billion in total assets at the time of pur-
chase. Such obligations may also include debt obligations issued by U.S. sub-
sidiaries of such banks.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS
The Prime Obligations Portfolio may invest in "Commercial Paper" (including
variable amount master demand notes and asset-backed commercial paper) which
is payable in U.S. dollars and is issued or guaranteed
8
<PAGE>
by U.S. corporations, U.S. commercial banks, or other entities. In addition,
the Portfolio may invest in other short-term obligations (including short-term
funding agreements) payable in U.S. dollars and issued or guaranteed by U.S.
corporations or other entities.
ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES
The Prime Obligations Portfolio may invest in "Asset-Backed and Receivables-
Backed Securities" which represent participations in, or are secured by and
payable from, pools of assets such as motor vehicle installment sale con-
tracts, installment loan contracts, leases of various types of real and per-
sonal property, receivables from revolving credit (credit card) agreements and
other categories of receivables. Such asset pools are securitized through the
use of privately-formed trusts or special purpose-corporations. Payments or
distributions of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit or a pool insur-
ance policy issued by a financial institution, or other credit enhancements
may be present. To the extent consistent with its investment objective and
policies, the Prime Obligations Portfolio may invest in new types of mortgage-
related securities and in other asset-backed securities that may be developed
in the future to the extent consistent with its investment objective and poli-
cies.
MUNICIPAL OBLIGATIONS
MUNICIPAL INSTRUMENTS: Obligations issued by or on behalf of states, terri-
tories and possessions of the United States and their political subdivisions,
agencies, authorities and instrumentalities, and the District of Columbia, the
interest from which is, in the opinion of bond counsel, if any, excluded from
gross income for federal income tax purposes.
Such Municipal Instruments may include:
(A) fixed rate notes and similar debt instruments rated in the highest
short-term rating category or in one of the two highest long-term rating
categories;
(B) variable and floating rate demand instruments rated in the highest
short-term or one of the two highest long-term rating categories;
(C) tax-exempt commercial paper rated in the highest rating category;
(D) municipal bonds rated in one of the two highest rating categories;
and
(E) unrated notes, paper, bonds or other instruments determined to be of
comparable quality by the Adviser pursuant to criteria approved by the
Trustees.
As a matter of fundamental policy, at least 80% of the Tax-Exempt Diversi-
fied Portfolio's net assets will ordinarily be invested in Municipal Instru-
ments, except in extraordinary circumstances. The Portfolio may temporarily
invest in taxable money market instruments when the Adviser believes that the
market conditions dictate a defensive posture. Investments in taxable money
market instruments will be limited to those meeting the quality standards of
the Tax-Exempt Diversified Portfolio.
The Prime Obligations Portfolio may invest in short-term obligations issued
or guaranteed by state and municipal governments when yields on such securi-
ties are attractive compared to other taxable investments.
9
<PAGE>
MUNICIPAL NOTES AND BONDS. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing munici-
pality and are considered the safest type of bonds. Revenue bonds are backed
by the revenues of a project or facility such as the tolls from a toll bridge.
Revenue bonds also include lease rental revenue bonds which are issued by a
state or local authority for capital projects and are secured by annual lease
payments from the state or locality sufficient to cover debt service on the
authority's obligations. Industrial development bonds (generally referred to
under current tax law as "private activity bonds") are a specific type of rev-
enue bond backed by the credit and security of a private user and therefore
have more potential risk. Municipal bonds may be issued in a variety of forms,
including commercial paper, tender option bonds and variable and floating rate
securities.
TENDER OPTION BONDS. A tender option bond is a Municipal Instrument (gener-
ally held pursuant to a custodial arrangement) having a relatively long matu-
rity and bearing interest at a fixed rate substantially higher than prevailing
short-term, tax-exempt rates. The bond is typically issued in conjunction with
the agreement of a third party, such as a bank, broker-dealer or other finan-
cial institution, pursuant to which such institution grants the security
holder the option, at periodic intervals, to tender its securities to the in-
stitution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the dif-
ference between the bond's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the pre-
vailing short-term, tax-exempt rate. However, an institution will not be obli-
gated to accept tendered bonds in the event of certain defaults or a signifi-
cant downgrading in the credit rating assigned to the issuer of the bond. The
tender option will be taken into account in determining the maturity of the
tender option bonds and a Portfolio's average portfolio maturity. There is a
risk that the Tax-Exempt Diversified Portfolio will not be considered the
owner of a tender option bond for federal income tax purposes and thus will
not be entitled to treat such interest as exempt from federal income tax.
REVENUE ANTICIPATION WARRANTS. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at ma-
turity. RAWs, including those with a maturity of more than 397 days, may also
be repackaged as instruments which include a demand feature that permits the
holder to sell the RAWs to a bank or other financial institution at a purchase
price equal to par plus accrued interest on each interest rate reset date.
FLOATING AND VARIABLE RATE OBLIGATIONS. The value of floating and variable
rate obligations generally is more stable than that of fixed rate obligations
in response to changes in interest rate levels. Variable and floating rate ob-
ligations usually have demand features that permit the Portfolios to sell them
at par value plus accrued interest upon short notice. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend, and letters of
credit, which will ordinarily be irrevocable, both of which may be issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in
the United States. When considering whether an obligation meets a Portfolio's
quality standards, the Portfolio will, to the extent permitted by Rule 2a-7,
look to the creditworthiness of the party providing unconditional demand fea-
tures or other unconditional obligations to support the credit of the issuer
of the security. A Portfolio may consider the maturity of a variable or float-
ing rate Municipal Instrument to be shorter than its ultimate stated
10
<PAGE>
maturity if the Portfolio has the right to demand prepayment of its principal
at specified intervals prior to the security's ultimate stated maturity, sub-
ject to the conditions for using amortized cost valuation under the Investment
Company Act. A Portfolio may purchase such variable or floating rate obliga-
tions from the issuers or may purchase certificates of participation, a type
of floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
INDUSTRIAL DEVELOPMENT BONDS. The Portfolios may invest in industrial devel-
opment bonds (generally referred to under current tax law as "private activity
bonds"), the interest from which would be an item of tax preference when dis-
tributed by the Tax-Exempt Diversified Portfolio as "exempt interest divi-
dends" to unitholders under the federal alternative minimum tax. See "Taxes"
and "Distributions." The Tax-Exempt Diversified Portfolio may, but does not
currently intend to, invest up to 20% of its net assets in private activity
bonds. If such policy should change in the future, unitholders would be noti-
fied and such investments would not exceed 20% of the Portfolio's net assets.
OTHER POLICIES. Ordinarily, the Tax-Exempt Diversified Portfolio expects
that 100% of its portfolio securities will be Municipal Instruments. However,
the Portfolio may hold cash or invest in short-term taxable securities as set
forth above. The Portfolio may invest 25% or more of the value of its total
assets in Municipal Instruments which are related in such a way that an eco-
nomic, business or political development or change affecting one Municipal In-
strument would also affect the other Municipal Instruments. For example, the
Portfolio may invest all of its assets in (a) Municipal Instruments the inter-
est on which is paid solely from revenues from similar projects such as hospi-
tals, electric utility systems, multi-family housing, nursing homes, commer-
cial facilities (including hotels), steel companies or life care facilities,
(b) Municipal Instruments whose issuers are in the same state, or (c) indus-
trial development obligations. Concentration of the Portfolio's investments in
these Municipal Instruments will subject the Portfolio, to a greater extent
than if such investment was more limited, to the risks of adverse economic,
business or political developments affecting any such state, industry or other
area of concentration.
Each Portfolio may purchase Municipal Instruments which are backed by let-
ters of credit, which will ordinarily be irrevocable, issued by domestic banks
or foreign banks (excluding the Prime Obligations Portfolio) which have a
branch, agency or subsidiary in the United States. In addition, the Portfolios
may acquire securities in the form of custodial receipts which evidence owner-
ship of future interest payments, principal payments or both on obligations of
certain state and local governments and authorities.
In order to enhance the liquidity, stability, or quality of a Municipal In-
strument, each Portfolio may acquire the right to sell the security to another
party at a guaranteed price and date.
REPURCHASE AGREEMENTS
Each Portfolio may only enter into repurchase agreements with primary deal-
ers in U.S. Government Securities. A repurchase agreement is an agreement un-
der which a Portfolio purchases securities and the seller agrees to repurchase
the securities within a particular time at a specified price. Such price will
exceed the original purchase price, the difference being income to the Portfo-
lio, and will be unrelated to the interest rate on the purchased security. A
Portfolio's custodian or sub-custodian will maintain custody of the purchased
securities for the duration of the agreement. The value of the purchased secu-
rities, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement. In the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Portfolio
could suffer losses, including loss of interest on or principal of the secu-
rity and costs associated with delay and enforcement of the repurchase agree-
ment. In
11
<PAGE>
evaluating whether to enter into a repurchase agreement, the Adviser will
carefully consider the creditworthiness of the seller pursuant to procedures
reviewed and approved by the Trustees. Distributions of the income from repur-
chase agreements entered into by a Portfolio will be taxable to its
unitholders. In addition, each Portfolio, together with other registered in-
vestment companies having advisory agreements with the Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repur-
chase agreements.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
The Portfolios may purchase when-issued securities and make contracts to
purchase or sell securities for a fixed price at a future date beyond custom-
ary settlement time. A Portfolio is required to hold and maintain in a segre-
gated account with the Portfolio's custodian or subcustodian until three days
prior to settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, a Portfolio may enter into offsetting
contracts for the forward sale of other securities that it owns. Securities
purchased or sold on a when-issued or forward commitment basis involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date. Although a Portfolio would generally purchase securities
on a when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Portfolio may dispose of a when-issued secu-
rity or forward commitment prior to settlement if the Adviser deems it appro-
priate to do so.
OTHER INVESTMENT COMPANIES
The Adviser will determine, under guidelines established by the Trustees,
whether securities issued by other money market investment companies present
minimal credit risks. The amount of a Portfolio's investments in securities of
other investment companies will be subject to the limitations on such invest-
ments prescribed by the Investment Company Act. These limits include a prohi-
bition on any Portfolio acquiring more than 3% of the voting shares of any
other investment company, and a prohibition on investing more than 5% of a
Portfolio's total assets in securities of any one investment company or more
than 10% of its total assets in securities of all investment companies. Each
Portfolio will indirectly bear its proportionate share of any management fees
and other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions sub-
stantially similar to those of the acquiring Portfolio and will be subject to
substantially the same risks.
INVESTMENT LIMITATIONS
RULE 2A-7. Each Portfolio will comply with the conditions for using amor-
tized cost valuation set forth in Rule 2a-7 under the Investment Company Act
including, but not limited to, those conditions relating to maturity, diversi-
fication and credit quality. These operating policies may be more restrictive
than the fundamental policies set forth in the Statement of Additional Infor-
mation.
INVESTMENT RESTRICTIONS. Each Portfolio is subject to certain investment re-
strictions that are described in detail under "Investment Restrictions" in the
Statement of Additional Information. Fundamental investment restrictions and
the investment objective of a Portfolio cannot be changed without approval of
a majority of the outstanding units of that Portfolio. All policies not spe-
cifically designated as fundamental are non-fundamental and may be changed
without unitholder approval.
12
<PAGE>
RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Portfolio may purchase secu-
rities that are not registered ("restricted securities") under the Securities
Act of 1933 ("1933 Act"), but can be offered and sold to "qualified institu-
tional buyers" under Rule 144A under the 1933 Act. However, a Portfolio will
not invest more than 10% of its net assets in illiquid investments, which in-
clude fixed time deposits maturing in more than seven days and restricted se-
curities. Restricted securities (including commercial paper issued pursuant to
Section 4(2) of the 1933 Act) which the Board of Trustees has determined are
liquid, based upon a continuing review of the trading markets for the specific
restricted security, will not be deemed to be illiquid investments for pur-
poses of this restriction. The Board of Trustees may adopt guidelines and del-
egate to the Adviser the daily function of determining and monitoring the li-
quidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is
not possible to predict with assurance that the market for restricted securi-
ties eligible for resale under Rule 144A will continue to be liquid, the Ad-
viser will carefully monitor each Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that quali-
fied institutional buyers become for a time uninterested in purchasing these
restricted securities.
In addition, each Portfolio may not invest in repurchase agreements maturing
in more than seven days and securities which are not readily marketable if, as
a result thereof, more than 10% of the net assets of that Portfolio (taken at
market value) would be invested in such investments. Certain repurchase agree-
ments which mature in more than seven days can be liquidated before the nomi-
nal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
MANAGEMENT
THE ADVISER
GSAM, One New York Plaza, New York, New York 10004, a separate operating di-
vision of Goldman, Sachs & Co., acts as investment adviser to the Portfolios.
Goldman Sachs registered as an investment adviser in 1981. As of June 23,
1997, Goldman Sachs, together with its affiliates, acted as investment adviser
or distributor for approximately $120 billion in assets.
As of November 29, 1996, Goldman Sachs and its consolidated subsidiaries had
assets of approximately $152 billion and partners' capital of $5.3 billion and
ranked as one of the largest international investment banking and brokerage
firms in the United States. Founded in 1869, Goldman Sachs is a major invest-
ment banking and brokerage firm providing a broad range of financing and in-
vestment services both in the United States and abroad.
Pursuant to an SEC order, the Prime Obligations Portfolio may enter into
principal transactions in certain taxable money market instruments, including
repurchase agreements, with Goldman Sachs.
Under the Investment Advisory Agreements, GSAM continually manages each
Portfolio, including the purchase, retention and disposition of its securities
and other assets. In addition, GSAM administers the Portfolios' business af-
fairs and performs various unitholder servicing functions to the extent not
provided by other organizations. GSAM may pay a Service Organization, as de-
fined herein, other than Goldman Sachs, compensation equal on an annual basis
up to .10% of the average daily net assets of the ILA Service Units attribut-
able to
13
<PAGE>
or held of record by such Service Organization for providing certain
unitholder services to its customers. The management of each Portfolio is sub-
ject to the supervision of the Trustees and each Portfolio's investment poli-
cies. For these services, the Trust, on behalf of each Portfolio, pays GSAM a
monthly fee at an annual rate of each Portfolio's average daily net assets as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
CONTRACTUAL DECEMBER 31,
RATE 1996
----------- ------------
<S> <C> <C>
Prime Obligations Portfolio............................ .35% .35%
Tax-Exempt Diversified Portfolio....................... .35% .25%
</TABLE>
The difference, if any, between the stated fees and the actual advisory fees
paid by the Portfolios reflects the fact that GSAM did not charge the full
amount of the advisory fees to which it would have been entitled.
GSAM has agreed to reduce or otherwise limit the daily expenses of each
Portfolio (excluding fees payable to Service Organizations, as defined herein,
distribution and authorized dealer service fees, taxes, interest, brokerage
and litigation, indemnification and other extraordinary expenses), on an
annualized basis, to .43% of the average daily net assets of the Portfolio
less the effect of fee reductions, if any. Such reductions or limits, if any,
are calculated monthly on a cumulative basis. Any such reductions or limits
may be discontinued or modified only with the express approval of the Trust-
ees. In addition, GSAM has voluntarily agreed to reduce or limit the Prime Ob-
ligations and Tax-Exempt Diversified Portfolios' annual total operating ex-
penses (excluding fees payable to Service Organizations, as defined herein,
and distribution and authorized dealer service fees), to .42% and .32%, re-
spectively, of average daily net assets. GSAM has no current intention to, but
may in the future, discontinue or modify either of the limitations at its dis-
cretion.
THE DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the Dis-
tributor of units of each Portfolio pursuant to a Distribution Agreement with
the Trust. The Distributor will assist in the sale of units of each Portfolio
upon the terms described herein. Units of each Portfolio may also be sold by
certain investment dealers, including members of the NASD and certain other
financial service firms that have sales agreements with Goldman Sachs ("Autho-
rized Dealers"). Goldman Sachs, 4900 Sears Tower, Chicago, Illinois also
serves as the Transfer Agent of each Portfolio. For the transfer agency serv-
ices, Goldman Sachs receives .04% (on an annualized basis) of the average
daily net assets with respect to the Tax-Exempt Diversified Portfolio. Goldman
Sachs is entitled to receive a fee from the Prime Obligations Portfolio equal
to each class' proportionate share of the total transfer agency fees borne by
the Portfolio. Such fees are equal to the fixed per account charge of $12,000
per year plus $7.50 per account, together with out-of-pocket and transaction
related expenses (including those out-of-pocket expenses payable to servicing
and/or sub-transfer agents) applicable to ILA Class B and Class C Units plus
.04% of the average daily net assets of the other classes of the Prime Obliga-
tions Portfolio.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold units of the Portfolios in order to increase the assets of the Portfo-
lios. Increasing the Portfolios' assets may enhance investment flexibility and
diversification. Goldman Sachs reserves the right to redeem at any time some
or all of the Portfolio units acquired for its own account. Goldman Sachs will
consider the effect of redemptions on the Portfolios and other unitholders in
deciding whether to redeem its units.
14
<PAGE>
ADDITIONAL SERVICES
SERVICE PLAN (ILA SERVICE UNITS ONLY)
Each Portfolio has adopted a Service Plan with respect to the ILA Service
Units which authorizes it to compensate Service Organizations for providing
account administration and personal and account maintenance services to their
customers who are beneficial owners of such Units. Each Portfolio will enter
into agreements with Service Organizations, including Goldman Sachs, which
purchase ILA Service Units, on behalf of their customers ("Service Agree-
ments"). On behalf of its clients who purchase ILA Service Units of a Portfo-
lio, Goldman Sachs will provide services as set forth under the Service Agree-
ment. The Service Agreements will provide for compensation to each Service Or-
ganization in an amount up to .40% (on an annualized basis) of the average
daily net assets of the ILA Service Units of that Portfolio attributable to or
held in the name of the Service Organization for its customers; provided, how-
ever, that the fee paid for personal and account maintenance services shall
not exceed .25% of such average daily net assets. The services provided by a
Service Organization may include acting, directly or through an agent, as the
sole unitholder of record, maintaining account records for its customers,
processing orders to purchase, redeem and exchange ILA Service Units for its
customers, responding to inquiries from prospective and existing unitholders
and assisting customers with investment procedures.
For the fiscal year ended December 31, 1996, the Trust, on behalf of each
Portfolio, paid Service Organizations fees at the annual rate of .40% of each
Portfolio's average daily net assets attributable to ILA Service Units.
Holders of ILA Service Units of a Portfolio will bear all expenses and fees
paid to Service Organizations with respect to such Units as well as any other
expenses which are directly attributable to such Units.
Service Organizations may charge other fees to their customers who are the
beneficial owners of ILA Service Units in connection with their customer ac-
counts. These fees would be in addition to any amounts received by the Service
Organization under a Service Agreement and may affect an investor's return
with respect to an investment in a Portfolio.
All inquiries of beneficial owners of ILA Service Units of the Portfolios
should be directed to such owners' Service Organization.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS (ILA CLASS B AND CLASS C
UNITS ONLY)
DISTRIBUTION PLAN-ILA CLASS B AND CLASS C UNITS. Prime Obligations Portfo-
lio, with respect to each of its ILA Class B and Class C Units, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act
(each a "Distribution Plan"). Under the ILA Class B and Class C Distribution
Plans, Goldman Sachs is entitled to a quarterly fee from the Portfolio for
distribution services equal, on an annual basis, to 0.75% of the average daily
net assets attributable to its ILA Class B and Class C Units, respectively.
Goldman Sachs may use the distribution fee for its expenses of distributing
the ILA Class B and Class C Units. The types of expenses for which Goldman
Sachs may be compensated for distribution services under the ILA Class B and
Class C Distribution Plans include compensation paid to and expenses incurred
by authorized dealers, Goldman Sachs and their respective officers, employees
and sales representatives, commissions paid to authorized dealers, allocable
overhead, telephone and travel expenses, the printing of prospectuses for pro-
spective unitholders, preparation and distribution of sales literature, adver-
tising of any type and all other expenses
15
<PAGE>
incurred in connection with activities primarily intended to result in the
sale of ILA Class B and Class C Units. If the fee received by Goldman Sachs
pursuant to a Distribution Plan exceeds its expenses, Goldman Sachs may real-
ize a profit from these arrangements. The Distribution Plans will be reviewed
and are subject to approval annually by the Board of Trustees of the Trust.
The aggregate compensation that may be received under each Distribution Plan
for distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.
In connection with the sale of ILA Class C Units, Goldman Sachs begins pay-
ing the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the Units have been held for one year. Goldman Sachs pays the distribu-
tion fee on a quarterly basis.
AUTHORIZED DEALER SERVICE PLAN-ILA CLASS B AND CLASS C UNITS. Prime Obliga-
tions Portfolio, with respect to each of its ILA Class B and Class C Units,
has adopted a non-Rule 12b-1 Authorized Dealer Service Plan (each a "Service
Plan") pursuant to which Goldman Sachs, Authorized Dealers or other persons
are compensated for providing personal and account maintenance services. The
Portfolio pays a fee under its ILA Class B and Class C Service Plans equal on
an annual basis to 0.25% of its average daily net assets attributable to ILA
Class B and Class C Units, respectively. The fee for personal and account
maintenance services paid pursuant to a Service Plan may be used to make pay-
ments to Goldman Sachs, authorized dealers and their officers, sales repre-
sentatives and employees for responding to inquiries of, and furnishing assis-
tance to, unitholders regarding ownership of their units or their accounts or
similar services not otherwise provided on behalf of the Portfolios. The Serv-
ice Plans will be reviewed and are subject to approval annually by the Board
of Trustees.
In connection with the sale of ILA Class C Units, Goldman Sachs begins pay-
ing the 0.25% ongoing service fee to Authorized Dealers after the Units have
been held for one year. Goldman Sachs pays the service fee on a quarterly ba-
sis.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Portfolio continuously offers ILA Service Units and the Prime Obliga-
tions Portfolio also offers ILA Class B and Class C Units through this pro-
spectus, as described more fully below. ILA Class B and Class C Units of the
Prime Obligations Portfolio will be typically issued only upon an exchange of
Class B or Class C Shares, respectively, of any of the Goldman Sachs Funds (as
defined herein) or to accounts which intend to systematically exchange ILA
Class B or Class C Units for Class B or Class C Shares, respectively, of any
of the Goldman Sachs Funds. If an investor does not specify in the instruc-
tions to the Portfolios which class of Units an investor wishes to purchase,
exchange or redeem, the Portfolios will assume that the instructions apply to
ILA Service Units, since such units are not subject to any contingent deferred
sales charge or distribution fees.
ILA SERVICE UNITS. ILA Service Units of the Portfolios may be purchased
through Goldman Sachs acting as a Service Organization or through Authorized
Dealers. ILA Service Units are not subject to any initial or contingent de-
ferred sales charge or any fee for distribution services. However, ILA Service
Units are subject to a service fee at the annual rate of 0.40% of the Portfo-
lios' average daily net assets attributable to ILA Service Units.
ILA CLASS B UNITS. ILA Class B Units of the Prime Obligations Portfolio may
be purchased through Goldman Sachs or through Authorized Dealers. ILA Class B
Units are sold without an initial sales charge, but
16
<PAGE>
are subject to a contingent deferred sales charge ("CDSC"), as described be-
low, if redeemed within six years of purchase. ILA Class B Units are also sub-
ject to distribution and authorized dealer service fees of up to 0.75% and
0.25%, per annum, respectively, of the Portfolio's average daily net assets
attributable to ILA Class B Units. Your entire investment in ILA Class B Units
is available to work for you from the time you make your initial investment,
but the distribution fee paid by ILA Class B Units will cause your Units (un-
til conversion to ILA Service Units) to have a higher expense ratio and to pay
lower dividends than ILA Service Units. ILA Class B Units will automatically
convert to ILA Service Units, based on their relative net asset values, eight
years after purchase. No CDSC is imposed upon exchanges between the Prime Ob-
ligations Portfolio and another Goldman Sachs Fund. However, units or shares
acquired in an exchange will be subject to the CDSC to the same extent as if
there had been no exchange. For purposes of determining whether the CDSC is
applicable, the length of time an investor has owned units or shares acquired
by exchange will be measured from the date the investor acquired the original
units or shares and will not be affected by any subsequent exchange. There is
a maximum purchase limitation of $250,000 on purchases of ILA Class B Units by
each investor.
ILA CLASS C UNITS. ILA Class C Units of the Prime Obligations Portfolio are
sold without an initial sales charge, but are subject to a CDSC of 1% if re-
deemed within 12 months of purchase. ILA Class C Units are subject to distri-
bution and authorized dealer service fees of 0.75% and 0.25%, per annum, re-
spectively, of the Portfolio's average daily net assets attributable to ILA
Class C Units. See "Distribution and Authorized Dealer Service Plans (ILA
Class B and Class C Units only)." ILA Class C Units have no conversion fea-
ture, and accordingly, an investor that purchases ILA Class C Units will be
subject to distribution fees that will be imposed on ILA Class C Units for an
indefinite period, subject to annual approval by the Portfolio's Board of
Trustees and certain regulatory limitations. Your entire investment in ILA
Class C Units is available to work for you from the time you make your initial
investment, but the distribution fee paid by ILA Class C Units will cause your
ILA Class C Units to have a higher expense ratio and to pay lower dividends,
to the extent dividends are paid, than ILA Service Units (or Class B Units af-
ter conversion to ILA Service Units). There is a maximum purchase limitation
of $1,000,000 on purchases of ILA Class C Units by each investor.
OFFERING PRICE-ILA CLASS B UNITS
Investors may purchase ILA Class B Units of the Prime Obligations Portfolio
at the next determined net asset value without the imposition of an initial
sales charge. However, ILA Class B Units redeemed within six years of purchase
will be subject to a CDSC at the rates shown in the table that follows. At re-
demption, the charge will be assessed on the amount equal to the lesser of the
current market value or the original purchase cost of the units being re-
deemed. No CDSC will be imposed on increases in account value above the ini-
tial purchase price, including units derived from the reinvestment of divi-
dends or capital gains distributions. Upon redemption of units subject to a
CDSC, unitholders will receive that portion of the appreciation in account
value attributable to the units actually redeemed.
17
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of ILA Class B Units.
For the purpose of determining the number of years from the time of any pur-
chase, all payments during a month will be aggregated and deemed to have been
made on the first day of that month. In processing redemptions of ILA Class B
Units, the Portfolio will first redeem units not subject to any CDSC, and then
units held longest during the six-year period. As a result, a redeeming
unitholder will pay the lowest possible CDSC.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CDSC
- ------------------- ---------------
<S> <C>
First........................................................... 5.0%
Second.......................................................... 4.0%
Third........................................................... 3.0%
Fourth.......................................................... 3.0%
Fifth........................................................... 2.0%
Sixth........................................................... 1.0%
Seventh and thereafter.......................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing dis-
tribution-related services in connection with the sale of ILA Class B Units,
including the payment of compensation to Authorized Dealers. A commission
equal to 4% of the amount invested is paid to Authorized Dealers.
ILA Class B Units of the Prime Obligations Portfolio will automatically con-
vert into ILA Service Units of the Prime Obligations Portfolio at the end of
the calendar quarter that is eight years after the purchase date, except as
noted below. ILA Class B Units of the Portfolio acquired by exchange from
Class B Shares of another Goldman Sachs Fund will convert into ILA Service
Units based on the date of the initial purchase. ILA Class B Units acquired
through reinvestment of distributions will convert into ILA Service Units
based on the date of the initial purchase of the units on which the distribu-
tion was paid.
OFFERING PRICE--ILA CLASS C UNITS
Investors may purchase ILA Class C Units of the Prime Obligations Portfolio
at the next determined net asset value without the imposition of an initial
sales charge. However, if ILA Class C Units are redeemed within 12 months of
purchase a CDSC of 1% will be deducted from the redemption proceeds. At re-
demption, the charge will be assessed on the amount equal to the lesser of the
current market value or the original purchase cost of the units being re-
deemed. No CDSC will be imposed on increases in account value above the ini-
tial purchase price, including units derived from the reinvestment of divi-
dends or capital gains distributions. Upon redemption of units subject to a
CDSC, unitholders will receive a portion of the appreciation in account value
attributable to the units actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of ILA
Class C Units, the Prime Obligations Portfolio will first redeem units held
for longer than 12 months, and then units held for the longest period during
the 12 month period. Proceeds from the CDSC are payable to the Distributor and
may be used in whole or in part to defray the Distributor's expenses related
to providing distribution-related services to the Portfolios in connection
with the sale of ILA Class C Units, including the payment of compensation to
Authorized Dealers. A commission equal to 1.00% of the amount invested is paid
to Authorized Dealers.
18
<PAGE>
REINVESTMENT OF REDEMPTION PROCEEDS--ILA CLASS B AND CLASS C UNITS
A unitholder who redeems ILA Class B Units of the Prime Obligations Portfo-
lio may reinvest at net asset value any portion or all of his redemption pro-
ceeds (plus that amount necessary to acquire a fractional share to round off
his purchase to the nearest full share) in Class A shares of any other Goldman
Sachs Fund. A unitholder who redeems ILA Class C Units of the Prime Obliga-
tions Portfolio may reinvest at net asset value any portion or all of his re-
demption proceeds (plus that amount necessary to acquire a fractional share to
round off his purchase to the nearest full share) in ILA Class C Units of the
Prime Obligations Portfolio or Class C Shares of any other Goldman Sachs Fund.
Unitholders should obtain and read the applicable prospectuses of such other
funds and consider their objectives, policies and applicable fees before in-
vesting in any of such funds. This reinvestment privilege is subject to the
condition that the Units 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. If you redeemed ILA Class C Units, paid a CDSC
upon a redemption and reinvest in ILA Class C Units or Class C shares subject
to the conditions set forth above, your account will be credited with the
amount of the CDSC previously charged, and the reinvested shares will continue
to be subject to a CDSC. In this case, the holding period of the Class C
shares acquired through reinvestment for purposes of computing the CDSC pay-
able upon a subsequent redemption will include the holding period of the re-
deemed Units. If you redeemed ILA Class B Units and paid a CDSC upon redemp-
tion, you are permitted to reinvest the redemption proceeds in Class A shares
of any Goldman Sachs Fund at net asset value as described above, but the
amount of the CDSC paid upon redemption will not be credited to your account.
Shares are sold to a reinvesting unitholder at the net asset value next deter-
mined following timely receipt by Goldman Sachs or an Authorized Dealer of a
written purchase order indicating that the shares are eligible for reinvest-
ment at net asset value.
Upon receipt of a written request, the reinvestment privilege may be exer-
cised once annually by a unitholder, except that there is no such time limit
as to the availability of this privilege in connection with transactions the
sole purpose of which is to reinvest the proceeds at net asset value in a tax-
sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS B AND CLASS C
UNITS
The CDSC on ILA Class B and Class C units may be waived or reduced if the
redemption relates to (a) retirement distributions or loans to participants or
beneficiaries from pension and profit sharing plans, pension funds and other
company sponsored benefit plans (each a "Plan"); (b) the death or disability
(as defined in section 72 of the Code) of a participant or beneficiary in a
Plan; (c) hardship withdrawals by a participant or beneficiary in a Plan; (d)
satisfying the minimum distribution requirements of the Code; (e) the estab-
lishment of "substantially equal periodic payments" as described in Section
72(t) of the Code; (f) the separation from service by a participant or benefi-
ciary in a Plan; (g) the death or disability (as defined in section 72 of the
Code) of a shareholder if the redemption is made within one year of such
event; (h) excess contributions being returned to a Plan; (i) distributions
from a qualified retirement plan invested in the Goldman Sachs Funds which are
being reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which
are to be reinvested in accounts or non-registered products over which GSAM or
its advisory affiliates have investment discretion.
GENERAL INFORMATION
ILA Service Units, ILA Class B Units and ILA Class C Units may be purchased
on any Business Day at the net asset value next determined after receipt by
State Street Bank and Trust Company ("State Street"), as agent for Goldman
Sachs, of both the purchase order and the purchase price in federal funds.
Purchase orders
19
<PAGE>
may be made by contacting Goldman Sachs or, if units are held in a "street
name" account, the applicable Authorized Dealer. Since the Portfolios and
Goldman Sachs will have no record of the beneficial owner's transactions in a
"street name" account, the beneficial owner should contact its Authorized
Dealer to purchase, redeem or exchange units, to make changes in or give in-
structions concerning the account or to obtain information about the account.
It is the responsibility of the Authorized Dealer to promptly forward orders
and payment to the Portfolios.
Goldman Sachs may from time to time, at its own expense, provide compensa-
tion to certain Authorized Dealers and other persons for performing adminis-
trative services to their customers. These services include maintaining ac-
count records, processing orders to purchase, redeem and exchange units and
responding to certain customer inquires. In addition, these services may also
include responding to certain inquiries from and providing written materials
to depository institutions about the Portfolios; furnishing advice about and
assisting depository institutions in obtaining from state regulatory agencies
any rulings, exemptions or other authorizations that may be required to con-
duct a mutual fund sales program; acting as liaison between depository insti-
tutions 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 in-
stitutions.
PURCHASES BY CHECK
Initial purchases of ILA Service Units, ILA Class B Units and ILA Class C
Units may be made by mailing a completed Account Application along with a Fed-
eral Reserve draft or check (except that a third party check will not be ac-
cepted) payable only to the appropriate Portfolio and drawn on a U.S. bank and
for subsequent investments may be made by mailing a check with the investor's
account number to Goldman Sachs Trust (Prime Obligations Portfolio--Indicate
Class of Units) or (Tax-Exempt Diversified Portfolio--Service Units), c/o
NFDS, P.O. Box 419711, Kansas City, MO 64141-6711. The order becomes effective
as soon as the check or draft is converted to federal funds. It is expected
that Federal Reserve drafts will ordinarily be converted to federal funds on
the day of receipt and that checks will be converted to federal funds within
two Business Days after receipt. Payment of redemption proceeds from ILA Serv-
ice Units, ILA Class B Units and ILA Class C Units purchased by check may be
delayed up to 15 days until the check has cleared, as described under "Redemp-
tion of Units".
AUTOMATIC INVESTMENT PLAN
Systematic cash investments in ILA Service Units, ILA Class B Units or ILA
Class C Units may be made through a unitholder's bank via the Automated Clear-
ing House Network or a unitholder's checking account via bank draft each
month. Required forms are available from Goldman Sachs or any Authorized Deal-
er. A minimum investment of $50 is required for Automatic Investment Plans.
PURCHASES
ILA Service Units, ILA Class B Units and ILA Class C Units of the Prime Ob-
ligations Portfolio are deemed to have been purchased when an order becomes
effective and are entitled to dividends as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF AN ORDER IS RECEIVED BY
STATE STREET DIVIDENDS BEGIN
-------------------------- -----------------
<S> <C>
By: 3:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------
After: 3:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------
</TABLE>
20
<PAGE>
ILA Service Units of the Tax-Exempt Diversified Portfolio are deemed to have
been purchased when an order becomes effective and are entitled to dividends
as follows:
<TABLE>
<CAPTION>
IF AN ORDER IS RECEIVED BY
STATE STREET DIVIDENDS BEGIN
-------------------------- -----------------
<S> <C>
By: 1:00 p.m.--N.Y. time Same Business Day
- ---------------------------------------------------
After: 1:00 p.m.--N.Y. time Next Business Day
- ---------------------------------------------------
</TABLE>
A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.
ILA Service Units of the Portfolios are purchased at the net asset value per
unit without the imposition of a sales charge. ILA Class B and Class C Units
acquired through an exchange will be purchased at the net asset value per unit
and will only be subject to the CDSC on the shares originally held. For pur-
poses of determining the amount of any applicable CDSC, the length of time a
unitholder has owned ILA Class B or Class C Units will be measured from the
date the unitholder acquired the original Class B or Class C shares and will
not be affected by any subsequent exchange. Investors should consult their
Goldman Sachs Fund Class B or Class C shares prospectus to determine the
amount of their remaining CDSC.
Goldman Sachs, as each Portfolio's transfer agent, will maintain a complete
record of transactions and ILA Service Units, ILA Class B Units or ILA Class C
Units held in each unitholder's account. The Trust and Goldman Sachs each re-
serves the right to reject any purchase order for any reason.
MINIMUM INVESTMENT AND OTHER INFORMATION
The Trust does not have any minimum purchase or account requirements with
respect to ILA Service Units. However, Goldman Sachs has established a minimum
initial investment requirement of $5,000. Shareholders of any Goldman Sachs
Fund who wish to purchase ILA Service Units of the Portfolios or ILA Class B
or Class C Units of the Prime Obligations Portfolio through an exchange of
shares of such a Goldman Sachs Fund may be subject to different minimum in-
vestment requirements. (See "Exchanges," on page 24 of the Prospectus.)
TAX-SHELTERED RETIREMENT PLANS
The Prime Obligations Portfolio is offered for purchase by retirement plans,
including Individual Retirement Account plans for individuals and their non-
employed spouses, IRA plans for employees in connection with employer spon-
sored SEP, SAR-SEP and SIMPLE IRA plans, 403(b) plans and defined contribution
plans such as 401(k) Salary Reduction 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 infor-
mation sets forth the service fee charged for retirement plans and describes
the federal income tax consequences of establishing a plan.
The minimum initial investment for all such retirement plans is $5,000, ex-
cept for certain exchanges of shares of any Goldman Sachs Fund and except that
the minimum for tax-sheltered retirement plans is $250. There is a minimum of
$50 for all subsequent investments.
21
<PAGE>
REPORTS TO UNITHOLDERS
The Trust will issue an annual report containing audited financial state-
ments and a semiannual report to record holders of ILA Service Units of each
Portfolio, including Service Organizations who hold such Units for the benefit
of their customers and to unitholders of ILA Class B and Class C Units of the
Prime Obligations Portfolio. Upon request, a printed confirmation for each
transaction will be provided by Goldman Sachs. Any dividends and distributions
paid by the Portfolio are also reflected in regular statements issued by
Goldman Sachs, in its capacity as transfer agent and income disbursing agent,
to unitholders of record. The Service Organizations, including Goldman Sachs,
will be responsible for providing similar services to their own customers who
are the beneficial owners of such Units.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
All or substantially all of each Portfolio's net investment income will be
declared daily (as of 4:00 p.m. New York time) as a dividend and distributed
monthly. Distributions will be made in additional ILA Service Units, ILA Class
B Units or ILA Class C Units of the same Portfolio or, at the election of a
Service Organization (with respect to ILA Service Units) or ILA Class B or ILA
Class C Unitholder, in cash. Such reinvestments will not be subject to any
CDSC. The election to reinvest dividends and distributions or receive them in
cash may be changed by a Service Organization or ILA Class B or ILA Class C
Unitholder at any time upon written notice to Goldman Sachs, in its capacity
as transfer agent and income disbursing agent. If no election is made, all
dividend and capital gain distributions will be reinvested. Dividends will be
reinvested as of the last calendar day of each month. Cash distributions will
be paid on or about the first business day of each month. Net short-term capi-
tal gains, if any, will be distributed in accordance with the requirements of
the Code and may be reflected in a Portfolio's daily distributions. Each Port-
folio may distribute at least annually its long-term capital gains, if any,
after reduction by available capital losses. In order to avoid excessive fluc-
tuations in the amount of monthly capital gains distributions, a portion of
any net capital gains realized on the disposition of securities during the
months of November and December may be distributed during the subsequent cal-
endar year. Although realized gains and losses on the assets of a Portfolio
are reflected in the net asset value of the Portfolio, they are not expected
to be of an amount which would affect the Portfolio's net asset value of $1.00
per unit.
A Portfolio's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the Port-
folio from sources other than capital gains over (iii) the amortization of
market premium on all portfolio securities and (iv) the estimated expenses of
the Portfolio, including a proportionate share of the general expenses of the
Trust.
TAXES
Each Portfolio is treated as a separate entity for federal income tax pur-
poses, has elected to be treated and intends to continue to qualify and be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code") for each taxable year. To qualify as such,
each Portfolio must satisfy certain requirements relating to the sources of
its income, diversification of its assets and distribution of its income to
unitholders. As a regulated investment company, each Portfolio will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its unitholders in accordance
with certain timing requirements of the Code.
22
<PAGE>
Dividends paid by a Portfolio from net investment income, the excess of net
short-term capital gain over net long-term capital loss and original issue
discount or market discount income will be taxable to unitholders as ordinary
income, except for any "exempt-interest dividends" paid by the Tax-Exempt Di-
versified Portfolio, as described below. Dividends paid by a Portfolio from
the excess of net long-term capital gain over net short-term capital loss will
be taxable as long-term capital gain regardless of how long the unitholders
have held their units. These tax consequences will apply to distributions of
either Portfolio regardless of whether distributions are received in cash or
reinvested in units. Certain distributions paid by the Portfolios in January
of a given year will be taxable to unitholders as if received on December 31
of the year in which they are declared. Unitholders will be informed annually
about the amount and character of distributions received from the Portfolios
for federal income tax purposes, including any distributions that may consti-
tute a return of capital or any distributions of the Tax-Exempt Diversified
Portfolio that may constitute a tax preference item under the federal alterna-
tive minimum tax.
The Tax-Exempt Diversified Portfolio intends to satisfy certain requirements
of the Code for the payment of "exempt-interest dividends" not included in
unitholders' federal gross income. Dividends paid by the Tax-Exempt Diversi-
fied Portfolio from interest on tax-exempt obligations and properly designated
by the Portfolio as exempt-interest dividends, including dividends attribut-
able to exempt-interest dividends received by the Portfolio from other regu-
lated investment companies, will generally be exempt from federal income tax,
although a portion of such dividends may be subject to the federal alternative
minimum tax. Exempt-interest dividends will be considered in computing the
corporate federal alternative minimum tax and the extent, if any, to which so-
cial security or railroad retirement benefits are taxable. Persons who are
"substantial users" of facilities financed by certain industrial development
or private activity bonds should consult their own tax advisers before pur-
chasing units of the Tax-Exempt Diversified Portfolio. Interest incurred to
purchase or carry units of the Tax-Exempt Diversified Portfolio will not be
deductible for federal income tax purposes to the extent related to exempt-in-
terest dividends paid by the Portfolio.
Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on taxable distributions if they fail
to furnish their correct taxpayer identification number and certain certifica-
tions required by the Internal Revenue Service or if they are otherwise sub-
ject to backup withholding. Individuals, corporations and other unitholders
that are not U.S. persons under the Code are subject to different tax rules
and may be subject to nonresident alien withholding at the rate of 30% (or a
lower rate provided by an applicable tax treaty) on amounts treated as ordi-
nary dividends from the Portfolios.
In addition to federal taxes, a unitholder may be subject to state and local
taxes on payments received from a Portfolio. A state income (and possibly lo-
cal income and/or intangible property) tax exemption is generally available to
the extent a Portfolio's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) certain U.S. Government obligations and/or tax-exempt municipal obliga-
tions issued by or on behalf of the particular state or a political subdivi-
sion thereof, provided in some states that certain thresholds for holdings of
such obligations and/or reporting requirements are satisfied. Unitholders
should consult their own tax advisers concerning these matters.
23
<PAGE>
AUTOMATIC EXCHANGE PROGRAM
Unitholders of a Portfolio may elect on the Account Application to automati-
cally exchange a specified dollar amount of ILA Service Units, ILA Class B
Units or ILA Class C Units for corresponding shares of any Goldman Sachs Fund.
In the case of ILA Service Units, such exchanges will be made into the rele-
vant Goldman Sachs Fund at the public offering price, which may include a
sales charge, unless a sales charge has previously been paid on the investment
represented by the exchanged units (i.e., the units to be exchanged were orig-
inally issued in exchange for shares on which a sales charge was paid), in
which case the automatic exchanges will be made at net asset value. In the
case of ILA Class B or Class C Unitholders, such exchanges will be made into
the relevant Goldman Sachs Fund at net asset value and will be subject to the
CDSC of the original shares held. For purposes of determining the amount of
any applicable CDSC, the length of time a unitholder has owned ILA Class B or
ILA Class C Units will be measured from the date the unitholder acquired the
original Class B or Class C shares and will not be affected by any subsequent
exchange. Investors should consult their Goldman Sachs Fund Class B or Class C
shares prospectus, as the case may be, to determine the amount of their appli-
cable CDSC. Dividends and/or capital gains of ILA Service Units of each Port-
folio and ILA Class B and Class C Units of the Prime Obligations Portfolio
which have been reinvested may be exchanged for corresponding shares of a
Goldman Sachs Fund without an initial sales charge or CDSC. 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 mini-
mum dollar amount for automatic exchanges must be at least $50 per month. At
the time the election is made (i) the value of the unitholder's account in the
Portfolio from which the exchange is made must equal or exceed $5,000 and (ii)
the value of the account in the acquired fund must equal or exceed the ac-
quired fund's minimum initial investment requirement or, if the unitholder 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. The names, addresses and
social security or other taxpayer identification numbers for the unitholder
accounts with the exchanged and acquired funds must be identical. A unitholder
should obtain and read the prospectus relating to any Goldman Sachs Fund and
its shares and consider its investment objective, policies and applicable fees
and expenses before electing an automatic exchange into that Goldman Sachs
Fund.
EXCHANGES
ILA Service Units of each Portfolio and ILA Class B and Class C Units of the
Prime Obligations Portfolio may be exchanged for units of the corresponding
class of any Goldman Sachs Fund. A unitholder should obtain and read the pro-
spectus for the relevant Goldman Sachs Fund and consider its investment objec-
tives, policies and applicable fees before making an exchange. Exchanges of
ILA Service Units from each Portfolio will be made into the relevant Goldman
Sachs Fund at the public offering price, which may include a sales charge, un-
less a sales charge has previously been paid on the investment represented by
the exchanged units (i.e., the units to be exchanged were originally issued in
exchange for shares on which a sales charge was paid), in which case the ex-
change will be made at net asset value. In the case of ILA Class B and Class C
Unitholders, such exchanges will be made into the relevant Goldman Sachs Fund
at net asset value and will be subject to the CDSC of the original shares
held. For purposes of determining the amount of any applicable CDSC, the
length of time a unitholder has owned ILA Class B or Class C Units will be
measured from the date the unitholder acquired the original Class B or Class C
shares and will not be affected by any subsequent exchange. Investors should
consult their Goldman Sachs Fund Class B or Class C shares prospectus to de-
termine the amount of their applicable CDSC. ILA Service Units of each Portfo-
lio or ILA Class B or Class C Units of the Prime Obligations Portfolio pur-
chased through dividend and/or capital gains reinvestment may be exchanged for
corresponding shares of a Goldman Sachs Fund without an initial sales charge
or CDSC.
24
<PAGE>
ILA Service Units of a Portfolio acquired in an exchange transaction for
shares of a Goldman Sachs Fund will be subject to the CDSC, if any, of the
shares of the Goldman Sachs Fund originally held. For purposes of determining
the amount of any applicable CDSC, the length of time a unitholder had owned
units acquired will be measured from the date the unitholder acquired the
original units subject to a CDSC, and will not be affected by any subsequent
exchange. A subsequent exchange of ILA Service Units of a Portfolio that are
subject to a CDSC (i.e., because the ILA Service Units were acquired in an ex-
change transaction for shares of a Goldman Sachs Fund that were subject to a
CDSC) will not be subject to the applicable CDSC at the time of exchange.
An exchange may be made by contacting an Authorized Dealer or writing to
Goldman Sachs Trust, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711 or,
unless the investor has specifically declined telephone exchange privileges on
the Account Application or elected in writing not to utilize telephone ex-
changes, by a telephone request to the Transfer Agent at 1-800-526-7384
(9:00 a.m. to 5:00 p.m. New York time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "Re-
demption of Units." Under the telephone exchange privilege, units may be ex-
changed among accounts with different names, addresses or social security or
other taxpayer identification numbers only if the exchange instructions are in
writing and are received in accordance with the procedures set forth under
"Redemption of Units." In times of drastic economic or market changes the tel-
ephone exchange privilege may be difficult to implement.
In addition to free automatic exchanges pursuant to the Automatic Exchange
Program, six free exchanges are permitted in each twelve-month period. It may
be difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Units" to confirm that such instructions are
genuine. All exchanges are subject to the minimum investment requirements of
the Portfolio or Goldman Sachs Fund into which the shares or units are being
exchanged. The minimum initial exchange for shareholders of a Goldman Sachs
Fund is $5,000 or the full account share balance, whichever is less.
An exchange fee may be imposed or the exchange privilege may be modified or
withdrawn at any time upon 60 days' notice to unitholders. The Trust, the rel-
evant fund or Goldman Sachs may reject or restrict purchases of units or
shares by a particular purchaser or group, for example, when a pattern of fre-
quent purchases and sales of units or shares is evident or if the purchase and
sale orders are, or a subsequent abrupt redemption might be, of a size that
would disrupt management of a Portfolio or a Goldman Sachs Fund. Exchanges are
available only in states where the exchange may be legally made.
REDEMPTION OF UNITS
HOW TO REDEEM
ILA Service Units of a Portfolio may be redeemed without charge upon request
on any Business Day at the net asset value next determined after receipt by
State Street as agent for Goldman Sachs, as a Service Organization, of the re-
demption request. ILA Class B and Class C Units of the Prime Obligations Port-
folio may be redeemed without charge upon request on any Business Day at the
net asset value next determined after receipt of the redemption request less
any applicable CDSC. Investors should consult their Goldman Sachs Fund Class B
and Class C shares prospectus to determine the amount, if any, of the CDSC at
the time of redemption. Redemption requests may be made by contacting Goldman
Sachs or, if units are held in a "street name" account, the applicable Autho-
rized Dealer. Written requests may be addressed to Goldman Sachs Trust, c/o
NFDS, P.O. Box 419711, Kansas City, MO 64141-6711.
25
<PAGE>
The Trust accepts telephone requests for redemption of units for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account Ap-
plication or elected in writing not to utilize telephone redemptions (proceeds
which are sent to a Goldman Sachs brokerage account are not subject to the
$50,000 limit). It may be difficult to implement redemptions by telephone in
times of drastic economic or market changes. By completing an Account Applica-
tion, an investor agrees that the Trust, the Distributor and the Transfer
Agent shall not be liable for any loss incurred by the investor by reason of
the Trust accepting unauthorized telephone redemption requests for his account
if the Trust reasonably believes the instructions to be genuine. Thus,
unitholders risk possible losses in the event of a telephone redemption not
authorized by them. The Trust may accept telephone redemption instructions
from any person identifying himself as the owner of an account or the owner's
broker where the owner has not declined in writing to utilize this service.
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 unitholder's address of record or authorized bank account
designated in the Account Application and exchanges of units will only be made
to an identical account. Telephone requests will also be recorded. The Trust
may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not implemented, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
unitholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the unitholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a unitholder's address of record. This redemption
option does not apply to units held in a "street name" account. Unitholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each unitholder 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 associa-
tion, 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.
26
<PAGE>
- -------------------------------------------------------------------------------
PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS
In accordance with the following, redemption proceeds will be wired or
mailed to the record holder of ILA Service Units, ILA Class B Units or Class C
Units.
<TABLE>
- --------------------------------------------------------------------------------------
<CAPTION>
REDEMPTION REQUEST RECEIVED BY
STATE STREET AS AGENT FOR GOLDMAN REDEMPTION
SACHS PROCEEDS ORDINARILY DIVIDENDS
--------------------------------- ------------------- ---------
<C> <S> <C>
(1)Prime Obligations Portfolio
By:3:00 p.m.--N.Y. time (i) Wire Redemptions Sent Not earned on Day
Same Business Day request is received
(ii) Check Redemptions Sent
Next Business Day
- --------------------------------------------------------------------------------------
After: 3:00 p.m.--N.Y. time (i) Wire Redemptions Sent Earned on Day
Next Business Day request is received
(ii) Check Redemptions Sent
Within Two Business
Days
- --------------------------------------------------------------------------------------
(2)Tax-Exempt Diversified Portfolio
By:12:00 noon--N.Y. time (i) Wire Redemptions Sent Not earned on Day
Same Business Day request is received
(ii) Check Redemptions Sent
Next Business Day
- --------------------------------------------------------------------------------------
After:12:00 noon--N.Y. time (i) Wire Redemptions Sent Earned on Day
Next Business Day request is received
(ii) Check Redemptions Sent
Within Two Business
Days
- --------------------------------------------------------------------------------------
</TABLE>
The Portfolios will arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the Ac-
count Application. Redemption proceeds will normally be wired as set forth
above, but may be paid up to three Business Days after receipt of the properly
executed redemption request. For example, payment may be delayed if the Fed-
eral Reserve Bank is closed on the day redemption proceeds would ordinarily be
wired. After a wire has been initiated by Goldman Sachs, neither Goldman Sachs
nor the Trust assumes any further responsibility for the performance of inter-
mediaries or the customer's Service Organization, if any, in the transfer
process. If a problem with such performance arises in connection with redemp-
tion of Service Shares, the customer should deal directly with such intermedi-
aries or Service Organization.
CHECK REDEMPTION PRIVILEGE (ILA SERVICE UNITS ONLY)
Goldman Sachs or its agent, as a record holder of ILA Service Units of a
Portfolio, may elect to have a special account with State Street for the pur-
pose of permitting its customers to redeem ILA Service Units from their ac-
counts in each Portfolio by check. When State Street receives a completed ap-
plication form, Goldman Sachs or its agent, as a record holder of the ILA
Service Units, will forward to the requesting customer a supply of checks.
Checks drawn on this account may be payable to the order of any person in any
amount of $500 or more, but cannot be certified. The payee of the check may
cash or deposit it like any other check drawn on a bank. When such a check is
presented to State Street for payment, a sufficient number of full and frac-
tional ILA Service Units will be redeemed to cover the amount of the check.
Cancelled checks will be returned to the record holder of ILA Service Units by
State Street.
27
<PAGE>
The check redemption privilege enables a unitholder to receive the dividends
declared on the ILA Service Units to be redeemed until such time as the check
is processed. Because of this feature, the check redemption privilege may not
be used for a complete liquidation of a unitholder's account. If the amount of
a check is greater than the value of the ILA Service Units held in the
unitholder's account, the check will be returned unpaid, and the unitholder
may be subject to extra charges.
Goldman Sachs reserves the right to impose conditions on, limit the avail-
ability of or terminate the check redemption privilege at any time with re-
spect to a particular unitholder or all unitholders in general. The Trust and
State Street reserve the right at any time to suspend the procedure permitting
redemptions by check and intend to do so in the event that federal legislation
or regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of other ILA Service Unitholders of
the Portfolios.
NET ASSET VALUE
The net asset value of ILA Service Units of each Portfolio and ILA Class B
and Class C Units of the Prime Obligations Portfolio is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 P.M.
New York time) on each Business Day. Net asset value per unit for each class
of units of each Portfolio is calculated by determining the amount of net as-
sets attributable to each class of units and dividing by the number of units
for such class.
On any Business Day, as defined herein, when the Public Securities Associa-
tion ("PSA") recommends that the securities markets close early, the Prime Ob-
ligations Portfolio and Tax-Exempt Diversified Portfolio reserve the right to
cease accepting purchase and redemption orders for same Business Day credit at
the time the PSA recommends that the securities markets close. On days either
Portfolio closes early, purchase and redemption orders received after the PSA
recommended closing time will be credited to the next Business Day. In addi-
tion, each Portfolio reserves the right to advance the time by which purchase
and redemption orders must be received for same Business Day credit as permit-
ted by the SEC.
Each Portfolio seeks to maintain a net asset value of $1.00 per unit. In
this connection, each Portfolio values its portfolio securities on the basis
of amortized cost. The amortized cost method values a security at its cost on
the date of purchase and thereafter assumes a constant amortization to matu-
rity of any discount or premium, regardless of the impact of fluctuating in-
terest rates on the market value of the instrument. For a more complete de-
scription of the amortized cost valuation method and its effect on existing
and prospective unitholders, see the Statement of Additional Information.
There can be no assurance that a Portfolio will be able at all times to main-
tain a net asset value per unit of $1.00.
YIELD INFORMATION
From time to time, each Portfolio may advertise its yield, effective yield
and average total return. Average annual total return is determined by comput-
ing the average annual percentage change in value of $1,000 invested at the
maximum public offering price for a specified period of at least one year, as-
suming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Portfolio may furnish total return calcu-
lations based on a cumulative, average, year-by-year or other basis for vari-
ous specified periods by means of quotations, charts, graphs or schedules. The
yield of a Portfolio refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the adver-
tisement). This income is then annualized; that is, the amount of income gen-
erated by the investment during that week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The ef-
fective yield is calculated similarly
28
<PAGE>
but, when annualized, the income earned by an investment in the Portfolio is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The Tax-Exempt Diversified Portfolio may also quote tax-equivalent yield.
The Portfolio's tax-equivalent yield is calculated by determining the rate of
return that would have to be achieved on a fully taxable investment to produce
the after-tax equivalent of the Portfolio's yield, assuming certain tax brack-
ets for a unitholder.
Investors should note that the investment results of a Portfolio are based
on historical performance and will fluctuate over time. Any presentation of a
Portfolio's total return, yield, effective yield or tax-equivalent yield for
any prior period should not be considered a representation of what an invest-
ment may earn or what a Portfolio's total return, yield, effective yield or
tax-equivalent yield may be in any future period. In addition to the above,
each Portfolio may from time to time advertise its performance relative to
certain averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.
Total return, yield, effective yield and tax-equivalent yield will be calcu-
lated separately for each class of units in existence. Because each such class
of units is subject to different expenses, the yield of such classes of a
Portfolio for the same period may differ. See "Organization and Units of the
Portfolios" below.
ORGANIZATION AND UNITS OF THE PORTFOLIOS
Each Portfolio is a series of the Goldman Sachs Trust, which was formed un-
der the laws of the State of Delaware on January 28, 1997. The Funds were for-
merly series of Goldman Sachs Money Market Trust, a Massachusetts business
trust, and were reorganized into the Trust as of April 30, 1997. The Trustees
have authority under the Trust's Declaration of Trust to create and classify
units of beneficial interest in separate series, without further action by
unitholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of units into
one or more classes. (Institutions that provide services to holders of ILA
Service Units are referred to in this Prospectus as "Service Organizations").
When issued, units are fully paid and nonassessable. In the event of liqui-
dation, unitholders are entitled to share pro rata in the net assets of the
applicable Portfolio available for distribution to such unitholders. All units
are freely transferable and have no preemptive, subscription or conversion
rights. Unitholders are entitled to one vote per unit, provided that, at the
option of the Trustees, unitholders will be entitled to a number of votes
based upon the net asset values represented by their unitholders.
Units of a Portfolio will be voted separately by Portfolio with respect to
matters pertaining to that Portfolio except for the election of Trustees and
ratification of independent accountants. For example, unitholders of each
Portfolio are required to approve the adoption of any investment advisory
agreement relating to that Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the unitholders of one
Portfolio is effective only as to that Portfolio.
The Trust does not intend to hold annual meetings of unitholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
units outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of unitholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other unitholders in connection with requiring a
special meeting of unitholders. The Trustees will call a special meeting of
unitholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by unitholders.
29
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GOLDMAN SACHS MONEY MARKET FUNDS
ILA SERVICE UNITS
ILA CLASS B UNITS
ILA CLASS C UNITS
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE: 800-526-7384
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unitholder and Portfolio Expenses.......................................... 2
Financial Highlights....................................................... 3
An Introduction to the Portfolios.......................................... 6
Investment Policies Matrix................................................. 7
Description of Securities and Investment
Techniques................................................................ 8
Investment Limitations..................................................... 12
Management................................................................. 13
Additional Services........................................................ 15
Service Plan.............................................................. 15
Distribution and Authorized Dealer
Service Plans............................................................ 15
Alternative Purchase Arrangements......................................... 16
Reports to Unitholders..................................................... 22
Distributions and Taxes.................................................... 22
Automatic Exchange Program................................................. 24
Exchanges.................................................................. 24
Redemption of Units........................................................ 25
Net Asset Value............................................................ 28
Yield Information.......................................................... 28
Organization and Units of the Portfolios................................... 29
</TABLE>
ILAPRORETMM
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS-- INSTITUTIONAL LIQUID ASSETS
PRIME OBLIGATIONS PORTFOLIO
TAX-EXEMPT DIVERSIFIED PORTFOLIO
-----------
PROSPECTUS
-----------
ILA SERVICE UNITS
ILA CLASS B UNITS
ILA CLASS C UNITS
MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
August 15, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
INSTITUTIONAL SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Seeks a high level of current income, consistent with low volatility of
principal. The Fund invests primarily in adjustable rate mortgage pass-
through securities and other mortgage securities with periodic interest rate
resets, which are issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current
income, may also consider the potential for capital appreciation. The Fund
invests primarily in securities issued or guaranteed by the U.S. government,
its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATIONTAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
GOLDMAN SACHS GOVERNMENT INCOME FUND
Seeks a high level of current income, consistent with safety of principal. The
Fund invests primarily in securities, including mortgage-backed securities,
issued or guaranteed by the U.S. government, its agencies, instrumentalities
or sponsored enterprises.
GOLDMAN SACHS MUNICIPAL INCOME FUND
Seeks a high level of current income that is exempt from regular federal in-
come tax, consistent with preservation of capital. The Fund invests primarily
in municipal securities.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that
exceeds the total return of the Lehman Brothers Aggregate Bond Index. The
Fund invests primarily in fixed-income securities, including securities
issued or guaranteed by the U.S. government, its agencies, instrumentalities
or sponsored enterprises, corporate securities, mortgage-backed securities
and asset-backed securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks a high total return, emphasizing current income and, to a lesser
extent, providing opportunities for capital appreciation. The Fund invests
primarily in a portfolio of high quality fixed-income securities of U.S. and
foreign issuers and foreign currencies.
GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current income and, secondarily, capital appreciation.
The Fund invests primarily in fixed-income securities rated below investment
grade.
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser to
the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED-INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED-INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 7
Financial Highlights................ 9
Investment Objectives and Policies.. 13
Description of Securities........... 20
Risk Factors........................ 28
Investment Techniques............... 30
Investment Restrictions............. 34
Portfolio Turnover.................. 35
Management.......................... 35
Dividends........................... 39
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value................... 40
Performance Information........... 40
Shares of the Trust............... 41
Taxation.......................... 42
Additional Information............ 43
Reports to Shareholders........... 44
Purchase of Institutional Shares.. 44
Exchange Privilege................ 46
Redemption of Institutional
Shares........................... 47
Appendix.......................... A-1
Account Information Form
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve that
Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
1
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government Fixed-rate
RATE current income, to 1-year total assets in Securities mortgage
GOVERNMENT consistent with U.S. Treasury securities issued or pass-through
FUND low volatility Security guaranteed by the securities and
of principal. Maximum = 2 years U.S. government, repurchase
its agencies, agreements
instrumentalities collateralized by
or sponsored U.S. Government
enterprises Securities.
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government Mortgage pass-
GOVERNMENT current income, U.S. Treasury total assets in Securities through
FUND and secondarily, Security plus U.S. Government securities and
in seeking current or minus .5 years Securities other securities
income, may also Maximum = 3 years and repurchase representing an
consider the poten- agreements interest in or
tial for capital collateralized collateralized
appreciation. by such securities. by mortgage loans.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa U.S. Government
TAX-FREE current income, Brothers net assets in Securities
FUND consistent with 3-year Municipal municipal securities. and repurchase
low volatility Bond Index agreements
of principal, plus or minus collateralized
that is exempt .5 years by such securities.
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of U.S. Government Non-government
INCOME current income, Brothers Mutual assets in U.S. Securities and mortgage pass-
FUND consistent with Fund Government/ Government non-U.S. through securities,
safety of Mortgage Index Securities, including Government asset-backed
principal. plus or minus mortgage-backed Securities rated securities,
1 year U.S. Government AAA/Aaa corporate
Maximum = 6 years Securities. fixed-income
securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
--------------------------------------------------------------------------------------------
<S> <C>
ADJUSTABLE 6-month and
RATE 1-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION 2-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION Lehman Brothers
TAX-FREE 3-Year Municipal
FUND Bond Index
--------------------------------------------------------------------------------------------
GOVERNMENT Lehman Brothers
INCOME Mutual Fund
FUND Government/
Mortgage Index
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum =
INCOME current income Brothers 15-year net assets in BBB/Baa
FUND that is exempt Municipal Bond municipal securities. Average = AA/Aa
from regular Index plus
federal income or minus 1 year
tax, consistent Maximum = 12 years
with preservation
of capital.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for non-
of capital Aggregate Bond securities, including dollar securities =
appreciation Index plus or U.S. Government AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
--------------------------------------------------------------------------------------------
GLOBAL A high total return, Target = J.P. Morgan 6-year bond Securities of U.S. Minimum = AA/Aa
INCOME emphasizing current Global Government and foreign or A if sovereign
FUND income, and, to a Bond Index governments and issuer
lesser extent, (hedged) corporations. At least 50% =
providing plus or minus AAA/Aaa
opportunities 2.5 years
for capital Maximum = 7.5 years
appreciation.
--------------------------------------------------------------------------------------------
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% =
FUND current income Brothers High assets in fixed- BB/Ba or below
<CAPTION> and, secondarily, Yield Bond Index income securities
capital appreciation. plus or minus rated below
2.5 years investment grade,
Maximum =7.5 years including U.S. and
non-U.S. dollar
corporate debt,
foreign government
securities,
convertible
securities
and preferred stock.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
<S> <C> <C>
MUNICIPAL U.S. Government Lehman Brothers
INCOME Securities and 15-Year
FUND repurchase Municipal
agreements Bond Index
collateralized by
such securities.
--------------------------------------------------------------
CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
--------------------------------------------------------------
GLOBAL Mortgage and asset- J.P. Morgan
INCOME backed securities, Global
FUND foreign currencies Government Bond
and repurchase Index (hedged)
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government securities.
--------------------------------------------------------------
HIGH YIELD Mortgage-backed Lehman Brothers
FUND and asset-backed High Yield
securities, U.S. Bond Index
Government
Securities,
investment grade
corporate fixed-
income securities,
structured
securities,
foreign currencies
and repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. This
typically results when interest rates have declined and a Fund will suffer
from having to reinvest in lower yielding securities. Extension risk (i.e.,
where the issuer exercises its right to pay principal on an obligation later
than scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased and a Fund will suffer
from the inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities
4
<PAGE>
markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Non-Diversified. Global Income Fund is a "non-diversified" fund as defined
under the Investment Company Act of 1940, as amended (the "Act"), and is,
therefore, subject only to certain federal tax diversification requirements
(to which the other Funds are also subject), in addition to the policies
adopted by the Investment Adviser. To the extent that the Fund is not
diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer of portfolio securities. See
"Investment Restrictions."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as the Investment Adviser to
the Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of June 23, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $50,000 ($1,000,000 for the Government
Income, Municipal Income, Global Income and High Yield Funds) in
Institutional Shares of the Fund alone or in combination with Institutional
Shares (or the corresponding class) of any other mutual fund sponsored by
Goldman Sachs and designated as an eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
5
<PAGE>
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government................... Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Government Income........................... Daily Monthly Annually
Municipal Income............................ Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income............................... Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which you have invested or you may elect
to receive cash. For further information concerning dividends, see
"Dividends."
6
<PAGE>
FEES AND EXPENSES (INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT CORE
RATE DURATION DURATION GOVERNMENT MUNICIPAL FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME INCOME INCOME YIELD
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND FUND FUND/1/
---------- ---------- -------- ---------- --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Pur-
chases............... none none none none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none none none none
Redemption Fees....... none none none none none none none none
Exchange Fees......... none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a
percentage of average daily net
assets)
Management Fees (after
applicable limita-
tions)/2/............ 0.40% 0.40% 0.40% 0.25% 0.55% 0.40% 0.59% 0.65%
Distribution (Rule
12b-1) Fees.......... none none none none none none none none
Other Expenses (after
applicable
limitations)/3/...... 0.11% 0.05% 0.05% 0.00% 0.05% 0.05% 0.06% 0.05%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee
and
expense limita-
tions)/4/........... 0.51% 0.45% 0.45% 0.25% 0.60% 0.45% 0.65% 0.70%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $ 5 $16 $29 $64
Short Duration Government....................... $ 5 $14 $25 $57
Short Duration Tax-Free......................... $ 5 $14 $25 $57
Government Income............................... $ 3 $ 8 $14 $32
Municipal Income................................ $ 6 $19 $33 $75
Core Fixed Income............................... $ 5 $14 $25 $57
Global Income................................... $ 7 $21 $36 $81
High Yield...................................... $ 7 $22 N/A N/A
</TABLE>
- --------
/1/Based on estimated amounts for the current fiscal year.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government,
Government Income, Global Income and High Yield Funds equal to .10%, .40%,
.31% and .05%, respectively. Without such limitations, management fees would
be .50%, .65%, .90% and .70% of each Fund's average daily net assets,
respectively.
/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of the Global Income and High Yield Funds))
to the extent such expenses exceed .05%, .05%, .00%, .05%, .05%, .06% and
.01% of the average daily net assets of the Short Duration Government, Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income,
Global Income and High Yield Funds, respectively.
7
<PAGE>
/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of each Fund (other than the Adjustable Rate Government,
Government Income, Municipal Income and High Yield Funds) for the fiscal
year ended October 31, 1996 would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Short Duration Government................................. .21% .71%
Short Duration Tax-Free................................... .61% 1.01%
Core Fixed Income......................................... .43% .83%
Global Income............................................. .21% 1.11%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" for the Government Income, Municipal Income and
High Yield Funds for the current fiscal year are estimated to be:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Government Income......................................... .74% 1.39%
Municipal Income.......................................... .50% 1.05%
High Yield................................................ .60% 1.30%
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service and Class A Shares and, with the exception of
the Adjustable Rate Government Fund, Class B and Class C Shares. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-Free
and Core Fixed Income Funds also offer Administration Shares. The other
classes of the Funds are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management --Investment Advisers."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period ended April 30, 1997 is unaudited. The
remaining data has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders of the Funds for
the year ended October 31, 1996 (the "Annual Report"). This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by calling the telephone number or writing to one of the
addresses on the back cover of this Prospectus. During the periods shown, the
Trust did not offer Institutional or Service shares of the Government Income,
Municipal Income or High Yield Funds or Class C Shares of any Fund.
Accordingly, there are no financial highlights for these classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
- ---------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $ 9.83 $0.2971(a) $0.0216(a) -- $0.3187
1997-Administration
Shares................. 9.83 0.2844(a) 0.0221(a) -- 0.3065
1997-Service Shares(m).. 9.84 0.0527(a) 0.0200(a) -- 0.0727
1997-Class A Shares..... 9.83 0.2766(a) 0.0300(a) -- 0.3066
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 9.77 0.5759(a) 0.0772 (a) -- 0.6531
1996-Administration
Shares................. 9.77 0.5489(a) 0.0797 (a) -- 0.6286
1996-Class A Shares..... 9.77 0.5481(a) 0.0806 (a) -- 0.6287
1995-Institutional
Shares................. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administration
Shares................. 9.74 0.5366(a) 0.0737 (a) -- 0.6103
1995-Class A Shares(c).. 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institutional
Shares................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e).............. 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. 10.00 0.1531 0.0322 (d) -- 0.1853
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.2887) -- -- -- -- $(0.2887)
1997-Administration
Shares................. (0.2765) -- -- -- -- (0.2765)
1997-Service Shares(m).. (0.0527) -- -- -- -- (0.0527)
1997-Class A Shares..... (0.2766) -- -- -- -- (0.2766)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. (0.5725) -- (0.0206) -- -- (0.5931)
1996-Administration
Shares................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e).............. (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. (0.1553) -- -- -- -- (0.1553)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
-----------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME PORT NET ASSETS TO INCOME
IN NET AT END AVERAGE (LOSS) TO FOLIO AT END OF AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $0.0300 $9.86 3.28%(f) 0.45%(b) 6.08%(b) 25.64%(f) $ 549,611 0.51%(b) 6.02%(b)
1997-Administration
Shares................. 0.0300 9.86 3.16(f) 0.70(b) 5.83(b) 25.64(f) 4,182 0.76(b) 5.77(b)
1997-Service Shares(m).. 0.0200 9.86 0.74(f) 0.95(b) 5.64(b) 25.64(f) 22 1.01(b) 5.58(b)
1997-Class A Shares..... 0.0300 9.86 3.16(f) 0.70(b) 5.61(b) 25.64(f) 39,063 1.01(b) 5.30(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 0.0600 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-Administration
Shares................. 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A Shares..... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institutional
Shares................. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administration
Shares................. 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A Shares(c).. (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institutional
Shares................. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares................. (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares................. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
Shares(e).............. (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institutional
Shares................. 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $9.83 $0.3287(a) $(0.0700)(a) -- $0.2587
1997-Administration
Shares................. 9.85 0.3175(a) (0.0700)(a) -- 0.2475
1997-Service Shares 9.82 0.3043(a) (0.0700)(a) -- 0.2343
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ 9.82 0.6290(a) 0.0136 (a) -- 0.6426
1996-Administration
Shares(h).............. 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service Shares(i).. 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institutional
Shares................. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administration
Shares................. 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institutional
Shares................. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administration
Shares................. 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institutional
Shares................. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administration
Shares(e).............. 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institutional
Shares................. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institutional
Shares................. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institutional
Shares................. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institutional
Shares................. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. 10.00 0.1800 0.1000 (d) -- 0.2800
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.3287) -- -- -- -- $(0.3287)
1997-Administration
Shares................. (0.3175) -- -- -- -- (0.3175)
1997-Service Shares (0.3043) -- -- -- -- (0.3043)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ (0.6326) -- -- -- -- (0.6326)
1996-Administration
Shares(h).............. (0.3940) -- -- -- -- (0.3940)
1996-Service Shares(i).. (0.3152) -- -- -- -- (0.3152)
1995-Institutional
Shares................. (0.6518) -- -- -- -- (0.6518)
1995-Administration
Shares................. (0.2051) -- -- -- -- (0.2051)
1994-Institutional
Shares................. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administration
Shares................. (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institutional
Shares................. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administration
Shares(e).............. (0.2725) -- -- -- -- (0.2725)
1992-Institutional
Shares................. (0.6703) -- -- -- -- (0.6703)
1991-Institutional
Shares................. (0.8020) -- -- -- -- (0.8020)
1990-Institutional
Shares................. (0.8300) -- -- -- -- (0.8300)
1989-Institutional
Shares................. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. (0.1800) -- -- -- -- (0.1800)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.0700) $9.76 2.67%(f) 0.45%(b) 6.44%(b) 43.72%(f) $99,824 0.73%(b) 6.16%(b)
1997-Administration
Shares................. (0.0700) 9.78 2.55(f) 0.70(b) 6.22(b) 43.72(f) 1,504 0.98(b) 5.94(b)
1997-Service Shares (0.0700) 9.75 2.42(f) 0.95(b) 5.94(b) 43.72(f) 2,522 1.23(b) 5.66(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ 0.0100 9.83 6.75 0.45 6.44 115.45 99,944 0.71 6.18
1996-Administration
Shares(h).............. (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service Shares(i).. 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institutional
Shares................. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares................. (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institutional
Shares................. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares................. (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares................. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
Shares(e).............. (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institutional
Shares................. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares................. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institutional
Shares................. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
Shares................. (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $ 9.96 $0.2097(a) $(0.0200)(a) -- $0.1897
1997-Administration
Shares................. 9.96 0.1976(a) (0.0200)(a) -- 0.1776
1997-Service Shares..... 9.97 0.1852(a) (0.0300)(a) -- 0.1552
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 9.94 0.4192(a) 0.0200 (a) -- 0.4392
1996-Administration
Shares................. 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service Shares..... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institutional
Shares................. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administration
Shares................. 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service Shares..... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institutional
Shares................. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administration
Shares................. 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service Shares(j).. 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institutional
Shares................. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administration
Shares(j).............. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. 10.00 0.0341 (0.0700)(d) -- (0.0359)
GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $14.36 $ 0.46 $ (0.20) -- $ 0.26
1997-Class B shares..... 14.37 0.40 (0.19) -- 0.21
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 14.47 0.92 (0.11) -- 0.81
1996-Class B shares(m).. 14.11 0.41 0.26 -- 0.67
1995-Class A shares..... 13.47 0.94 1.00 -- 1.94
1994-Class A shares..... 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 14.32 0.56 0.58 -- 1.14
MUNICIPAL INCOME FUND
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $14.37 $ 0.34 $ 0.03 -- $ 0.37
1997-Class B shares..... 14.37 0.28 0.03 -- 0.31
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 14.17 0.65 0.20 -- 0.85
1996-Class B shares(m).. 14.03 0.27 0.34 -- 0.61
1995-Class A shares..... 13.08 0.67 1.09 -- 1.76
1994-Class A shares..... 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 14.32 0.22 0.32 -- 0.54
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.2097) -- -- -- -- $(0.2097)
1997-Administration
Shares................. (0.1976) -- -- -- -- (0.1976)
1997-Service Shares..... (0.1852) -- -- -- -- (0.1852)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. (0.4192) -- -- -- -- (0.4192)
1996-Administration
Shares................. (0.3944) -- -- -- -- (0.3944)
1996-Service Shares..... (0.3697) -- -- -- -- (0.3697)
1995-Institutional
Shares................. (0.4235) -- -- -- -- (0.4235)
1995-Administration
Shares................. (0.3989) -- -- -- -- (0.3989)
1995-Service Shares..... (0.3744) -- -- -- -- (0.3744)
1994-Institutional
Shares................. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administration
Shares................. (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service Shares(j).. (0.0475) -- (0.0475)
1993-Institutional
Shares................. (0.3834) -- -- -- -- (0.3834)
1993-Administration
Shares(j).............. (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. (0.0341) -- -- -- -- (0.0341)
GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.45) $ (0.07) -- -- -- $ (0.52)
1997-Class B shares..... (0.40) (0.07) -- -- -- (0.47)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.92) -- -- -- -- (0.92)
1996-Class B shares(m).. (0.41) -- -- -- -- (0.41)
1995-Class A shares..... (0.94) -- -- -- -- (0.94)
1994-Class A shares..... (0.85) (0.12) (0.02) (0.01) -- (1.00)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... (0.56) -- -- -- -- (0.56)
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.34) -- -- -- -- $ (0.34)
1997-Class B shares..... (0.28) -- -- -- -- (0.28)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.65) -- -- -- -- (0.65)
1996-Class B shares(m).. (0.27) -- -- -- -- (0.27)
1995-Class A shares..... (0.67) -- -- -- -- (0.67)
1994-Class A shares..... (0.73) (0.05) -- -- -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... (0.22) -- -- -- -- (0.22)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.0200) $ 9.94 1.91%(f) 0.45%(b) 4.24%(b) 99.59%(f) $37,159 1.05%(b) 3.64%(b)
1997-Administration
Shares................. (0.0200) 9.94 1.79(f) 0.70(b) 4.03(b) 99.59(f) 113 1.30(b) 3.43(b)
1997-Service Shares..... (0.0300) 9.94 1.56(f) 0.95(b) 3.77(b) 99.59(f) 1,045 1.55(b) 3.17(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 0.0300 9.96 4.50 0.45 4.21 231.65 34,814 1.01 3.65
1996-Administration
Shares................. 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service Shares..... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institutional
Shares................. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administration
Shares................. 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service Shares..... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institutional
Shares................. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administration
Shares................. (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service Shares(j).. (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institutional
Shares................. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administration
Shares(j).............. 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.26) $14.10 1.83%(f) 0.50%(b) 6.34%(b) 182.25%(f) $52,946 1.83%(b) 5.01%(b)
1997-Class B shares..... (0.26) 14.11 1.43(f) 1.25(b) 5.37(b) 182.25(f) 2,937 2.33(b) 4.29(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.11) 14.36 5.80 0.50 6.42 485.09 30,603 1.89 5.03
1996-Class B shares(m).. 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A shares..... 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A shares..... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 0.58 14.90 8.03(f) 0.00(b) 4.87(b) 725.41(f) 12,860 4.00(b) 0.87(b)
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ 0.03 $14.40 2.57%(f) 0.85%(b) 4.70%(b) 90.46%(f) $58,033 1.51%(b) 4.04%(b)
1997-Class B shares..... 0.03 14.40 2.18(f) 1.60(b) 3.92(b) 90.46(f) 617 2.01(b) 3.51(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B shares(m).. 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13 255 2.05(b) 3.10(b)
1995-Class A shares..... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A shares..... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $ 9.85 $0.3236 $(0.1403) $(0.0003) $0.1830
1997-
Administrative
Shares.......... 9.84 0.3108 (0.1398) (0.0003) 0.1707
1997-Service
Shares.......... 9.86 0.2991 (0.1399) (0.0003) 0.1589
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... 10.00 0.6448 (0.0704) -- 0.5744
1996-Administra-
tion Shares(1).. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service
Shares(1)....... 9.77 0.3756 0.0898 -- 0.4654
1995-Institu-
tional Shares... 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... 10.00 0.4648 (0.7617) -- (0.2969)
<CAPTION>
GLOBAL INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $14.53 $0.25 $ (0.07) $ 0.28 $ 0.46
1997-Class B
shares.......... 14.53 0.36 (0.02) 0.08 0.42
1997-
Institutional
shares.......... 14.52 0.42 (0.02) 0.10 0.50
1997-Services
shares(o)....... 14.69 0.10 0.02 (0.09) 0.03
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... 14.45 0.71 0.62 0.18 1.51
1996-Class B
shares(m)....... 14.03 0.34 0.41 0.11 0.86
1996-
Institutional
shares.......... 14.45 1.15 0.32 0.10 1.57
1995-Class A
shares.......... 13.43 0.89 0.92 0.15 1.96
1995-
Institutional
shares(m)....... 14.09 0.22 0.34 0.06 0.62
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31,
1991-Class A
shares.......... 14.55 0.25 0.23 (0.19) 0.29
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $(0.3230) -- -- -- -- $(0.3230)
1997-
Administrative
Shares.......... (0.3107) -- -- -- -- (0.3107)
1997-Service
Shares.......... (0.2989) -- -- -- -- (0.2989)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... (0.6438) (0.0806) -- -- -- (0.7244)
1996-Administra-
tion Shares(1).. (0.4080) -- -- -- -- (0.4080)
1996-Service
Shares(1)....... (0.3754) -- -- -- -- (0.3754)
1995-Institu-
tional Shares... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... (0.4648) -- -- -- -- (0.4648)
<CAPTION>
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $ (0.40) -- -- -- -- $ (0.40)
1997-Class B
shares.......... $ (0.37) -- -- -- -- (0.37)
1997-
Institutional
shares.......... (0.44) -- -- -- -- (0.44)
1997-Services
shares(o)....... (0.13) -- -- -- -- (0.13)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... (1.43) -- -- -- -- (1.43)
1996-Class B
shares(m)....... (0.36) -- -- -- -- (0.36)
1996-
Institutional
shares.......... (1.50) -- -- -- -- (1.50)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1995-
Institutional
shares(m)....... (0.26) -- -- -- -- (0.26)
1994-Class A
shares.......... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A
shares.......... (0.85) (0.27) -- -- -- (1.12)
1992-Class A
shares.......... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31
1991-Class A
shares.......... (0.24) -- -- -- -- (0.24)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF NET RATIO OF
NET NET NET RATIO OF ASSETS RATIO OF NET
INCREASE ASSET EXPENSES NET AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INVESTMENT OF TO INCOME
IN NET AT END AVERAGE INCOME TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $(0.1400) $ 9.71 1.87%(f) 0.45%(b) 6.66%(b) 174.52%(f) $ 73,483 0.76%(b) 6.35%(b)
1997-
Administrative
Shares.......... (0.1400) 9.70 1.75(f) 0.70(b) 6.49(b) 174.52(f) 6,194 1.01(b) 6.18(b)
1997-Service
Shares.......... (0.1400) 9.72 1.63(f) 0.95(b) 6.22(b) 174.52(f) 1,108 1.26(b) 5.91(b)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00)(f) 0.45(b) 6.48(b) 288.25(f) 24,508 1.46(b) 5.47(b)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $ 0.06 $14.59 3.22%(f) 1.17%(b) 5.12%(b) 136.72%(f) $171,668 1.60%(b) 4.69%(b)
1997-Class B
shares.......... 0.05 14.58 2.94(f) 1.71(b) 4.73(b) 136.72(f) 1,095 2.10(b) 4.34(b)
1997-
Institutional
shares.......... 0.06 14.58 3.50(f) 0.65(b) 5.64(b) 136.72(f) 56,431 1.04(b) 5.25(b)
1997-Services
shares(o)....... (0.10) 14.59 0.21(f) 1.15(b) 5.85(b) 136.72(f) 94 1.54(b) 5.46%(b)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(m)....... 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15 256 2.14(b) 4.72(b)
1996-
Institutional
shares.......... 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares.......... 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(m)....... 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86 31,619 1.08(b) 5.58(b)
1994-Class A
shares.......... (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares.......... 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares.......... 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31
1991-Class A
shares.......... 0.05 14.60 2.00 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Goldman Sachs Short Duration Government Fund Administration shares were
redeemed in full on February 23, 1995 and re-commenced on February 28, 1996
at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. For Class A shares only, total return would be reduced if a sales
charge were taken into account.
(l) Administration and Service share activity commenced operations on February
28, 1996 and March 13, 1996, respectively.
(m) Institutional and Class B shares commenced operations on June 1, 1995 and
May 1, 1996, respectively.
(n) Includes the balancing effect of calculating per share amounts.
(o) Service Class shares commenced operations on March 12, 1997.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one rating organization (including, but not limited to, Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's")) even
though it has been rated below the minimum rating by one or more other rating
organizations, or, if unrated by a rating organization, is determined by the
Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and will apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is comparable to a nine-
month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other U.S. Government Securities. The
remainder of the Fund's assets (up to 35%) may be invested in other U.S.
Government Securities, including mortgage pass-through securities, other
securities representing an interest in or collateralized by adjustable rate
and fixed rate mortgage loans ("Mortgage-Backed Securities") and repurchase
agreements collateralized by U.S. Government Securities. Substantially all of
the Fund's assets will be invested in U.S. Government Securities. 100% of the
Fund's portfolio will be invested in U.S. dollar-denominated securities.
13
<PAGE>
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is comparable to a two-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is
comparable to a three-year bond.
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal
14
<PAGE>
Securities"), the interest on which is exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax purposes), and is not
a tax preference item under the federal alternative minimum tax. Under normal
circumstances, the Fund's investments in private activity bonds and taxable
investments will not exceed, in the aggregate, 20% of the Fund's net assets.
The interest from certain private activity bonds (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be invested
in U.S. dollar-denominated securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities by these rating
organizations or by the Investment Adviser may reflect the existence of
guarantees, letters of credit or other credit enhancement features available
to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA by S&P or Aaa by Moody's.
15
<PAGE>
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA by S&P or Aa by Moody's. All securities purchased by the Fund will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities by
these rating organizations or by the Investment Adviser may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
16
<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is comparable to
a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa or in their equivalent ratings category by S&P or Moody's.
The securities currently included in the Index have at least one year
remaining to maturity; have an outstanding principal amount of at least $100
million; and are issued by the following types of issuers, with each category
receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of Mortgage-
Backed Securities; utilities; industrial issuers; financial institutions;
foreign issuers; and issuers of Asset-Backed Securities. The Index is a
trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
by S&P or Baa by Moody's. The non-U.S. dollar-denominated fixed-income
securities in which the Fund may invest will be rated, at the time of
investment, at least AA by S&P or Aa by Moody's. Fixed-income securities rated
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to
17
<PAGE>
hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may invest in custodial receipts, Municipal Securities and
convertible securities. The Fund may also employ other investment techniques
to seek to enhance returns, such as lending portfolio securities and entering
into mortgage dollar rolls, repurchase agreements and other investment
practices, described under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage-Backed and Asset-
Backed Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least AA by S&P or Aa by Moody's. However, the Fund may
also invest in obligations of a sovereign issuer, denominated in the issuer's
own currency, rated at least A by S&P or Moody's. The Fund will invest at
least 50% of its total assets in securities rated, at the time of investment,
AAA by S&P or Aaa by Moody's.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value
18
<PAGE>
of the Fund's total assets. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. The Fund may also employ
other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in securities of
issuers in any other foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is comparable to a 6-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed-income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB or below by S&P, Ba or below by Moody's, an equivalent
rating by another rating organization, or if unrated by a rating organization,
determined by the Investment Adviser to be of comparable quality. The Fund may
invest in all types of fixed-income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
loan participations and preferred stock. The Fund may invest up to 25% of its
total assets in obligations of domestic and foreign issuers (including
securities of issuers located in countries with emerging markets and
economies) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Government
Securities, Asset-Backed and Mortgage-Backed Securities and corporate
securities. The Fund may also invest in common stocks, warrants, rights and
other equity securities, but will generally hold such equity investments only
when debt or preferred stock of the issuer of such equity securities is held
by the Fund. A number of investment strategies are used to seek to achieve the
Fund's investment objective, including market sector selection, determination
of yield curve exposure, and issuer selection. In addition, the Investment
Adviser will attempt to take advantage of pricing inefficiencies in the fixed-
income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade securities are, however, considered speculative and
generally involve greater price volatility and greater risk of loss of
principal and interest than higher rated securities. See "Description of
Securities." A description of the corporate bond and preferred stock ratings
is contained in Appendix B to the Additional Statement.
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OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. The Fund may also employ other investment techniques to
seek to enhance returns, such as lending portfolio securities and entering
into repurchase agreements and other investment practices described under
"Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically 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.
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ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. 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. The Funds do
not intend to purchase residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities.
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SMBS are usually structured with two different classes; one that receives 100%
of the interest payments and the other that receives 100% of the principal
payments from a pool of mortgage loans. If the underlying mortgage loans
experience different than anticipated prepayments of principal, a Fund may
fail to fully recoup its initial investment in these securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage loans
are generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a loan agreement. One of the co-lenders usually agrees to act as
the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
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MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds, invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities.
PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds' distributions attributable to the interest income from private
activity bonds may subject certain investors to the federal alternative
minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the
Trust's Board of Trustees will monitor on an ongoing basis the credit quality
rating and risk of cancellation of such unrated leases. Certain municipal
lease obligations and certificates of participation may be deemed illiquid for
the purpose of a Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which
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bids are made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
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securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
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EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristic of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries). See the Additional Statement
for further information regarding a Fund's investments in emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. A Fund also may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to increase total return, forward foreign currency exchange contracts are
considered speculative. The Funds may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or to sell foreign currency to seek to increase total return, the
Fund will be required to place cash or liquid assets in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. A Fund will
incur costs in connection with conversions between various currencies. A Fund
may hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Investment Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
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The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force the Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging markets, the Investment
Adviser does not currently anticipate that a significant portion of the Funds'
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objectives and Policies" in the Additional
Statement.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds or stripped
securities may require the Fund to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" in the Additional Statement.
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RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk (i.e., where the issuer exercises
its right to pay principal on an obligation later than scheduled) causes cash
flows to be returned later than expected. This typically results when interest
rates have increased and a Fund will suffer from the inability to invest in
higher yielding securities. Certain types of U.S. Government, Asset-Backed,
corporate, foreign, Mortgage-Backed and Municipal Securities have this call
and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest
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rate caps, support tranches and discount priced Mortgage-Backed Securities. In
addition, particular derivative securities may be leveraged such that their
exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Because interest income from Municipal Securities is not subject to regular
federal income taxation, the attractiveness of Municipal Securities in
relation to other investment alternatives is affected by changes in federal
income tax rates applicable to, or the continuing federal income tax-exempt
status of, such interest income. Any proposed or actual changes in such rates
or exempt status, therefore, can significantly affect the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and
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other financial institutions. Accordingly, the secondary market for such
securities is not as liquid as, and is more volatile than, the secondary
market for higher-rated securities. In addition, market trading volume for
high yield fixed-income securities is generally lower and the secondary market
for such securities could contract under adverse market or economic
conditions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market
price and a Fund's ability to dispose of particular portfolio investments. A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the 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 or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for the
forward purchase. Unless such benefits exceed the
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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. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. The Fund will hold and maintain in a segregated account
until the settlement date cash or liquid assets in an amount equal to the
forward purchase price. For financial reporting and tax purposes, each Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Funds
do not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index composed of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and
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purchase and write call and put options on any of such futures contracts. Each
Fund may also enter into closing purchase and sale transactions with respect
to any such contracts and options. The futures contracts may be based on
various securities (such as U.S. Government Securities), foreign currencies,
in the case of the Core Fixed Income, Global Income and High Yield Funds,
securities indices and other financial instruments and indices. A Fund will
engage in futures and related options transactions for bona fide hedging
purposes as defined in regulations of the Commodity Futures Trading Commission
or to seek to increase total return to the extent permitted by such
regulations. A Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on a 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 a Fund's net
assets. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating a Fund to purchase
securities or currencies, require the Fund to segregate and maintain cash or
liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or, if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The use of currency swaps 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 currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used. The staff of the SEC currently takes the
position that swaps are illiquid and thus subject to a Fund's limitation on
investments in illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
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forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Code for qualification as a regulated
investment company.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities (both
foreign and domestic) that are not readily marketable, swap transactions,
certain SMBS, certain municipal leases and participation interests, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities,
unless it is determined, based upon the continuing review of the trading
markets for a specific restricted security, that such restricted security is
eligible for resale under Rule 144A under the Securities Act of 1933 and,
therefore, is liquid. The Trustees have adopted guidelines and delegated to
the Investment Adviser the daily function of determining and monitoring the
liquidity of portfolio securities. The Trustees, however, retain oversight
focusing on factors such as valuation, liquidity and availability of
information and are ultimately responsible for each determination. Investing
in restricted securities eligible for resale pursuant to Rule 144A may
decrease the liquidity in a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have
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authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with the Investment Adviser,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating-rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund still remains an appropriate investment in
light of their then current financial positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policy to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject
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to certain conditions and limitations under the Code. Since the Global Income
Fund is not diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer. The Adjustable Rate Government,
Short Duration Government, Short Duration Tax-Free, Government Income,
Municipal Income, Core Fixed Income and High Yield Funds are, in addition to
these tax diversification requirements, also subject to the diversification
requirements arising out of their diversified status under the Act.
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. It is
anticipated that the annual portfolio turnover rate for the High Yield Fund
will generally not exceed 150%. The portfolio turnover rate is computed by
dividing the lesser of the dollar 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
a 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 a Fund consistent with the Fund's investment objectives and
portfolio management policies. A high rate of portfolio turnover results in
increased transaction costs to a Fund. The portfolio turnover rate includes
the effect of entering into mortgage dollar rolls. See "Financial Highlights"
for a statement of each Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership, which is an
affiliate of Goldman Sachs, serves as investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income and High Yield Funds. Goldman Sachs registered as an investment adviser
in 1981. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organization Limited in 1990 and registered as an investment adviser in 1991.
As of June 23, 1997, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $120
billion.
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Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its affiliate offices for
portfolio decisions and management with respect to certain portfolio
securities. In addition, the Investment Advisers will have access to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides the Funds with office space and all necessary office equipment
and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio manager is Jonathan A. Beinner. Mr. Beinner is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Beinner
joined the Investment Adviser in 1990 after working in the trading and
arbitrage group of Franklin Savings Association.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner. Messrs. Beinner and Lucy each specialize in investing in a
particular type of security the Fund may hold. Mr. Lucy is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed-income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank
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of New Zealand, his most recent position as Trading Manager of foreign
reserves management. Mr. Wilson's employment at the Reserve Bank at New
Zealand also included a two year assignment to the foreign investment unit at
the Bank of England in London.
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessup joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- ------------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free........................ 0.40% 0.40%
Government Income.............................. 0.65% 0.25%
Municipal Income............................... 0.55% 0.55%
Core Fixed Income.............................. 0.40% 0.40%
High Yield..................................... 0.70% N/A
GSFM
- ----
Adjustable Rate Government..................... 0.40% 0.40%
Short Duration Government...................... 0.50% 0.40%
GSAMI
- -----
Global Income.................................. 0.90% 0.59%
</TABLE>
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<PAGE>
- --------
* With respect to Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining advisory and administration
services (and subadvisory services in the case of Global Income Fund) was
adopted effective April 30, 1997. The Management Agreements for the other
funds previously combined such services. The contractual rate set forth in
the table is the rate payable under the Management Agreements (and, in the
case of Government Income, Municipal Income and Global Income Funds, is
identical to the aggregate advisory, subadvisory and administration fee
rate payable by such Funds under the previously separate investment
advisory, subadvisory and administration agreements). For the fiscal year
ended October 31, 1996, the annual rate expressed is the combined advisory
and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the
full amount of the fees to which it would have been entitled. The
Investment Advisers may discontinue or modify such limitations in the
future at their discretion, although they have no current intention to do
so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and High
Yield Funds) to the extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%,
0.05%, 0.06% and 0.01% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management -- Activities of Goldman Sachs and its Affiliates and Other
Accounts Managed by Goldman Sachs" in the Additional Statement for further
information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not
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<PAGE>
entitled to receive a fee from the Global Income Fund for transfer agency
services. Goldman Sachs is entitled to receive a fee from the Adjustable Rate
Government, Short Duration Government, Short Duration Tax-Free, Government
Income, Municipal Income and Core Fixed Income Funds equal to each class'
proportionate share of the total transfer agency fees borne by the Fund. Such
fees are equal to the fixed per account charge of $12,000 per year plus $7.50
per account, together with out-of-pocket and transaction related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents) applicable to Class A, Class B and Class C shares where
applicable plus 0.04% of the average daily net assets of the other classes of
the Funds. Goldman Sachs is entitled to receive a fee from the High Yield Fund
equal to .04% of the average daily net assets of Institutional and Service
shares.
DIVIDENDS
Each Fund (other than the Global Income Fund) will declare a daily dividend.
Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago
time, and will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Shares of Global Income Fund will be eligible for dividends
which accrue on or after the date such shares are purchased and will be paid
monthly. Over the course of the fiscal year, dividends accrued and paid will
constitute all or substantially all of the Funds' net investment income. From
time to time a portion of such dividends may constitute a return of capital.
In the case of Core Fixed Income, Global Income and High Yield Funds, net
loss, if any, from certain foreign currency transactions or instruments that
is otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account
in determining the amount of dividends to be declared and paid, with the
result that a portion of the Fund's dividends may be treated as a return of
capital, nontaxable to the extent of a shareholder's tax basis in his shares.
The Funds also intend that all net realized long-term and short-term capital
gains will be declared as a dividend at least annually. In determining amounts
of capital gains to be distributed, capital losses, including any available
capital loss carryovers from prior years will be offset against capital gains.
A Fund's net investment income is determined on a daily basis (monthly in
the case of the Global Income Fund). On days on which net asset value is
calculated, such determination is made immediately prior to the calculation of
a 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 (other than the Global Income Fund) from net investment
income will be made on the last calendar day of each month in additional
shares of a Fund at the net asset value on such day, unless cash distributions
are elected, in which case, cash payment will be made on the first Business
Day of the succeeding month. In the case of Global Income Fund, reinvestment
of dividends from net investment income in additional shares of the Fund will
be made on the second to last Business Day of each month. Cash dividends will
be paid on or about the last Business Day of the month. Payment of dividends
with respect to capital gains, if any, when declared will be made in
additional shares of the Fund at the net asset value on the payment date,
unless cash distributions are elected. This election to receive dividends in
cash is initially made on the Account Information Form and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for
a particular dividend or distribution. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long-term capital gains
component, if any, of the Fund's annual dividend.
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<PAGE>
At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) on each
Business Day (as such term is defined under "Additional Information")
immediately after the determination, if any, of the income to be declared as a
dividend (except in the case of the Global Income Fund). 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.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their its tax equivalent yields in advertisements and
communications to shareholders or prospective investors. Average annual total
return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all dividends and distributions at net asset value. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. Each Fund may also from time to time advertise total return
on a cumulative, average, year-by-year or other basis for various specified
periods by means of quotations, charts, graphs or schedules. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) 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.
40
<PAGE>
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free and Municipal Income Funds'
tax-free yield. Tax equivalent yield is calculated by dividing a Fund's tax-
exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the state of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. 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.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
41
<PAGE>
As of July 31, 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of the following Funds: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (31.49%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2558, Houston, TX
77252-2558 (31.67%).
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected or
intends to elect to be treated as a regulated investment company and intends
to qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of such a distribution may be subject to the federal alternative
minimum tax and the entire distribution may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares
of the Short Duration Tax-Free and Municipal Income Funds. Interest on
indebtedness incurred or continued to purchase or carry shares of the Short
Duration Tax-Free and Municipal Income Funds is not deductible to the extent
attributable to the Funds' distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free and Municipal Income Funds,
as described above. Dividends paid by a Fund from the excess of net long-term
capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long the shareholders have held their shares.
These tax consequences will apply regardless of whether distributions are
received in cash or reinvested in shares. Certain distributions paid by a Fund
in January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
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Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other 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 Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of a
Fund is comprised of stock or securities of foreign corporations at the end of
its taxable year and the applicable Fund so elects, that Fund's shareholders
will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election. If a Fund cannot or
does not so elect, it may deduct these taxes in computing its taxable income,
if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and an individual monthly
statement (quarterly in the case of Global Income Fund). A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
SUB-ACCOUNTING SERVICE
Each Fund has designed special procedures to assist institutional investors
(including banks) desiring to establish multiple accounts (master accounts and
their sub-accounts). Sub-accounts may be established with registration by name
and/or number. Institutions will not normally be charged for this service
unless otherwise agreed upon. Upon request, master accounts will be provided
with a monthly summary report which sets forth in order by account number (or
name) the share balance at month end and the income, if any, together with the
total share balance and income, if any, for the master account. The Global
Income Fund does not generally provide sub-accounting services with respect to
beneficial ownership of Institutional Shares.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by 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), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the day the purchase order is
received. See "Net Asset Value." Purchases of Institutional Shares of the
Funds must be settled within three (3) Business Days of receipt of a complete
purchase order. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Institutional Shares."
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to such Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to
this Prospectus, should be used to open such an account. Subsequent purchases
may be made in the manner set forth below.
PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to The Northern
Trust Company ("Northern") as subcustodian for State Street Bank and Trust
Company ("State Street") on the next Business Day or initiating an ACH
transfer to ensure
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<PAGE>
receipt by Northern on the next Business Day. Purchases may also be made by
check (except that the Trust will not accept a check drawn on a foreign bank
or a third-party check) or Federal Reserve draft payable to Goldman Sachs
Fixed Income Funds--Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.
PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
or initiating an ACH transfer. Purchases may also be made by check (except
that the Trust will not accept a check drawn on a foreign bank or a third-
party check) or Federal Reserve draft made payable to Goldman Sachs Fixed
Income Funds-- Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares c/o
National Financial Data Services, Inc., P.O. Box 419711, Kansas City, MO
64141-6711.
MINIMUM INITIAL INVESTMENTS
In the case of each Fund other than the Government Income, Municipal Income,
Global Income and High Yield Funds, the minimum initial investment is $50,000
in Institutional Shares of a Fund alone or in combination with Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as
an eligible fund for this purpose and the corresponding class of any portfolio
of the Goldman Sachs Money Market Funds. The minimum investment requirement
may be waived for current and former officers, partners, directors or
employees of Goldman Sachs or any of its affiliates or for other investors at
the discretion of the Trust's officers. No minimum amount is required for
subsequent investments.
In the case of the Government Income, Municipal Income, Global Income and
High Yield Funds, the minimum initial investment is $1,000,000 in
Institutional Shares of a Fund alone or in combination with other assets under
the management of GSAM and its affiliates. Institutional Shares of the
Government Income, Municipal Income, Global Income and High Yield Funds are
offered to (a) banks, trust companies or other types of depository
institutions investing for their own account or on behalf of their clients;
(b) pension and profit sharing plans, pension funds and other company-
sponsored benefit plans; (c) qualified non-profit organizations, charitable
trusts, foundations and endowments; (d) any state, county, city or any
instrumentality, department, authority or agency thereof; (e) corporations and
other for-profit business organizations with assets of at least $100 million
or publicly traded securities outstanding; (f) "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; (g)
registered investment advisers who have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards;
and (h) accounts over which GSAM or its advisory affiliates have investment
discretion. The minimum investment requirement may be waived at the discretion
of the Trust's officers. No minimum amount is required for subsequent
investments.
OTHER PURCHASE INFORMATION
Institutional Shares of the Global Income Fund will be issued and dividends
will begin to be paid with respect to dividends which accrue on or after the
purchase of Institutional Shares. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date by Goldman Sachs by 3:00 p.m.
Chicago time and payment is made by wire transfer or ACH transfer, shares
will be issued and dividends will begin to accrue on the purchased shares
on the later
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of (i) the Business Day after receipt by Goldman Sachs of a purchase order
or (ii) the day of receipt of a federal funds wire or an ACH transfer by
State Street. For purchases without a specified settlement date, shares
will be issued and dividends declared with respect to such shares will
begin to accrue on the Business Day after payment is received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date by Goldman Sachs by 3:00 p.m.
Chicago time and payment is made by check or Federal Reserve draft, shares
will be issued and dividends will begin to accrue on the purchased shares
on the Business Day after the date payment is received. For purchases
without a specified settlement date, shares will be issued and dividends
declared with respect to such shares will begin to accrue on the Business
Day after payment is received.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result
of earlier redemptions. Such redemptions will not be implemented if the value
of an Institutional Shareholder's account falls below the minimum account
balance solely as a result of market conditions. A Fund will give sixty (60)
days' prior written notice to Institutional Shareholders whose Institutional
Shares are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of a Fund may be exchanged for (i) Institutional Shares
of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Fixed Income Funds--Name of
Fund and Class of shares, c/o GSAM Shareholders Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange instructions are in writing and received in accordance
with the procedures set forth under "Redemption of Institutional Shares."
46
<PAGE>
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. 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 redemption of the Institutional Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of Institutional Shares, or the corresponding class of any Goldman Sachs Money
Market Funds received in the exchange. Shareholders should consult their own
tax advisers concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Trust. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be
modified or withdrawn at any time on sixty (60) days' written notice to
Institutional Shareholders and is subject to certain limitations. See
"Purchase of Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem their Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus. An Institutional Shareholder may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form accompanying this Prospectus. It may
be difficult to implement redemptions by telephone in times of drastic
economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time concerning telephone
redemptions and exchanges. 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 Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone.
Written requests for redemptions must be signed by each Institutional
Shareholder whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that
47
<PAGE>
such institution satisfies the standards established by the Transfer Agent. If
Goldman Sachs receives a redemption request by 3:00 p.m. Chicago time, the
Institutional Shares of each Fund (other than Global Income Fund) to be
redeemed earn dividends declared on the day the request is received.
The Fund will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would ordinarily be wired. Redemption proceeds
paid by check will normally be mailed to the address of record within three
(3) Business Days of receipt of a properly executed redemption request. In
order to change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the
Funds, the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the Institutional Shareholder's bank in the
transfer process. If a problem with such performance arises, the Institutional
Shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper
form until such additional documentation has been received.
----------------
48
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could apply to payments relating to
your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid 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.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
[LOGO] GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
August 15, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
SERVICE SHARES
GOLDMAN SACHS ADJUSTABLE RATE
GOVERNMENT FUND
Seeks a high level of current income, consistent with low volatility of
principal. The Fund invests primarily in adjustable rate mortgage pass-
through securities and other mortgage securities with periodic interest rate
resets, which are issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION
GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current in-
come, may also consider the potential for capital appreciation. The Fund in-
vests primarily in securities issued or guaranteed by the U.S. government,
its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION
TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low vola-
tility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
GOLDMAN SACHS GOVERNMENT INCOME FUND
Seeks a high level of current income, consistent with safety of principal.
The Fund invests primarily in securities, including mortgage-backed
securities, issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
GOLDMAN SACHS MUNICIPAL INCOME FUND
Seeks a high level of current income that is exempt from regular federal in-
come tax, consistent with preservation of capital. The Fund invests primar-
ily in municipal securities.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that ex-
ceeds the total return of the Lehman Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or spon-
sored enterprises, corporate securities, mortgage-backed securities and as-
set-backed securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks a high total return, emphasizing current income and, to a lesser ex-
tent, providing opportunities for capital appreciation. The Fund invests
primarily in a portfolio of high quality fixed-income securities of U.S. and
foreign issuers and foreign currencies.
GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current income and, secondarily, capital appreciation.
The Fund invests primarily in fixed-income securities rated below investment
grade.
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser to
the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED-INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED-INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE SUITABLE
FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein)
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a
Web site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 7
Financial Highlights................ 9
Investment Objectives and Policies.. 13
Description of Securities........... 20
Risk Factors........................ 28
Investment Techniques............... 30
Investment Restrictions............. 34
Portfolio Turnover.................. 35
Management.......................... 35
Dividends........................... 39
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value....................................................... 40
Performance Information............................................... 40
Shares of the Trust................................................... 41
Taxation.............................................................. 42
Additional Information................................................ 43
Additional Services................................................... 44
Reports to Shareholders............................................... 44
Purchase of Service Shares............................................ 45
Exchange Privilege.................................................... 46
Redemption of Service Shares.......................................... 47
Appendix.............................................................. A-1
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund
pools the monies of investors by selling its shares to the public and
investing these monies in a portfolio of securities designed to achieve that
Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
1
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- -------------- ------------------ ------------------- ------------ --------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government Fixed-rate
RATE current income, to 1-year total assets in Securities mortgage
GOVERNMENT consistent with U.S. Treasury securities issued or pass-through
FUND low volatility Security guaranteed by the securities and
of principal. Maximum = 2 years U.S. government, repurchase
its agencies, agreements
instrumentalities collateralized by
or sponsored U.S. Government
enterprises Securities.
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government Mortgage pass-
GOVERNMENT current income, U.S. Treasury total assets in Securities through
FUND and secondarily, Security plus U.S. Government securities and
in seeking current or minus .5 years Securities other securities
income, may Maximum = 3 years and repurchase representing an
also consider agreements interest in or
the potential collateralized collateralized
for capital by such securities. by mortgage loans.
appreciation.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa U.S. Government
TAX-FREE current income, Brothers net assets in Securities
FUND consistent with 3-year Municipal municipal securities. and repurchase
low volatility Bond Index agreements
of principal, plus or minus collateralized
that is exempt .5 years by such securities.
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of U.S. Government Non-government
INCOME current income, Brothers Mutual assets in U.S. Securities and mortgage pass-
FUND consistent with Fund Government/ Government non-U.S. through securities,
safety of Mortgage Index Securities, including Government asset-backed
principal. plus or minus mortgage-backed Securities rated securities,
1 year U.S. Government AAA/Aaa corporate
Maximum = 6 years Securities. fixed-income
securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
- --------------- -----------------
<S> <C>
ADJUSTABLE 6-month and
RATE 1-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION 2-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION Lehman Brothers
TAX-FREE 3-Year Municipal
FUND Bond Index
--------------------------------------------------------------------------------------------
GOVERNMENT Lehman Brothers
INCOME Mutual Fund
FUND Government/
Mortgage Index
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum =
INCOME current income Brothers 15-year net assets in BBB/Baa
FUND that is exempt Municipal Bond municipal securities. Average = AA/Aa
from regular Index plus
federal income or minus 1 year
tax, consistent Maximum = 12 years
with preservation
of capital.
- -------------------------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for
of capital Aggregate Bond securities, including non-dollar securities
appreciation Index plus or U.S. Government = AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
- -------------------------------------------------------------------------------------------------------------
GLOBAL A high total return, Target = J.P. Morgan 6-year bond Securities of Minimum = AA/Aa
INCOME emphasizing current Global Government U.S. and foreign or A if sovereign
FUND income, and, to Bond Index governments and issuer
a lesser extent, (hedged) plus or corporations. At least 50% =
providing minus 2.5 years AAA/Aaa
opportunities Maximum = 7.5 years
for capital
appreciation.
- -------------------------------------------------------------------------------------------------------------
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% =
FUND current income Brothers High assets in fixed- BB/Ba or below
and, secondarily, Yield Bond Index income securities
capital appreciation. plus or minus rated below
2.5 years investment grade,
Maximum =7.5 years including U.S. and
non-U.S. dollar
corporate debt,
foreign
government
securities,
convertible
securities
and preferred stock.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL U.S. Government Lehman Brothers
INCOME Securities and 15-Year
FUND repurchase Municipal
agreements Bond Index
collateralized by
such securities.
- -------------------------------------------------------------------------------------------------------------
CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
- -------------------------------------------------------------------------------------------------------------
GLOBAL Mortgage and J.P. Morgan
INCOME asset-backed Global
FUND securities, foreign Government
currencies and Bond Index
repurchase (hedged)
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government securities.
- -------------------------------------------------------------------------------------------------------------
HIGH YIELD Mortgage-backed Lehman Brothers
FUND and asset-backed High Yield
securities, U.S. Bond Index
Government
Securities,
investment grade
corporate fixed-
income securities,
structured
securities,
foreign currencies
and repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>
3
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. This
typically results when interest rates have declined and a Fund will suffer
from having to reinvest in lower yielding securities. Extension risk (i.e.,
where the issuer exercises its right to pay principal on an obligation later
than scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased and a Fund will suffer
from the inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities
4
<PAGE>
markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Non-Diversified. Global Income Fund is a "non-diversified" fund as defined
under the Investment Company Act of 1940, as amended (the "Act"), and is,
therefore, subject only to certain federal tax diversification requirements
(to which the other Funds are also subject), in addition to the policies
adopted by the Investment Adviser. To the extent that the Fund is not
diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer of portfolio securities. See
"Investment Restrictions."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as the Investment Adviser to
the Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of June 23, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value without any sales load. See "Purchase of
Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Services Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
5
<PAGE>
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined after
receipt of such request in proper form. See "Redemption of Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTION
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government .................. Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Government Income........................... Daily Monthly Annually
Municipal Income............................ Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income .............................. Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund in which you have invested or you may elect to
receive cash. For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES (SERVICE SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION GOVERNMENT MUNICIPAL CORE FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME INCOME INCOME YIELD
FUND/1/ FUND TAX-FREE FUND FUND/1/ FUND/1/ FUND FUND FUND/1/
--------------- -------------- -------------- ---------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Im-
posed on Purchases....... none none none none none none none none
Maximum Sales Charge Im-
posed on Reinvested Divi-
dends.................... none none none none none none none none
Redemption Fees........... none none none none none none none none
Exchange Fees............. none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily
net assets)
Management Fees (after ap-
plicable limita-
tions)/2/................ 0.40% 0.40% 0.40% 0.25% 0.55% 0.40% 0.59% 0.65%
Service Fees/3/........... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after ap-
plicable limita-
tions)/4/,/5/............ 0.11% 0.05% 0.05% 0.00% 0.05% 0.05% 0.06% 0.05%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITA-
TIONS)/5/............... 1.01% 0.95% 0.95% 0.75% 1.10% 0.95% 1.15% 1.20%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $10 $32 $56 $124
Short Duration Government....................... $10 $30 $53 $117
Short Duration Tax-Free......................... $10 $30 $53 $117
Government Income............................... $ 8 $24 $42 $ 93
Municipal Income................................ $11 $35 $61 $134
Core Fixed Income............................... $10 $30 $53 $117
Global Income................................... $12 $37 $63 $140
High Yield...................................... $12 $38 N/A N/A
</TABLE>
- --------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government,
Government Income, Global Income and High Yield Funds equal to .10%, .40%,
.31% and .05%, respectively. Without such limitations, management fees would
be .50%, .65%, .90% and .70%, respectively, of each Fund's average daily net
assets.
/3/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/4/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and
High Yield Funds)) to the extent such expenses exceed .05%, .05%, .00%,
.05%, .05%, .06% and .01% of the average daily net assets of the Short
Duration Government, Short Duration Tax-Free, Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds,
respectively.
/5/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of each Fund (other than Adjustable Rate Government,
Government Income, Municipal Income and High Yield Funds) for the fiscal
year ended October 31, 1996 would have been as follows:
7
<PAGE>
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Short Duration Government.................................... .21% 1.21%
Short Duration Tax-Free...................................... .61% 1.51%
Core Fixed Income............................................ .43% 1.33%
Global Income................................................ .21% 1.61%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" for the current fiscal year for the Government
Income, Municipal Income and High Yield Funds are estimated to be:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Government Income............................................ .74% 1.89%
Municipal Income............................................. .50% 1.55%
High Yield................................................... .60% 1.80%
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each
fund also offers Institutional and Class A Shares and, with the exception of
the Adjustable Rate Government Fund, Class B and Class C Shares. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-Free
and Core Fixed Income Funds also offer Administration Shares. The other
classes of the Funds are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period ended April 30, 1997 is unaudited. The
remaining data has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders of the Funds for
the year ended October 31, 1996 (the "Annual Report"). This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by calling the telephone number or writing to one of the
addresses on the back cover of this Prospectus. During the periods shown, the
Trust did not offer Institutional or Service shares of the Government Income,
Municipal Income or High Yield Funds or Class C Shares of any Fund.
Accordingly, there are no financial highlights for these classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
- ---------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $ 9.83 $0.2971(a) $0.0216(a) -- $0.3187
1997-Administration
Shares................. 9.83 0.2844(a) 0.0221(a) -- 0.3065
1997-Service Shares(m).. 9.84 0.0527(a) 0.0200(a) -- 0.0727
1997-Class A Shares..... 9.83 0.2766(a) 0.0300(a) -- 0.3066
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 9.77 0.5759(a) 0.0772 (a) -- 0.6531
1996-Administration
Shares................. 9.77 0.5489(a) 0.0797 (a) -- 0.6286
1996-Class A Shares..... 9.77 0.5481(a) 0.0806 (a) -- 0.6287
1995-Institutional
Shares................. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administration
Shares................. 9.74 0.5366(a) 0.0737 (a) -- 0.6103
1995-Class A Shares(c).. 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institutional
Shares................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e).............. 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. 10.00 0.1531 0.0322 (d) -- 0.1853
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.2887) -- -- -- -- $(0.2887)
1997-Administration
Shares................. (0.2765) -- -- -- -- (0.2765)
1997-Service Shares(m).. (0.0527) -- -- -- -- (0.0527)
1997-Class A Shares..... (0.2766) -- -- -- -- (0.2766)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. (0.5725) -- (0.0206) -- -- (0.5931)
1996-Administration
Shares................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e).............. (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. (0.1553) -- -- -- -- (0.1553)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
-----------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME PORT NET ASSETS TO INCOME
IN NET AT END AVERAGE (LOSS) TO FOLIO AT END OF AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $0.0300 $9.86 3.28%(f) 0.45%(b) 6.08%(b) 25.64%(f) $ 549,611 0.51%(b) 6.02%(b)
1997-Administration
Shares................. 0.0300 9.86 3.16(f) 0.70(b) 5.83(b) 25.64(f) 4,182 0.76(b) 5.77(b)
1997-Service Shares(m).. 0.0200 9.86 0.74(f) 0.95(b) 5.64(b) 25.64(f) 22 1.01(b) 5.58(b)
1997-Class A Shares..... 0.0300 9.86 3.16(f) 0.70(b) 5.61(b) 25.64(f) 39,063 1.01(b) 5.30(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 0.0600 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-Administration
Shares................. 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A Shares..... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institutional
Shares................. 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administration
Shares................. 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A Shares(c).. (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institutional
Shares................. (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares................. (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares................. (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
Shares(e).............. (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institutional
Shares................. 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institutional
Shares................. 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $9.83 $0.3287(a) $(0.0700)(a) -- $0.2587
1997-Administration
Shares................. 9.85 0.3175(a) (0.0700)(a) -- 0.2475
1997-Service Shares 9.82 0.3043(a) (0.0700)(a) -- 0.2343
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ 9.82 0.6290(a) 0.0136 (a) -- 0.6426
1996-Administration
Shares(h).............. 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service Shares(i).. 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institutional
Shares................. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administration
Shares................. 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institutional
Shares................. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administration
Shares................. 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institutional
Shares................. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administration
Shares(e).............. 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institutional
Shares................. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institutional
Shares................. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institutional
Shares................. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institutional
Shares................. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. 10.00 0.1800 0.1000 (d) -- 0.2800
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.3287) -- -- -- -- $(0.3287)
1997-Administration
Shares................. (0.3175) -- -- -- -- (0.3175)
1997-Service Shares (0.3043) -- -- -- -- (0.3043)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ (0.6326) -- -- -- -- (0.6326)
1996-Administration
Shares(h).............. (0.3940) -- -- -- -- (0.3940)
1996-Service Shares(i).. (0.3152) -- -- -- -- (0.3152)
1995-Institutional
Shares................. (0.6518) -- -- -- -- (0.6518)
1995-Administration
Shares................. (0.2051) -- -- -- -- (0.2051)
1994-Institutional
Shares................. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administration
Shares................. (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institutional
Shares................. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administration
Shares(e).............. (0.2725) -- -- -- -- (0.2725)
1992-Institutional
Shares................. (0.6703) -- -- -- -- (0.6703)
1991-Institutional
Shares................. (0.8020) -- -- -- -- (0.8020)
1990-Institutional
Shares................. (0.8300) -- -- -- -- (0.8300)
1989-Institutional
Shares................. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. (0.1800) -- -- -- -- (0.1800)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.0700) $9.76 2.67%(f) 0.45%(b) 6.44%(b) 43.72%(f) $99,824 0.73%(b) 6.16%(b)
1997-Administration
Shares................. (0.0700) 9.78 2.55(f) 0.70(b) 6.22(b) 43.72(f) 1,504 0.98(b) 5.94(b)
1997-Service Shares (0.0700) 9.75 2.42(f) 0.95(b) 5.94(b) 43.72(f) 2,522 1.23(b) 5.66(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares ................ 0.0100 9.83 6.75 0.45 6.44 115.45 99,944 0.71 6.18
1996-Administration
Shares(h).............. (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service Shares(i).. 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institutional
Shares................. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares................. (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institutional
Shares................. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares................. (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares................. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
Shares(e).............. (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institutional
Shares................. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares................. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institutional
Shares................. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
Shares................. (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
1988-Institutional
Shares................. 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $ 9.96 $0.2097(a) $(0.0200)(a) -- $0.1897
1997-Administration
Shares................. 9.96 0.1976(a) (0.0200)(a) -- 0.1776
1997-Service Shares..... 9.97 0.1852(a) (0.0300)(a) -- 0.1552
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 9.94 0.4192(a) 0.0200 (a) -- 0.4392
1996-Administration
Shares................. 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service Shares..... 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institutional
Shares................. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administration
Shares................. 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service Shares..... 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institutional
Shares................. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administration
Shares................. 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service Shares(j).. 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institutional
Shares................. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administration
Shares(j).............. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. 10.00 0.0341 (0.0700)(d) -- (0.0359)
GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $14.36 $ 0.46 $ (0.20) -- $ 0.26
1997-Class B shares..... 14.37 0.40 (0.19) -- 0.21
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 14.47 0.92 (0.11) -- 0.81
1996-Class B shares(m).. 14.11 0.41 0.26 -- 0.67
1995-Class A shares..... 13.47 0.94 1.00 -- 1.94
1994-Class A shares..... 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 14.32 0.56 0.58 -- 1.14
MUNICIPAL INCOME FUND
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $14.37 $ 0.34 $ 0.03 -- $ 0.37
1997-Class B shares..... 14.37 0.28 0.03 -- 0.31
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 14.17 0.65 0.20 -- 0.85
1996-Class B shares(m).. 14.03 0.27 0.34 -- 0.61
1995-Class A shares..... 13.08 0.67 1.09 -- 1.76
1994-Class A shares..... 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 14.32 0.22 0.32 -- 0.54
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.2097) -- -- -- -- $(0.2097)
1997-Administration
Shares................. (0.1976) -- -- -- -- (0.1976)
1997-Service Shares..... (0.1852) -- -- -- -- (0.1852)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. (0.4192) -- -- -- -- (0.4192)
1996-Administration
Shares................. (0.3944) -- -- -- -- (0.3944)
1996-Service Shares..... (0.3697) -- -- -- -- (0.3697)
1995-Institutional
Shares................. (0.4235) -- -- -- -- (0.4235)
1995-Administration
Shares................. (0.3989) -- -- -- -- (0.3989)
1995-Service Shares..... (0.3744) -- -- -- -- (0.3744)
1994-Institutional
Shares................. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administration
Shares................. (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service Shares(j).. (0.0475) -- (0.0475)
1993-Institutional
Shares................. (0.3834) -- -- -- -- (0.3834)
1993-Administration
Shares(j).............. (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. (0.0341) -- -- -- -- (0.0341)
GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.45) $ (0.07) -- -- -- $ (0.52)
1997-Class B shares..... (0.40) (0.07) -- -- -- (0.47)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.92) -- -- -- -- (0.92)
1996-Class B shares(m).. (0.41) -- -- -- -- (0.41)
1995-Class A shares..... (0.94) -- -- -- -- (0.94)
1994-Class A shares..... (0.85) (0.12) (0.02) (0.01) -- (1.00)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... (0.56) -- -- -- -- (0.56)
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.34) -- -- -- -- $ (0.34)
1997-Class B shares..... (0.28) -- -- -- -- (0.28)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.65) -- -- -- -- (0.65)
1996-Class B shares(m).. (0.27) -- -- -- -- (0.27)
1995-Class A shares..... (0.67) -- -- -- -- (0.67)
1994-Class A shares..... (0.73) (0.05) -- -- -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... (0.22) -- -- -- -- (0.22)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Institutional
Shares................. $(0.0200) $ 9.94 1.91%(f) 0.45%(b) 4.24%(b) 99.59%(f) $37,159 1.05%(b) 3.64%(b)
1997-Administration
Shares................. (0.0200) 9.94 1.79(f) 0.70(b) 4.03(b) 99.59(f) 113 1.30(b) 3.43(b)
1997-Service Shares..... (0.0300) 9.94 1.56(f) 0.95(b) 3.77(b) 99.59(f) 1,045 1.55(b) 3.17(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institutional
Shares................. 0.0300 9.96 4.50 0.45 4.21 231.65 34,814 1.01 3.65
1996-Administration
Shares................. 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service Shares..... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institutional
Shares................. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administration
Shares................. 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service Shares..... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institutional
Shares................. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administration
Shares................. (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service Shares(j).. (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institutional
Shares................. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administration
Shares(j).............. 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-Institutional
Shares................. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ (0.26) $14.10 1.83%(f) 0.50%(b) 6.34%(b) 182.25%(f) $52,946 1.83%(b) 5.01%(b)
1997-Class B shares..... (0.26) 14.11 1.43(f) 1.25(b) 5.37(b) 182.25(f) 2,937 2.33(b) 4.29(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... (0.11) 14.36 5.80 0.50 6.42 485.09 30,603 1.89 5.03
1996-Class B shares(m).. 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A shares..... 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A shares..... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 0.58 14.90 8.03(f) 0.00(b) 4.87(b) 725.41(f) 12,860 4.00(b) 0.87(b)
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
1997-Class A shares..... $ 0.03 $14.40 2.57%(f) 0.85%(b) 4.70%(b) 90.46%(f) $58,033 1.51%(b) 4.04%(b)
1997-Class B shares..... 0.03 14.40 2.18(f) 1.60(b) 3.92(b) 90.46(f) 617 2.01(b) 3.51(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Class A shares..... 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B shares(m).. 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13 255 2.05(b) 3.10(b)
1995-Class A shares..... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A shares..... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
1993-Class A shares..... 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $ 9.85 $0.3236 $(0.1403) $(0.0003) $0.1830
1997-
Administrative
Shares.......... 9.84 0.3108 (0.1398) (0.0003) 0.1707
1997-Service
Shares.......... 9.86 0.2991 (0.1399) (0.0003) 0.1589
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... 10.00 0.6448 (0.0704) -- 0.5744
1996-Administra-
tion Shares(1).. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service
Shares(1)....... 9.77 0.3756 0.0898 -- 0.4654
1995-Institu-
tional Shares... 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... 10.00 0.4648 (0.7617) -- (0.2969)
<CAPTION>
GLOBAL INCOME FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $14.53 $0.25 $ (0.07) $ 0.28 $ 0.46
1997-Class B
shares.......... 14.53 0.36 (0.02) 0.08 0.42
1997-
Institutional
shares.......... 14.52 0.42 (0.02) 0.10 0.50
1997-Services
shares(o)....... 14.69 0.10 0.02 (0.09) 0.03
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... 14.45 0.71 0.62 0.18 1.51
1996-Class B
shares(m)....... 14.03 0.34 0.41 0.11 0.86
1996-
Institutional
shares.......... 14.45 1.15 0.32 0.10 1.57
1995-Class A
shares.......... 13.43 0.89 0.92 0.15 1.96
1995-
Institutional
shares(m)....... 14.09 0.22 0.34 0.06 0.62
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31,
1991-Class A
shares.......... 14.55 0.25 0.23 (0.19) 0.29
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $(0.3230) -- -- -- -- $(0.3230)
1997-
Administrative
Shares.......... (0.3107) -- -- -- -- (0.3107)
1997-Service
Shares.......... (0.2989) -- -- -- -- (0.2989)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... (0.6438) (0.0806) -- -- -- (0.7244)
1996-Administra-
tion Shares(1).. (0.4080) -- -- -- -- (0.4080)
1996-Service
Shares(1)....... (0.3754) -- -- -- -- (0.3754)
1995-Institu-
tional Shares... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... (0.4648) -- -- -- -- (0.4648)
<CAPTION>
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $ (0.40) -- -- -- -- $ (0.40)
1997-Class B
shares.......... $ (0.37) -- -- -- -- (0.37)
1997-
Institutional
shares.......... (0.44) -- -- -- -- (0.44)
1997-Services
shares(o)....... (0.13) -- -- -- -- (0.13)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... (1.43) -- -- -- -- (1.43)
1996-Class B
shares(m)....... (0.36) -- -- -- -- (0.36)
1996-
Institutional
shares.......... (1.50) -- -- -- -- (1.50)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1995-
Institutional
shares(m)....... (0.26) -- -- -- -- (0.26)
1994-Class A
shares.......... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A
shares.......... (0.85) (0.27) -- -- -- (1.12)
1992-Class A
shares.......... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31
1991-Class A
shares.......... (0.24) -- -- -- -- (0.24)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
---------------------
RATIO OF NET RATIO OF
NET NET NET RATIO OF ASSETS RATIO OF NET
INCREASE ASSET EXPENSES NET AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INVESTMENT OF TO INCOME
IN NET AT END AVERAGE INCOME TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-
Institutional
Shares.......... $(0.1400) $ 9.71 1.87%(f) 0.45%(b) 6.66%(b) 174.52%(f) $ 73,483 0.76%(b) 6.35%(b)
1997-
Administrative
Shares.......... (0.1400) 9.70 1.75(f) 0.70(b) 6.49(b) 174.52(f) 6,194 1.01(b) 6.18(b)
1997-Service
Shares.......... (0.1400) 9.72 1.63(f) 0.95(b) 6.22(b) 174.52(f) 1,108 1.26(b) 5.91(b)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Institu-
tional Shares... (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-Administra-
tion Shares(1).. (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institu-
tional Shares... 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD
JANUARY 5,
1994(G) THROUGH
OCTOBER 31,
1994-Institu-
tional Shares... (0.7617) 9.24 (3.00)(f) 0.45(b) 6.48(b) 288.25(f) 24,508 1.46(b) 5.47(b)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX
MONTHS ENDED
APRIL 30, (UNAU-
DITED)
1997-Class A
shares.......... $ 0.06 $14.59 3.22%(f) 1.17%(b) 5.12%(b) 136.72%(f) $171,668 1.60%(b) 4.69%(b)
1997-Class B
shares.......... 0.05 14.58 2.94(f) 1.71(b) 4.73(b) 136.72(f) 1,095 2.10(b) 4.34(b)
1997-
Institutional
shares.......... 0.06 14.58 3.50(f) 0.65(b) 5.64(b) 136.72(f) 56,431 1.04(b) 5.25(b)
1997-Services
shares(o)....... (0.10) 14.59 0.21(f) 1.15(b) 5.85(b) 136.72(f) 94 1.54(b) 5.46%(b)
FOR THE YEAR
ENDED OCTOBER
31,
1996-Class A
shares.......... 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(m)....... 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15 256 2.14(b) 4.72(b)
1996-
Institutional
shares.......... 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares.......... 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(m)....... 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86 31,619 1.08(b) 5.58(b)
1994-Class A
shares.......... (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares.......... 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares.......... 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD
AUGUST 2, 1991(G)
THROUGH OCTOBER 31
1991-Class A
shares.......... 0.05 14.60 2.00 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Goldman Sachs Short Duration Government Fund Administration shares were
redeemed in full on February 23, 1995 and re-commenced on February 28, 1996
at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. For Class A shares only, total return would be reduced if a sales
charge were taken into account.
(l) Administration and Service share activity commenced operations on February
28, 1996 and March 13, 1996, respectively.
(m) Institutional and Class B shares commenced operations on June 1, 1995 and
May 1, 1996, respectively.
(n) Includes the balancing effect of calculating per share amounts.
(o) Service Class shares commenced operations on March 12, 1997.
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one rating organization (including, but not limited to, Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's")) even
though it has been rated below the minimum rating by one or more other rating
organizations, or, if unrated by a rating organization, is determined by the
Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and will apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is comparable to a nine-
month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other U.S. Government Securities. The
remainder of the Fund's assets (up to 35%) may be invested in other U.S.
Government Securities, including mortgage pass-through securities, other
securities representing an interest in or collateralized by adjustable rate
and fixed rate mortgage loans ("Mortgage-Backed Securities") and repurchase
agreements collateralized by U.S. Government Securities. Substantially all of
the Fund's assets will be invested in U.S. Government Securities. 100% of the
Fund's portfolio will be invested in U.S. dollar-denominated securities.
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CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is comparable to a two-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is
comparable to a three-year bond.
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal
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Securities"), the interest on which is exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax purposes), and is not
a tax preference item under the federal alternative minimum tax. Under normal
circumstances, the Fund's investments in private activity bonds and taxable
investments will not exceed, in the aggregate, 20% of the Fund's net assets.
The interest from certain private activity bonds (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be invested
in U.S. dollar-denominated securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities by these rating
organizations or by the Investment Adviser may reflect the existence of
guarantees, letters of credit or other credit enhancement features available
to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA by S&P or Aaa by Moody's.
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<PAGE>
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA by S&P or Aa by Moody's. All securities purchased by the Fund will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities by
these rating organizations or by the Investment Adviser may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
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<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is comparable to
a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa or in their equivalent ratings category by S&P or Moody's.
The securities currently included in the Index have at least one year
remaining to maturity; have an outstanding principal amount of at least $100
million; and are issued by the following types of issuers, with each category
receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of Mortgage-
Backed Securities; utilities; industrial issuers; financial institutions;
foreign issuers; and issuers of Asset-Backed Securities. The Index is a
trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
by S&P or Baa by Moody's. The non-U.S. dollar-denominated fixed-income
securities in which the Fund may invest will be rated, at the time of
investment, at least AA by S&P or Aa by Moody's. Fixed-income securities rated
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to
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<PAGE>
hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may invest in custodial receipts, Municipal Securities and
convertible securities. The Fund may also employ other investment techniques
to seek to enhance returns, such as lending portfolio securities and entering
into mortgage dollar rolls, repurchase agreements and other investment
practices, described under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage-Backed and Asset-
Backed Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least AA by S&P or Aa by Moody's. However, the Fund may
also invest in obligations of a sovereign issuer, denominated in the issuer's
own currency, rated at least A by S&P or Moody's. The Fund will invest at
least 50% of its total assets in securities rated, at the time of investment,
AAA by S&P or Aaa by Moody's.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value
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of the Fund's total assets. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. The Fund may also employ
other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in securities of
issuers in any other foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is comparable to a 6-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed-income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB or below by S&P, Ba or below by Moody's, an equivalent
rating by another rating organization, or if unrated by a rating organization,
determined by the Investment Adviser to be of comparable quality. The Fund may
invest in all types of fixed-income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
loan participations and preferred stock. The Fund may invest up to 25% of its
total assets in obligations of domestic and foreign issuers (including
securities of issuers located in countries with emerging markets and
economies) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Government
Securities, Asset-Backed and Mortgage-Backed Securities and corporate
securities. The Fund may also invest in common stocks, warrants, rights and
other equity securities, but will generally hold such equity investments only
when debt or preferred stock of the issuer of such equity securities is held
by the Fund. A number of investment strategies are used to seek to achieve the
Fund's investment objective, including market sector selection, determination
of yield curve exposure, and issuer selection. In addition, the Investment
Adviser will attempt to take advantage of pricing inefficiencies in the fixed-
income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade securities are, however, considered speculative and
generally involve greater price volatility and greater risk of loss of
principal and interest than higher rated securities. See "Description of
Securities." A description of the corporate bond and preferred stock ratings
is contained in Appendix B to the Additional Statement.
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OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. The Fund may also employ other investment techniques to
seek to enhance returns, such as lending portfolio securities and entering
into repurchase agreements and other investment practices described under
"Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically 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.
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ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. 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. The Funds do
not intend to purchase residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities.
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SMBS are usually structured with two different classes; one that receives 100%
of the interest payments and the other that receives 100% of the principal
payments from a pool of mortgage loans. If the underlying mortgage loans
experience different than anticipated prepayments of principal, a Fund may
fail to fully recoup its initial investment in these securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage loans
are generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a loan agreement. One of the co-lenders usually agrees to act as
the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
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MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds, invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities.
PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds' distributions attributable to the interest income from private
activity bonds may subject certain investors to the federal alternative
minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the
Trust's Board of Trustees will monitor on an ongoing basis the credit quality
rating and risk of cancellation of such unrated leases. Certain municipal
lease obligations and certificates of participation may be deemed illiquid for
the purpose of a Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which
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bids are made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
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securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
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EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristic of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries). See the Additional Statement
for further information regarding a Fund's investments in emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. A Fund also may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to increase total return, forward foreign currency exchange contracts are
considered speculative. The Funds may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or to sell foreign currency to seek to increase total return, the
Fund will be required to place cash or liquid assets in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. A Fund will
incur costs in connection with conversions between various currencies. A Fund
may hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Investment Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
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The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force the Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging markets, the Investment
Adviser does not currently anticipate that a significant portion of the Funds'
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objectives and Policies" in the Additional
Statement.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds or stripped
securities may require the Fund to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" in the Additional Statement.
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RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk (i.e., where the issuer exercises
its right to pay principal on an obligation later than scheduled) causes cash
flows to be returned later than expected. This typically results when interest
rates have increased and a Fund will suffer from the inability to invest in
higher yielding securities. Certain types of U.S. Government, Asset-Backed,
corporate, foreign, Mortgage-Backed and Municipal Securities have this call
and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest
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rate caps, support tranches and discount priced Mortgage-Backed Securities. In
addition, particular derivative securities may be leveraged such that their
exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Because interest income from Municipal Securities is not subject to regular
federal income taxation, the attractiveness of Municipal Securities in
relation to other investment alternatives is affected by changes in federal
income tax rates applicable to, or the continuing federal income tax-exempt
status of, such interest income. Any proposed or actual changes in such rates
or exempt status, therefore, can significantly affect the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and
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other financial institutions. Accordingly, the secondary market for such
securities is not as liquid as, and is more volatile than, the secondary
market for higher-rated securities. In addition, market trading volume for
high yield fixed-income securities is generally lower and the secondary market
for such securities could contract under adverse market or economic
conditions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market
price and a Fund's ability to dispose of particular portfolio investments. A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the 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 or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for the
forward purchase. Unless such benefits exceed the
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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. Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. The Fund will hold and maintain in a segregated account
until the settlement date cash or liquid assets in an amount equal to the
forward purchase price. For financial reporting and tax purposes, each Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Funds
do not currently intend to enter into mortgage dollar rolls that are accounted
for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index composed of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and
31
<PAGE>
purchase and write call and put options on any of such futures contracts. Each
Fund may also enter into closing purchase and sale transactions with respect
to any such contracts and options. The futures contracts may be based on
various securities (such as U.S. Government Securities), foreign currencies,
in the case of the Core Fixed Income, Global Income and High Yield Funds,
securities indices and other financial instruments and indices. A Fund will
engage in futures and related options transactions for bona fide hedging
purposes as defined in regulations of the Commodity Futures Trading Commission
or to seek to increase total return to the extent permitted by such
regulations. A Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on a 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 a Fund's net
assets. These transactions involve brokerage costs, require margin deposits
and, in the case of contracts and options obligating a Fund to purchase
securities or currencies, require the Fund to segregate and maintain cash or
liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position which is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or, if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The use of currency swaps 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 currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used. The staff of the SEC currently takes the
position that swaps are illiquid and thus subject to a Fund's limitation on
investments in illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
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<PAGE>
forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Code for qualification as a regulated
investment company.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities (both
foreign and domestic) that are not readily marketable, swap transactions,
certain SMBS, certain municipal leases and participation interests, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities,
unless it is determined, based upon the continuing review of the trading
markets for a specific restricted security, that such restricted security is
eligible for resale under Rule 144A under the Securities Act of 1933 and,
therefore, is liquid. The Trustees have adopted guidelines and delegated to
the Investment Adviser the daily function of determining and monitoring the
liquidity of portfolio securities. The Trustees, however, retain oversight
focusing on factors such as valuation, liquidity and availability of
information and are ultimately responsible for each determination. Investing
in restricted securities eligible for resale pursuant to Rule 144A may
decrease the liquidity in a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have
33
<PAGE>
authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with the Investment Adviser,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating-rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund still remains an appropriate investment in
light of their then current financial positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policy to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject
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<PAGE>
to certain conditions and limitations under the Code. Since the Global Income
Fund is not diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer. The Adjustable Rate Government,
Short Duration Government, Short Duration Tax-Free, Government Income,
Municipal Income, Core Fixed Income and High Yield Funds are, in addition to
these tax diversification requirements, also subject to the diversification
requirements arising out of their diversified status under the Act.
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. It is
anticipated that the annual portfolio turnover rate for the High Yield Fund
will generally not exceed 150%. The portfolio turnover rate is computed by
dividing the lesser of the dollar 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
a 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 a Fund consistent with the Fund's investment objectives and
portfolio management policies. A high rate of portfolio turnover results in
increased transaction costs to a Fund. The portfolio turnover rate includes
the effect of entering into mortgage dollar rolls. See "Financial Highlights"
for a statement of each Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership, which is an
affiliate of Goldman Sachs, serves as investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income and High Yield Funds. Goldman Sachs registered as an investment adviser
in 1981. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organization Limited in 1990 and registered as an investment adviser in 1991.
As of June 23, 1997, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $120
billion.
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<PAGE>
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its affiliate offices for
portfolio decisions and management with respect to certain portfolio
securities. In addition, the Investment Advisers will have access to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides the Funds with office space and all necessary office equipment
and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio manager is Jonathan A. Beinner. Mr. Beinner is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Beinner
joined the Investment Adviser in 1990 after working in the trading and
arbitrage group of Franklin Savings Association.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner. Messrs. Beinner and Lucy each specialize in investing in a
particular type of security the Fund may hold. Mr. Lucy is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed-income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank
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<PAGE>
of New Zealand, his most recent position as Trading Manager of foreign
reserves management. Mr. Wilson's employment at the Reserve Bank at New
Zealand also included a two year assignment to the foreign investment unit at
the Bank of England in London.
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessup joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- ------------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free........................ 0.40% 0.40%
Government Income.............................. 0.65% 0.25%
Municipal Income............................... 0.55% 0.55%
Core Fixed Income.............................. 0.40% 0.40%
High Yield..................................... 0.70% N/A
GSFM
- ----
Adjustable Rate Government..................... 0.40% 0.40%
Short Duration Government...................... 0.50% 0.40%
GSAMI
- -----
Global Income.................................. 0.90% 0.59%
</TABLE>
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<PAGE>
- --------
* With respect to Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining advisory and administration
services (and subadvisory services in the case of Global Income Fund) was
adopted effective April 30, 1997. The Management Agreements for the other
funds previously combined such services. The contractual rate set forth in
the table is the rate payable under the Management Agreements (and, in the
case of Government Income, Municipal Income and Global Income Funds, is
identical to the aggregate advisory, subadvisory and administration fee
rate payable by such Funds under the previously separate investment
advisory, subadvisory and administration agreements). For the fiscal year
ended October 31, 1996, the annual rate expressed is the combined advisory
and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the
full amount of the fees to which it would have been entitled. The
Investment Advisers may discontinue or modify such limitations in the
future at their discretion, although they have no current intention to do
so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and High
Yield Funds) to the extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%,
0.05%, 0.06% and 0.01% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management -- Activities of Goldman Sachs and its Affiliates and Other
Accounts Managed by Goldman Sachs" in the Additional Statement for further
information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not
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<PAGE>
entitled to receive a fee from the Global Income Fund for transfer agency
services. Goldman Sachs is entitled to receive a fee from the Adjustable Rate
Government, Short Duration Government, Short Duration Tax-Free, Government
Income, Municipal Income and Core Fixed Income Funds equal to each class'
proportionate share of the total transfer agency fees borne by the Fund. Such
fees are equal to the fixed per account charge of $12,000 per year plus $7.50
per account, together with out-of-pocket and transaction related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents) applicable to Class A, Class B and Class C shares where
applicable plus 0.04% of the average daily net assets of the other classes of
the Funds. Goldman Sachs is entitled to receive a fee from the High Yield Fund
equal to .04% of the average daily net assets of Institutional and Service
shares.
DIVIDENDS
Each Fund (other than the Global Income Fund) will declare a daily dividend.
Such dividend will accrue to shareholders of record as of 3:00 p.m. Chicago
time, and will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Shares of Global Income Fund will be eligible for dividends
which accrue on or after the date such shares are purchased and will be paid
monthly. Over the course of the fiscal year, dividends accrued and paid will
constitute all or substantially all of the Funds' net investment income. From
time to time a portion of such dividends may constitute a return of capital.
In the case of Core Fixed Income, Global Income and High Yield Funds, net
loss, if any, from certain foreign currency transactions or instruments that
is otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account
in determining the amount of dividends to be declared and paid, with the
result that a portion of the Fund's dividends may be treated as a return of
capital, nontaxable to the extent of a shareholder's tax basis in his shares.
The Funds also intend that all net realized long-term and short-term capital
gains will be declared as a dividend at least annually. In determining amounts
of capital gains to be distributed, capital losses, including any available
capital loss carryovers from prior years will be offset against capital gains.
A Fund's net investment income is determined on a daily basis (monthly in
the case of the Global Income Fund). On days on which net asset value is
calculated, such determination is made immediately prior to the calculation of
a 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 (other than the Global Income Fund) from net investment
income will be made on the last calendar day of each month in additional
shares of a Fund at the net asset value on such day, unless cash distributions
are elected, in which case, cash payment will be made on the first Business
Day of the succeeding month. In the case of Global Income Fund, reinvestment
of dividends from net investment income in additional shares of the Fund will
be made on the second to last Business Day of each month. Cash dividends will
be paid on or about the last Business Day of the month. Payment of dividends
with respect to capital gains, if any, when declared will be made in
additional shares of the Fund at the net asset value on the payment date,
unless cash distributions are elected. This election to receive dividends in
cash is initially made on the Account Information Form and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for
a particular dividend or distribution. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long-term capital gains
component, if any, of the Fund's annual dividend.
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At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) on each
Business Day (as such term is defined under "Additional Information")
immediately after the determination, if any, of the income to be declared as a
dividend (except in the case of the Global Income Fund). 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.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their its tax equivalent yields in advertisements and
communications to shareholders or prospective investors. Average annual total
return is determined by computing the average annual percentage change in
value of $1,000 invested at the maximum public offering price for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all dividends and distributions at net asset value. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. Each Fund may also from time to time advertise total return
on a cumulative, average, year-by-year or other basis for various specified
periods by means of quotations, charts, graphs or schedules. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) 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.
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Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free and Municipal Income Funds'
tax-free yield. Tax equivalent yield is calculated by dividing a Fund's tax-
exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the state of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. 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.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
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As of July 31, 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of the following Funds: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (31.49%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2558, Houston, TX
77252-2558 (31.67%).
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected or
intends to elect to be treated as a regulated investment company and intends
to qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of such a distribution may be subject to the federal alternative
minimum tax and the entire distribution may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares
of the Short Duration Tax-Free and Municipal Income Funds. Interest on
indebtedness incurred or continued to purchase or carry shares of the Short
Duration Tax-Free and Municipal Income Funds is not deductible to the extent
attributable to the Funds' distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free and Municipal Income Funds,
as described above. Dividends paid by a Fund from the excess of net long-term
capital gain over net short-term capital loss will be taxable as long-term
capital gains regardless of how long the shareholders have held their shares.
These tax consequences will apply regardless of whether distributions are
received in cash or reinvested in shares. Certain distributions paid by a Fund
in January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
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Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other 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 Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of a
Fund is comprised of stock or securities of foreign corporations at the end of
its taxable year and the applicable Fund so elects, that Fund's shareholders
will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election. If a Fund cannot or
does not so elect, it may deduct these taxes in computing its taxable income,
if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect
to the Service Shares which authorizes a Fund to compensate certain
institutions ("Service Organizations") for providing account administration
and personal and account maintenance services to their customers who are
beneficial owners of such Shares. The Trust, on behalf of the Funds, enters
into agreements with Service Organizations which purchase Service Shares on
behalf of their customers ("Service Agreements"). The Service Agreements
provide for compensation to the Service Organizations in an amount up to 0.50%
(on an annualized basis) of the average daily net assets of the Service Shares
of the Fund attributable to or held in the name of the Service Organization
for its customers; provided, however, that the fee paid for personal and
account maintenance services shall not exceed 0.25% of such average daily net
assets. The services provided by the Service Organizations may include acting,
directly or through an agent, as the sole shareholder of record, maintaining
account records for customers, processing orders to purchase, redeem or
exchange Service Shares for customers, responding to inquiries from
prospective and existing shareholders and assisting customers with investment
procedures.
Normally, purchase, exchange and redemption orders processed by a Service
Organization on behalf of its customers will not be effective until received
by Goldman Sachs as described herein. The Trust may, however, authorize
certain Service Organizations that provide recordkeeping, reporting and
processing services to qualified employee benefit plans to accept on the
Trust's behalf orders placed by such plans and, if approved by the Trust, to
designate other intermediaries to accept such orders. In these cases, a Fund
will be deemed to have received an order in proper form from a plan when the
order is accepted by the authorized Service Organization or intermediary on a
Business Day, and the order will be priced at a Fund's net asset value per
share next determined after such acceptance. The Service Organization or
intermediary will be responsible for transmitting accepted orders to the Trust
within the period agreed upon by them. An employee benefit plan may contact
its Service Organization to learn whether the Service Organization is
authorized to accept orders.
Holders of Service Shares of a Fund bear all expenses and fees paid to
Service Organizations for their services with respect to such Shares as well
as any other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the
Service Organization under a Service Agreement and may affect the return
earned on an investment in the Fund. The Trust, on behalf of the Funds,
accrues payments made pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Service Shares should be directed to such owners' Service
Organization.
For the fiscal year ended October 31, 1996, the Trust, on behalf of the
Short Duration Government, Short Duration Tax-Free and Core Fixed Income
Funds, paid the Service Organizations fees at the annual rate of 0.50% of each
Fund's average daily net assets attributable to Service Shares. No Service
Shares of the other Funds were outstanding during the period.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account
statement (quarterly in the case of Global
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Income Fund). A year-to-date statement for any account will be provided to a
Service Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each
transaction.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the net asset value per share next determined after receipt of an order
by Goldman Sachs from a Service Organization. (See "Additional Services" for a
description of limited situations where a Service Organization or other
intermediary may be authorized to accept orders for the Funds.) No sales load
will be charged. Currently, net asset value is determined 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), as described under "Net Asset Value."
Purchases of Service Shares of the Funds must be settled within three (3)
Business Days of the receipt of a complete purchase order. Payment of the
proceeds of redemption of shares purchased by check may be delayed for a
period of time as described under "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern or State Street. In
order to facilitate timely transmittal, the Service Organizations have
established times by which purchase orders and payments must be received by
them.
PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND
Purchases of Service Shares by a Service Organization may be made by placing
an order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
the Northern Trust Company ("Northern") as subcustodian for State Street Bank
and Trust Company ("State Street") on the next Business Day or initiating an
ACH transfer to ensure receipt by Northern on the next Business Day. Purchases
may also be made by a Service Organization by check (except that the Trust
will not accept a check drawn on a foreign bank or a third-party check) or
Federal Reserve draft made payable to Goldman Sachs Fixed Income Funds--Name
of Fund and Class of shares and should be directed to Goldman Sachs Fixed
Income Funds--Name of Fund and Class of shares c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606.
PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street or initiating an ACH transfer. Purchases may also be made by a
Service Organization by check (except that the Trust will not accept a check
drawn on a foreign bank or a third-party check) or Federal Reserve draft made
payable to Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares
and should be directed to Goldman Sachs Fixed Income Funds--Name of Fund and
Class of shares c/o National Financial Data Services, Inc., P.O. Box 419711,
Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service
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Shares, and may establish other requirements such as a minimum account
balance. A Service Organization may effect redemptions of noncomplying
accounts, and may impose a charge for any special services rendered to its
customers. Customers should contact their Service Organization for further
information concerning such requirements and charges.
Service Shares of the Global Income Fund will be issued and dividends will
begin to be paid with respect to dividends which accrue on or after the
purchase of Service Shares. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date from a Service Organization by
Goldman Sachs by 3:00 p.m. Chicago time and payment is made by wire
transfer or ACH transfer, 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 Goldman Sachs of a purchase order or (ii) the day of receipt of
a federal funds wire or an ACH transfer by State Street. For purchases
without a specified settlement date, shares will be issued and dividends
declared with respect to such shares will begin to accrue on the Business
Day after payment is received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date by Goldman Sachs by 3:00 p.m.
Chicago time and payment is made by check or Federal Reserve draft, shares
will be issued and dividends will begin to accrue on the purchased shares
on the Business Day after the date payment is received. For purchases
without a specified settlement date, shares will be issued and dividends
declared with respect to such shares will begin to accrue on the Business
Day after payment is received.
The Funds reserve the right to redeem Service Shares of any Service
Organization whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a
result of market conditions. A Fund will give sixty (60) days' prior written
notice to Service Organizations whose Service Shares are being redeemed to
allow them to purchase sufficient additional Service Shares to avoid such
redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of Service Shares of a Fund is evident, or if
purchases, sales or exchanges are, or a subsequent abrupt redemption might be,
of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the corresponding
class of any Goldman Sachs Money Market Fund at the net asset value next
determined either by
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writing to Goldman Sachs, Attention: Goldman Sachs Fixed Income Funds--Name of
Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by
telephone exchange must be registered in the same name(s) and have the same
address as Service Shares of the Fund for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. 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 redemption of the Service Shares surrendered in the exchange, on
which an investor may be subject to tax, followed by a purchase of Service
Shares, or the corresponding class of any Goldman Sachs Money Market Funds
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange. Exchanges are available only
in states where exchanges may legally be made. The exchange privilege may be
modified or withdrawn at any time on sixty (60) days' written notice to
recordholders of Service Shares and is subject to certain limitations. See
"Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder
of such Shares on any Business Day at the net asset value next determined
after receipt of such request in proper form by Goldman Sachs from a Service
Organization. (See "Additional Services" for a description of limited
situations where a Service Organization or other intermediary may be
authorized to accept requests for the Funds.) If Service Shares to be redeemed
were recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Service Shares. This may take up to fifteen
(15) days. Redemption requests may be made by a Service Organization by
writing to or calling the Transfer Agent at the address or telephone number
set forth on the back cover page of this Prospectus. A Service Organization
may request redemptions by telephone if the optional telephone redemption
privilege is elected on the Account Information Form. It may be difficult to
implement redemptions by telephone in times of drastic economic or market
changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time concerning telephone
redemptions and exchanges. 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
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Funds, the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone. If Goldman Sachs
receives a redemption request by 3:00 p.m. Chicago time, the Service Shares of
each Fund (other than Global Income Fund) to be redeemed earn dividends
declared on the day the request is received.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares or, if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once wire
transfer instructions have been given by Goldman Sachs, neither the Funds, the
Trust nor Goldman Sachs assumes any further responsibility for the performance
of intermediaries or the customer's Service Organization in the transfer
process. If a problem with such performance arises, the customer should deal
directly with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
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APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could apply to payments relating to
your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid 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.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
LOGO GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
August 15, 1997 GOLDMAN SACHS FIXED INCOME FUNDS
CLASS A, B AND C SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS MUNICIPAL INCOME FUND
GOVERNMENT FUND Seeks a high level of current income
Seeks a high level of current that is exempt from regular federal in-
income, consistent with low come tax, consistent with preservation
volatility of principal. The of capital. The Fund invests primarily
Fund invests primarily in in municipal securities.
adjustable rate mortgage
pass-through securities and GOLDMAN SACHS CORE FIXED INCOME FUND
other mortgage securities Seeks a total return consisting of cap-
with periodic interest rate ital appreciation and income that ex-
resets, which are issued or ceeds the total return of the Lehman
guaranteed by the U.S. Brothers Aggregate Bond Index. The Fund
Government, its agencies, invests primarily in fixed-income secu-
instrumentalities or rities, including securities issued or
sponsored enterprises. guaranteed by the U.S. government, its
agencies, instrumentalities or spon-
GOLDMAN SACHS SHORT DURATION sored enterprises, corporate securi-
GOVERNMENT FUND ties, mortgage-backed securities and
Seeks a high level of current asset-backed securities.
income and secondarily, in
seeking current income, may GOLDMAN SACHS GLOBAL INCOME FUND
also consider the potential Seeks a high total return, emphasizing
for capital appreciation. The current income and, to a lesser extent,
Fund invests primarily in providing opportunities for capital ap-
securities issued or preciation. The Fund invests primarily
guaranteed by the U.S. in a portfolio of high quality fixed-
government, its agencies, income securities of U.S. and foreign
instrumentalities or issuers and foreign currencies.
sponsored enterprises.
GOLDMAN SACHS SHORT DURATION GOLDMAN SACHS HIGH YIELD FUND
TAX-FREE FUND Seeks a high level of current income
Seeks a high level of current and secondarily, capital appreciation.
income, consistent with The Fund invests primarily in fixed in-
relatively low volatility of come securities rated below investment
principal, that is exempt grade.
from regular federal income
tax. The Fund invests
primarily in municipal
securities.
GOLDMAN SACHS GOVERNMENT
INCOME FUND
Seeks a high level of current
income, consistent with
safety of principal. The Fund
invests primarily in
securities, including
mortgage-backed securities,
issued or guaranteed by the
U.S. Government, its
agencies, instrumentalities
or sponsored enterprises.
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser to
the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND/OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 1
Fees and Expenses.................. 8
Financial Highlights............... 12
Investment Objectives and Policies. 16
Description of Securities.......... 23
Risk Factors....................... 31
Investment Techniques.............. 34
Investment Restrictions............ 37
Portfolio Turnover................. 38
Management......................... 38
Reports to Shareholders............ 43
How to Invest...................... 43
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 50
Distribution and Authorized Dealer
Service Plans..................... 53
How to Sell Shares of the Funds.... 55
Dividends.......................... 57
Net Asset Value.................... 57
Performance Information............ 58
Shares of the Trust................ 59
Taxation........................... 60
Additional Information............. 61
Appendix........................... 61
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company that
offers its shares in several investment funds (mutual funds). Each Fund pools
the monies of investors by selling its shares to the public and investing
these monies in a portfolio of securities designed to achieve that Fund's
stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
1
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INVESTMENT INTEREST RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may Maximum = 3 years and repurchase
also consider the agreements
potential for collateralized
capital appreciation. by such securities.
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of U.S. Government
INCOME current income, Brothers Mutual assets in U.S. Securities and
FUND consistent with Fund Government/ Government non-U.S.
safety of Mortgage Index Securities, including Government
principal. plus or minus mortgage-backed Securities rated
year U.S. Government AAA/Aaa
Maximum = Securities.
6 years
<CAPTION>
OTHER INVESTMENTS BENCHMARK
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
SHORT DURATION Mortgage pass- 2-year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.
GOVERNMENT Non-government Lehman Brothers
INCOME mortgage pass- Mutual Fund
FUND through securities, Government/
asset-backed Mortgage Index
securities,
corporate
fixed income
securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum = U.S. Government
INCOME current income Brothers 15-year net assets in BBB/Baa Securities and
FUND that is exempt Municipal Bond municipal securities. Average = AA/Aa repurchase
from regular Index plus agreements
federal income or minus 1 year collateralized by
tax, consistent Maximum = such securities.
with preservation 12 years
of capital.
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa Foreign fixed-
INCOME FUND consisting of Brothers assets in fixed- Minimum for income,
capital Aggregate Bond income securities, non-dollar municipal and
appreciation and Index plus or including securities = AA/Aa convertible
income that minus 1 year U.S. Government securities,
exceeds the total Maximum = 6 years Securities, foreign currencies
return of the corporate, and repurchase
Lehman Brothers mortgage-backed agreements
Aggregate Bond and asset-backed collateralized
Index. securities. by U.S.
Government
Securities.
GLOBAL A high total return, Target = J.P. 6-year bond Securities of U.S. Minimum = Mortgage and asset
INCOME emphasizing Morgan Global and foreign AA/Aa or A if backed securities,
FUND current Government governments and sovereign issuer foreign currencies
income, and, to Bond Index corporations. At least 50% = and repurchase
a lesser extent, (hedged) plus AAA/Aaa agreements
providing or minus 2.5 years collateralized by
opportunities Maximum = U.S. Government
for capital 7.5 years Securities or
appreciation. certain foreign
government
securities.
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% = Mortgage-backed
FUND current income Brothers High assets in fixed- BB/Ba or below and asset-backed
and, secondarily, Yield Bond Index income securities securities, U.S.
capital appreciation. plus or minus rated below Government
2.5 years investment grade, Securities,
Maximum = including U.S. investment grade
7.5 years and non-U.S. dollar corporate fixed-
corporate debt, income securities,
foreign government structured
securities, securities,
convertible foreign currencies
securities and repurchase
and preferred stock. agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
<S> <C>
MUNICIPAL Lehman Brothers
INCOME 15-Year
FUND Municipal
Bond Index
CORE FIXED Lehman Brothers
INCOME FUND Aggregate Bond
Index
GLOBAL J.P. Morgan
INCOME Global
FUND Government Bond
Index (hedged)
HIGH YIELD Lehman Brothers
FUND High Yield
Bond Index
</TABLE>
3
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. This
typically results when interest rates have declined and a Fund will suffer
from having to reinvest in lower yielding securities. Extension risk (i.e.,
where the issuer exercises its right to pay principal on an obligation later
than scheduled) causes cash flows to be returned later than expected. This
typically results when interest rates have increased and a Fund will suffer
from the inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities
4
<PAGE>
markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Non-Diversified. Global Income Fund is a "non-diversified" fund as defined
under the Investment Company Act of 1940, as amended (the "Act"), and is,
therefore, subject only to certain federal tax diversification requirements
(to which the other Funds are also subject), in addition to the policies
adopted by the Investment Adviser. To the extent that the Fund is not
diversified under the Act, it will be more susceptible to adverse
developments affecting any single issuer of portfolio securities. See
"Investment Restrictions."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Core Fixed Income, Government Income, Municipal Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of June 23, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
----------------------------
INITIAL PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
---------------- ---------------- -----------
<S> <C> <C>
Regular Purchases............................. $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA
Purchases.................................... $ 250 $50
Automatic Investment Plan..................... $ 50 $50
403(b) Plans.................................. $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 44.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service
firms that have agreements with Goldman Sachs relating to the sale of shares
("Authorized Dealers"). See "How to Invest" on page 43.
5
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds (other than the Adjustable Rate Government Fund which does
not offer Class B or Class C shares) offer three classes of shares
through this Prospectus. These shares may be purchased at the investor's
choice, at a price equal to their next determined net asset value ("NAV")
(i) plus an initial sales charge imposed at the time of purchase ("Class
A shares"), (ii) with a contingent deferred sales charge imposed on
redemptions within six years of purchase ("Class B shares") or (iii)
without any initial or contingent deferred sales charge, as long as
shares are held for one year or more ("Class C shares"). Except with
respect to the Adjustable Rate Government Fund, direct purchases of $1
million ($500,000 in the case of the Short Duration Government and Short
Duration Tax Free Funds) or more of Class A shares will be sold without
an initial sales charge and will be subject to a contingent deferred
sales charge at the time of certain redemptions.
<TABLE>
<CAPTION>
ADJUSTABLE RATE MAXIMUM INITIAL MAXIMUM CONTINGENT
GOVERNMENT FUND SALES CHARGE DEFERRED SALES CHARGE
--------------- --------------- ---------------------
<S> <C> <C>
Class A.... 1.5% N/A
<CAPTION>
SHORT DURATION
GOVERNMENT FUND
SHORT DURATION
TAX-FREE FUND
-----------------
<S> <C> <C>
Class A.... 2.0% (See above)
Class B.... N/A 2% declining to 0% after three years
Class C.... N/A 1% if shares are redeemed within 12 months of purchase
<CAPTION>
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
CORE FIXED INCOME FUND
GLOBAL INCOME FUND
HIGH YIELD FUND
----------------------
<S> <C> <C>
Class A.... 4.5% (See above)
Class B.... N/A 5% declining to 0% after six years
Class C.... N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable
to Class B or Class C shares will exceed the initial sales charge and
distribution fees attributable to Class A shares. Class B shares convert
to Class A shares, which are subject to lower distribution fees, eight
years after initial purchase. Class C shares, which are subject to the
same distribution fees as Class B shares, do not convert to Class A
shares and are subject to the higher distribution fees indefinitely. See
"How to Invest--Alternative Purchase Arrangements" on page 43.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined
after receipt of such request in proper form, subject to any applicable
contingent deferred sales charge. See "How to Sell Shares of the Funds."
6
<PAGE>
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government................... Daily Monthly Annually
Short Duration Government.................... Daily Monthly Annually
Short Duration Tax-Free...................... Daily Monthly Annually
Government Income............................ Daily Monthly Annually
Municipal Income............................. Daily Monthly Annually
Core Fixed Income............................ Daily Monthly Annually
Global Income................................ Monthly Monthly Annually
High Yield................................... Daily Monthly Annually
</TABLE>
You may receive dividends in additional shares of the same class of the
Fund in which you have invested or you may elect to receive dividends in
cash, shares of the same class of other mutual funds sponsored by Goldman
Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime
Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if you hold
Class A shares of a Fund, or ILA Class B or Class C Units of the Prime
Obligations Portfolio, if you hold Class B or Class C shares of a Fund (the
"ILA Portfolios"). For further information concerning dividends, see
"Dividends."
7
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION SHORT DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND/5/ FUND/5/ FUND/5/ FUND
--------------- --------------------------- --------------------------- ------------------------------
CLASS A CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
--------------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 1.5%/1/ 2.0%/1/ none none 2.0%/1/ none none 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none none none none none none none none
Maximum Deferred
Sales Charge...... none/1/ none/1/ 2.0%/2/ 1.0%/3/ none/1/ 2.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none none none none none none none none
Exchange Fees/4/.. none none none none none none none none none none
ANNUAL FUND
OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.25% 0.25% 0.25%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.00% 0.60% 0.75% 0.00% 0.60% 0.75% 0.00% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.11% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.00% 0.00% 0.00%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 0.76% 0.70% 1.30% 1.45% 0.70% 1.30% 1.45% 0.50% 1.25% 1.25%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME
FUND FUND/5/ FUND
----------------------------- ------------------------------ -------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C/5/
--------- --------- --------- --------- --------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 4.5%/1/ none none 4.5%/1/ none none 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none none none none none none none
Maximum Deferred
Sales Charge...... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none none none none none none none
Exchange Fees/4/.. none none none none none none none none none
ANNUAL FUND
OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.55% 0.55% 0.55% 0.40% 0.40% 0.40% 0.59% 0.59% 0.59%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.75% 0.75% 0.00% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.11% 0.11% 0.11%
--------- --------- --------- --------- --------- ---------- --------- --------- -----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 0.85% 1.60% 1.60% 0.70% 1.45% 1.45% 1.16% 1.70% 1.70%
========= ========= ========= ========= ========= ========== ========= ========= ===========
<CAPTION>
HIGH
YIELD
FUND/5/
-----------------------------
CLASS A CLASS B CLASS C
--------- --------- ---------
<S> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none
Maximum Deferred
Sales Charge...... none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none
Exchange Fees/4/.. none none none
ANNUAL FUND
OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.65% 0.65% 0.65%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.20% 0.20% 0.20%
--------- --------- ---------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 1.10% 1.85% 1.85%
========= ========= =========
</TABLE>
- ----
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. Except with
respect to direct purchases of the Adjustable Rate Government Fund, a
contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A shares sold without an initial sales charge as part of an
investment of $1 million ($500,000 in the case of Short Duration Government
and Short Duration Tax Free Funds) or more. See "How to Invest--Offering
Price."
/2/ With the exception of the Short Duration Government Fund and the Short
Duration Tax-Free Fund, a contingent deferred sales charge is imposed upon
shares redeemed within six years of purchase at a rate of 5% in the first
year, declining to 1% in the sixth year, and eliminated thereafter. With
respect to Short Duration Government Fund and Short Duration Tax-Free Fund,
a contingent deferred sales charge is imposed on shares redeemed within
three years of purchase at a rate of 2.0% in the first year, declining to 1%
in the third year, and eliminated thereafter. See "How to Invest--Offering
Price--Class B Shares."
/3/ A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/ 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 Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
8
<PAGE>
/6/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government,
Government Income, Global Income and High Yield Funds equal to .10%, .40%,
.31% and .05%, respectively. Without such limitations, management fees would
be .50%, .65%, .90% and .70% of each Fund's average daily net assets
respectively.
/7/ Goldman Sachs voluntarily has agreed not to impose the entire distribution
fee attributable to Class A shares of each Fund, except Global Income Fund
where Goldman Sachs voluntarily has agreed not to impose .04% of the
distribution fee. Goldman Sachs has also voluntarily agreed not to impose
.15% of the distribution fee attributable to Class B shares of the Short
Duration Government and Short Duration Tax-Free Funds. Distribution fees for
Class A and Class B shares would otherwise be payable at the rate of .25%
and .75%, respectively, of average daily net assets.
/8/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of the Global Income and High Yield Funds)) to the extent such
expenses exceed .05%, .05%, .00%, .05%, .05%, .06% and .01% of the average
daily net assets of the Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income, Core Fixed Income, Global Income and
High Yield Funds, respectively.
/9/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for the Class A and Class B shares of the Government Income,
Municipal Income and Global Income Funds is shown for the fiscal year ended
October 31, 1996. Information for the Class A shares of the Adjustable Rate
Government Fund, Class A and Class B shares of the Short Duration
Government, Short Duration Tax-Free, Core Fixed Income and High Yield Funds
and Class C shares of each Fund offering Class C shares are estimated for
the current fiscal year:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Adjustable Rate Government
Class A................................................... .11% 1.01%
Short Duration Government
Class A................................................... .21% 1.21%
Class B................................................... .21% 1.71%
Class C................................................... .21% 1.71%
Short Duration Tax-Free
Class A................................................... .61% 1.51%
Class B................................................... .61% 2.01%
Class C................................................... .61% 2.01%
Government Income
Class A................................................... .74% 1.89%
Class B................................................... .74% 2.39%
Class C................................................... .74% 2.39%
Municipal Income
Class A................................................... .50% 1.55%
Class B................................................... .50% 2.05%
Class C................................................... .50% 2.05%
Core Fixed Income
Class A................................................... .43% 1.33%
Class B................................................... .43% 1.83%
Class C................................................... .43% 1.83%
Global Income
Class A................................................... .24% 1.64%
Class B................................................... .24% 2.14%
Class C................................................... .24% 2.14%
High Yield
Class A................................................... .75% 1.95%
Class B................................................... .75% 2.45%
Class C................................................... .75% 2.45%
</TABLE>
9
<PAGE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund
Class A Shares.............................. $23 $39 $57 $108
Short Duration Government Fund
Class A Shares............................... 27 42 58 105
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 33 51 71 136
--Assuming no redemption.................... 13 41 71 136
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 25 46 79 174
--Assuming no redemption.................... 15 46 79 174
Short Duration Tax-Free Fund
Class A Shares............................... 27 42 58 105
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 33 51 71 136
--Assuming no redemption.................... 13 41 71 136
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 25 46 79 174
--Assuming no redemption.................... 15 46 79 174
Government Income Fund
Class A Shares............................... 50 60 72 105
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 63 70 89 126
--Assuming no redemption.................... 13 40 69 126
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 23 40 69 151
--Assuming no redemption.................... 13 40 69 151
Municipal Income Fund
Class A Shares............................... 53 71 90 145
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 66 80 107 165
--Assuming no redemption.................... 16 50 87 165
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 26 50 87 190
--Assuming no redemption.................... 16 50 87 190
Core Fixed Income Fund
Class A Shares............................... 52 66 82 128
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 65 76 99 149
--Assuming no redemption.................... 15 46 79 149
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 25 46 79 174
--Assuming no redemption.................... 15 46 79 174
Global Income Fund
Class A Shares............................... 56 80 106 180
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 84 112 179
--Assuming no redemption.................... 17 54 92 179
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 27 54 92 201
--Assuming no redemption.................... 17 54 92 201
High Yield Fund
Class A Shares............................... 56 78 N/A N/A
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 69 88 N/A N/A
--Assuming no redemption.................... 19 58 N/A N/A
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 29 58 N/A N/A
--Assuming no redemption.................... 19 58 N/A N/A
</TABLE>
10
<PAGE>
The hypothetical example assumes that a contingent deferred sales charge
will not apply to redemptions of Class A shares within the first 18 months.
Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight.
The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information with respect to the
Adjustable Rate Government Fund set forth in the foregoing table and
hypothetical example relates only to its Class A shares (the Fund does not
offer Class B or Class C shares); such information with respect to the other
funds relates only to Class A, B and C shares. Each Fund also offers
Institutional and Service shares. The Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income Funds, but
not the other Funds, also offer Administration Shares. Institutional,
Administration and Service Shares are subject to different fees and expenses
(which affect performance), have different minimum investment requirements and
are entitled to different services than Class A, Class B and Class C shares.
Information regarding Institutional, Administration and Service Shares may be
obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover of this Prospectus. Because of the Distribution
Plans, long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the NASD's rules regarding
investment companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A, Class B and Class C shares of the
Funds or for services to the Funds. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
11
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding for the period ended April 30, 1997 is unaudited. The
remaining data has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders of the Funds for
the year ended October 31, 1996 (the "Annual Report"). This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by calling the telephone number or writing to one of the
addresses on the back cover of this Prospectus. During the periods shown, the
Trust did not offer Class A and B shares of the Short Duration Government,
Short Duration Tax-Free, Core Fixed Income and High Yield Funds or Class C
shares of any Fund. Accordingly, there are no financial highlights for these
Funds or Classes.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
------------------------------------------------
NET
REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
ON GAIN (LOSS) TOTAL
NET INVESTMENT, ON FOREIGN INCOME
ASSET NET OPTION CURRENCY (LOSS)
VALUE AT INVEST- AND RELATED FROM
BEGINNING MENT FUTURES TRANS- INVESTMENT
OF PERIOD INCOME TRANSACTIONS ACTIONS OPERATIONS
- -------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional
Shares.................. $9.83 $0.2971(a) $0.0216(a) -- $0.3187
1997-Administration
Shares.................. 9.83 0.2844(a) 0.0221(a) -- 0.3065
1997-Service Shares(m).. 9.84 0.0527(a) 0.0200(a) -- 0.0727
1997-Class A Shares..... 9.83 0.2766(a) 0.0300(a) -- 0.3066
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares.................. 9.77 0.5759(a) 0.0772(a) -- 0.6531
1996-Administration
Shares.................. 9.77 0.5489(a) 0.0797(a) -- 0.6286
1996-Class A Shares..... 9.77 0.5481(a) 0.0806(a) -- 0.6287
1995-Institutional
Shares.................. 9.74 0.5630(a) 0.0717(a) -- 0.6347
1995-Administration
Shares.................. 9.74 0.5366(a) 0.0737(a) -- 0.6103
1995-Class A Shares(c).. 9.79 0.2721(a) (0.0090)(a) -- 0.2631
1994-Institutional
Shares.................. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administration
Shares.................. 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institutional
Shares.................. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administration
Shares(e)............... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institutional
Shares.................. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institutional
Shares.................. 10.00 0.1531 0.0322(d) -- 0.1853
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON IN GAIN ON
FROM INVESTMENT, EXCESS INVESTMENT,
NET OPTION OF NET OPTION FROM TOTAL
INVEST- AND INVEST- AND PAID DISTRIBUTIONS
MENT FUTURES MENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional
Shares.................. $(0.2887) -- -- -- -- $(0.2887)
1997-Administration
Shares.................. (0.2765) -- -- -- -- (0.2765)
1997-Service Shares(m).. (0.0527) -- -- -- -- (0.0527)
1997-Class A Shares..... (0.2766) -- -- -- -- (0.2766)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares.................. (0.5725) -- (0.0206) -- -- (0.5931)
1996-Administration
Shares.................. (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institutional
Shares.................. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administration
Shares.................. (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A Shares(c).. (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institutional
Shares.................. (0.4486) -- -- -- -- (0.4486)
1994-Administration
Shares.................. (0.4239) -- -- -- -- (0.4239)
1993-Institutional
Shares.................. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administration
Shares(e)............... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institutional
Shares.................. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institutional
Shares.................. (0.1553) -- -- -- -- (0.1553)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE
LIMITATIONS
----------------------
RATIO OF
NET RATIO OF
INVEST- NET
NET MENT NET INVEST-
INCREASE NET RATIO OF INCOME ASSETS MENT
(DECREASE) ASSET NET (LOSS) TO AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES AVERAGE PORTFOLIO OF EXPENSES (LOSS) TO
ASSET END OF TOTAL TO AVERAGE NET TURNOVER PERIOD TO AVERAGE AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS ASSETS RATE(D) (IN 000S) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institu-
tional Shares... $0.0300 $9.86 3.28%(f) 0.45%(b) 6.08%(b) 25.64%(f) $ 549,611 0.51%(b) 6.02%(b)
1997-Administra-
tion Shares..... 0.0300 9.86 3.16(f) 0.70(b) 5.83(b) 25.64(f) 4,182 0.76(b) 5.77(b)
1997-Service
Shares(m)....... 0.0200 9.86 0.74(f) 0.95(b) 5.64(b) 25.64(f) 22 1.01(b) 5.58(b)
1997-Class A
Shares.......... 0.0300 9.86 3.16(f) 0.70(b) 5.61(b) 25.64(f) 39,063 1.01(b) 5.30(b)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares... 0.0600 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-Administra-
tion Shares..... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-Institu-
tional Shares... 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-Administra-
tion Shares..... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institu-
tional Shares... (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-Administra-
tion Shares..... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-Institu-
tional Shares... (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-Administra-
tion Shares(e).. (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institu-
tional Shares... 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institu-
tional Shares... 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional
Shares................. $ 9.83 $0.3287(a) $(0.0700)(a) -- $0.2587
1997-Administration
Shares................. 9.85 0.3175(a) (0.0700)(a) -- 0.2475
1997-Service Shares..... 9.82 0.3043(a) (0.0700)(a) -- 0.2343
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ................ 9.82 0.6290(a) 0.0136 (a) -- 0.6426
1996-Administration
Shares(h).............. 9.86 0.3837(a) 0.0003 (a) -- 0.3840
1996-Service Shares(i).. 9.72 0.3134(a) 0.1018 (a) -- 0.4152
1995-Institutional
Shares................. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administration
Shares................. 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institutional
Shares................. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administration
Shares................. 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institutional
Shares................. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administration
Shares(e).............. 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institutional
Shares................. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institutional
Shares................. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institutional
Shares................. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institutional
Shares................. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institutional
Shares................. 10.00 0.1800 0.1000 (d) -- 0.2800
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional
Shares................. $(0.3287) -- -- -- -- $(0.3287)
1997-Administration
Shares................. (0.3175) -- -- -- -- (0.3175)
1997-Service Shares..... (0.3043) -- -- -- -- (0.3043)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ................ (0.6326) -- -- -- -- (0.6326)
1996-Administration
Shares(h).............. (0.3940) -- -- -- -- (0.3940)
1996-Service Shares(i).. (0.3152) -- -- -- -- (0.3152)
1995-Institutional
Shares................. (0.6518) -- -- -- -- (0.6518)
1995-Administration
Shares................. (0.2051) -- -- -- -- (0.2051)
1994-Institutional
Shares................. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administration
Shares................. (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institutional
Shares................. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administration
Shares(e).............. (0.2725) -- -- -- -- (0.2725)
1992-Institutional
Shares................. (0.6703) -- -- -- -- (0.6703)
1991-Institutional
Shares................. (0.8020) -- -- -- -- (0.8020)
1990-Institutional
Shares................. (0.8300) -- -- -- -- (0.8300)
1989-Institutional
Shares................. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institutional
Shares................. (0.1800) -- -- -- -- (0.1800)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional
Shares................ $(0.0700) $9.76 2.67%(f) 0.45%(b) 6.44%(b) 43.72%(f) $ 99,824 0.73%(b) 6.16%(b)
1997-Administration
Shares................ (0.0700) 9.78 2.55(f) 0.70(b) 6.22(b) 43.72(f) 1,504 0.98(b) 5.94(b)
1997-Service Shares.... (0.0700) 9.75 2.42(f) 0.95(b) 5.94(b) 43.72(f) 2,522 1.23(b) 5.66(b)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional
Shares ............... 0.0100 9.83 6.75 0.45 6.44 115.45 99,944 0.71 6.18
1996-Administration
Shares(h)............. (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)............. 0.1000 9.82 4.35(f) 0.95(b) 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institutional
Shares................ 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares................ (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institutional
Shares................ (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares................ (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares................ (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
Shares(e)............. (0.0900) 10.14 1.74 0.70(b) 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institutional
Shares................ (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares................ 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institutional
Shares................ (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
Shares................ (0.0300) 10.07 9.08 0.46 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institutional
Shares................ 0.1000 10.10 3.30(f) 0.55(b) 8.55(b) 167.00(b) 39,052 1.42(b) 7.68(b)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional Shares.. $ 9.96 $0.2097(a) $(0.0200)(a) -- $0.1897
1997-Administration Shares. 9.96 0.1976(a) (0.0200)(a) -- 0.1776
1997-Service Shares........ 9.97 0.1852(a) (0.0300)(a) -- 0.1552
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional Shares.. 9.94 0.4192(a) 0.0200 (a) -- 0.4392
1996-Administration
Shares.................... 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service Shares........ 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institutional Shares.. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administration
Shares.................... 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service Shares........ 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institutional Shares.. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administration
Shares.................... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service Shares(j)..... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institutional Shares.. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administration
Shares(j)................. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institutional Shares.. 10.00 0.0341 (0.0700)(d) -- (0.0359)
<CAPTION>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares........ $14.36 $ 0.46 $ (0.20) -- $ 0.26
1997-Class B Shares........ 14.37 0.40 (0.19) -- 0.21
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares........ 14.47 0.92 (0.11) -- 0.81
1996-Class B shares(m)..... 14.11 0.41 0.26 -- 0.67
1995-Class A shares........ 13.47 0.94 1.00 -- 1.94
1994-Class A shares........ 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A shares........ 14.32 0.56 0.58 -- 1.14
<CAPTION>
CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional Shares.. $ 9.85 $0.3236 $(0.1403) $(0.0003) $0.1830
1997-Administrative Shares. 9.84 0.3108 (0.1398) (0.0003) 0.1707
1997-Service Shares........ 9.86 0.2991 (0.1399) (0.0003) 0.1589
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional Shares.. 10.00 0.6448 (0.0704) -- 0.5744
1996-Administration
Shares(1).................. 9.91 0.4083 (0.0703) -- 0.3380
1996-Service Shares(1)..... 9.77 0.3756 0.0898 -- 0.4654
1995-Institutional Shares.. 9.24 0.6423 0.7610 -- 1.4033
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-Institutional Shares.. 10.00 0.4648 (0.7617) -- (0.2969)
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ -------- -------------
SHORT DURATION TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional Shares.. $(0.2097) -- -- -- -- $(0.2097)
1997-Administration Shares. (0.1976) -- -- -- -- (0.1976)
1997-Service Shares........ (0.1852) -- -- -- -- (0.1852)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional Shares.. (0.4192) -- -- -- -- (0.4192)
1996-Administration
Shares.................... (0.3944) -- -- -- -- (0.3944)
1996-Service Shares........ (0.3697) -- -- -- -- (0.3697)
1995-Institutional Shares.. (0.4235) -- -- -- -- (0.4235)
1995-Administration
Shares.................... (0.3989) -- -- -- -- (0.3989)
1995-Service Shares........ (0.3744) -- -- -- -- (0.3744)
1994-Institutional Shares.. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administration
Shares.................... (0.3537) (0.0825) -- -- -- (0.4362)
1994-Service Shares(j)..... (0.0475) -- (0.0475)
1993-Institutional Shares.. (0.3834) -- -- -- -- (0.3834)
1993-Administration
Shares(j)................. (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institutional Shares.. (0.0341) -- -- -- -- (0.0341)
<CAPTION>
GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares........ $ (0.45) $ (0.07) -- -- -- $ (0.52)
1997-Class B Shares........ (0.40) (0.07) -- -- -- (0.47)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares........ (0.92) -- -- -- -- (0.92)
1996-Class B shares(m)..... (0.41) -- -- -- -- (0.41)
1995-Class A shares........ (0.94) -- -- -- -- (0.94)
1994-Class A shares........ (0.85) (0.12) (0.02) (0.01) -- (1.00)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A shares........ (0.56) -- -- -- -- (0.56)
<CAPTION>
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institutional Shares.. $(0.3230) -- -- -- -- $(0.3230)
1997-Administrative Shares. (0.3107) -- -- -- -- (0.3107)
1997-Service Shares........ (0.2989) -- -- -- -- (0.2989)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional Shares.. (0.6438) (0.0806) -- -- -- (0.7244)
1996-Administration
Shares(1).................. (0.4080) -- -- -- -- (0.4080)
1996-Service Shares(1)..... (0.3754) -- -- -- -- (0.3754)
1995-Institutional Shares.. (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-Institutional Shares.. (0.4648) -- -- -- -- (0.4648)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Institu-
tional Shares.. $(0.0200) $ 9.94 1.91%(f) 0.45%(b) 4.24%(b) 99.59%(f) $37,159 1.05%(b) 3.64%(b)
1997-Administra-
tion Shares.... (0.0200) 9.94 1.79(f) 0.70(b) 4.03(b) 99.59(f) 113 1.30(b) 3.43(b)
1997-Service
Shares......... (0.0300) 9.94 1.56(f) 0.95(b) 3.77(b) 99.59(f) 1,045 1.55(b) 3.17(b)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares.. 0.0300 9.96 4.50 0.45 4.21 231.65 $34,814 1.01 3.65
1996-Administra-
tion Shares.... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares.. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares.... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares.. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares.... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)...... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares.. 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion
Shares(j)...... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institu-
tional Shares.. (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
<CAPTION>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A
Shares.......... $ (0.26) $ 14.10 1.83%(f) 0.50%(b) 6.34%(b) 182.25%(f) $52,946 1.83%(b) 5.01%(b)
1997-Class B
Shares.......... (0.26) 14.11 1.43(f) 1.25(b) 5.37(b) 182.25(f) 2,937 2.33(b) 4.29(b)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... (0.11) 14.36 5.80 0.50 6.42 485.09 30,603 1.89 5.03
1996-Class B
shares(m)....... 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A
shares.......... 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares.......... (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 0.58 14.90 8.03(f) 0.00(b) 4.87(b) 725.41(f) 12,860 4.00(b) 0.87(b)
<CAPTION>
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-
Institutional
Shares.......... $(0.1400) $ 9.71 1.87%(f) 0.45%(b) 6.66%(b) 174.52%(f) $73,483 0.76%(b) 6.35%(b)
1997-
Administrative
Shares.......... (0.1400) 9.70 1.75(f) 0.70(b) 6.49(b) 174.52(f) 6,194 1.01(b) 6.18(b)
1997-Service
Shares.......... (0.1400) 9.72 1.63(f) 0.95(b) 6.22(b) 174.52(f) 1,108 1.26(b) 5.91(b)
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institutional Shares.. (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-Administration
Shares(1)....... (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(1)....... 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institutional Shares.. 0.7600 10.00 15.72 0.45 6.56 383.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-Institutional Shares. (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares..... $14.53 $0.25 $(0.07) $0.28 $ 0.46
1997-Class B Shares..... 14.53 0.36 (0.02) 0.08 0.42
1997-Institutional
Shares.................. 14.52 0.42 (0.02) 0.10 0.50
1997-Service shares(o).. 14.69 0.10 0.02 (0.09) 0.03
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... 14.45 0.71 0.62 0.18 1.51
1996-Class B shares(m).. 14.03 0.34 0.41 0.11 0.86
1996-Institutional
shares.................. 14.45 1.15 0.32 0.10 1.57
1995-Class A shares..... 13.43 0.89 0.92 0.15 1.96
1995-Institutional
shares(m)............... 14.09 0.22 0.34 0.06 0.62
1994-Class A shares..... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A shares..... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A shares..... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A shares..... 14.55 0.25 0.23 (0.19) 0.29
- -----------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares..... $14.37 $0.34 $ 0.03 -- $ 0.37
1997-Class B Shares..... 14.37 0.28 0.03 -- 0.31
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... 14.17 0.65 0.20 -- 0.85
1996-Class B shares(m).. 14.03 0.27 0.34 -- 0.61
1995-Class A shares..... 13.08 0.67 1.09 -- 1.76
1994-Class A shares..... 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A shares..... 14.32 0.22 0.32 -- 0.54
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares..... $(0.40) -- -- -- -- $(0.40)
1997-Class B Shares..... (0.37) -- -- -- -- (0.37)
1997-Institutional
Shares.................. (0.44) -- -- -- -- (0.44)
1997-Service shares(o).. (0.13) -- -- -- -- (0.13)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... (1.43) -- -- -- -- (1.43)
1996-Class B shares(m).. (0.36) -- -- -- -- (0.36)
1996-Institutional
shares.................. (1.50) -- -- -- -- (1.50)
1995-Class A shares..... (0.94) -- -- -- -- (0.94)
1995-Institutional
shares(m)............... (0.26) -- -- -- -- (0.26)
1994-Class A shares..... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A shares..... (0.85) (0.27) -- -- -- (1.12)
1992-Class A shares..... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A shares..... (0.24) -- -- -- -- (0.24)
- -------------------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL INCOME FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares..... $(0.34) -- -- -- -- $(0.34)
1997-Class B Shares..... (0.28) -- -- -- -- (0.28)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares..... (0.65) -- -- -- -- (0.65)
1996-Class B shares(m).. (0.27) -- -- -- -- (0.27)
1995-Class A shares..... (0.67) -- -- -- -- (0.67)
1994-Class A shares..... (0.73) (0.05) -- -- -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A shares..... (0.22) -- -- -- -- (0.22)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares... $ 0.06 $14.59 3.22%(f) 1.17%(b) 5.12%(b) 136.72%(f) $171,668 1.60%(b) 4.69%(b)
1997-Class B Shares... 0.05 14.58 2.94(f) 1.71(b) 4.73(b) 136.72(f) 1,095 2.10(b) 4.34(b)
1997-Institutional
Shares................ 0.06 14.58 3.50(f) 0.65(b) 5.64(b) 136.72(f) 56,431 1.04(b) 5.25(b)
1997-Service
shares(o)............. (0.10) 14.59 0.21(f) 1.15(b) 5.85(b) 136.72(f) 94 1.54(b) 5.46(b)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares... 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(m)............. 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15 256 2.14(b) 4.72(b)
1996-Institutional
shares................ 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A shares... 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-Institutional
shares(m)............. 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86 31,619 1.08(b) 5.58(b)
1994-Class A shares... (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A shares... 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A shares... 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A shares... 0.05 14.60 2.00 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED)
- ----------------------------------------------
1997-Class A Shares... $ 0.03 $14.40 2.57%(f) 0.85%(b) 4.70%(b) 90.46%(f) $ 58,033 1.51%(b) 4.04%(b)
1997-Class B Shares... 0.03 14.40 2.18(f) 1.60(b) 3.92(b) 90.46(f) 617 2.01(b) 3.51(b)
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A shares... 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B
shares(m)............. 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13 255 2.05(b) 3.10(b)
1995-Class A shares... 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A shares... (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A shares... 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
</TABLE>
- --------------------------------------------------------------------------------
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions except for the
Global Income and Municipal Income Funds.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Goldman Sachs Short Duration Government Fund Administration shares were
redeemed in full on February 23, 1995 and re-commenced on February 28, 1996
at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. For Class A shares only, total return would be reduced if a sales
charge were taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m) Institutional and Class B shares commenced operations on June 1, 1995 and
May 1, 1996, respectively.
(n) Includes balancing effect of calculating per share amounts.
(o) Service class shares commenced operations on March 12, 1997.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one rating organization (including, but not limited to, Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's")) even
though it has been rated below the minimum rating by one or more other rating
organizations, or, if unrated by a rating organization, is determined by the
Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will have access to the research of, and proprietary
technical models developed by, Goldman Sachs and will apply quantitative and
qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is comparable to a nine-
month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other U.S. Government Securities. The
remainder of the Fund's assets (up to 35%) may be invested in other U.S.
Government Securities, including mortgage pass-through securities, other
securities representing an interest in or collateralized by adjustable rate
and fixed rate mortgage loans ("Mortgage-Backed Securities") and repurchase
agreements collateralized by U.S. Government Securities. Substantially all of
the Fund's assets will be invested in U.S. Government Securities. 100% of the
Fund's portfolio will be invested in U.S. dollar-denominated securities.
16
<PAGE>
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the 2-year U.S. Treasury
security, plus or minus .5 years. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is comparable to a two-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is
comparable to a three-year bond.
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed- income securities issued by or on behalf of
states, territories and possessions of the United States (including the
17
<PAGE>
District of Columbia) and the political subdivisions, agencies and
instrumentalities thereof ("Municipal Securities"), the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes) and is not a tax preference item under the
federal alternative minimum tax. Under normal circumstances, the Fund's
investments in private activity bonds and taxable investments will not exceed,
in the aggregate, 20% of the Fund's net assets. The interest from certain
private activity bonds (including the Fund's distributions of such interest)
may be a preference item for purposes of the federal alternative minimum tax.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Municipal Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities by these rating
organizations or by the Investment Adviser may reflect the existence of
guarantees, letters of credit or other credit enhancement features available
to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA by S&P or Aaa by Moody's.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of
18
<PAGE>
financial futures contracts, option 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 seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices described
under "Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA by S&P or Aa by Moody's. All securities purchased by the Fund will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities by
these rating organizations or by the Investment Adviser may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund and to seek to enhance returns.
These techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
19
<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is comparable to
a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa or in their equivalent ratings category by S&P or Moody's.
The securities currently included in the Index have at least one year
remaining to maturity; have an outstanding principal amount of at least $100
million; and are issued by the following types of issuers, with each category
receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of Mortgage-
Backed Securities; utilities; industrial issuers; financial institutions;
foreign issuers; and issuers of Asset-Backed Securities. The Index is a
trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
by S&P or Baa by Moody's. The non-U.S. dollar-denominated fixed-income
securities in which the Fund may invest will be rated, at the time of
investment, at least AA by S&P or Aa by Moody's. Fixed-income securities rated
BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to
20
<PAGE>
hedge against currency exchange rate fluctuations or to seek to increase total
return. The Fund may invest in custodial receipts, Municipal Securities and
convertible securities. The Fund may also employ other investment techniques
to seek to enhance returns, such as lending portfolio securities and entering
into mortgage dollar rolls, repurchase agreements and other investment
practices, described under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is comparable
to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. and
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper and (vi) Mortgage- and Asset-Backed
Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least AA by S&P or Aa by Moody's. However, the Fund may
also invest in obligations of a sovereign issuer, denominated in the issuer's
own currency, rated at least A by S&P or Moody's. The Fund will invest at
least 50% of its total assets in securities rated, at the time of investment,
AAA by S&P or Aaa by Moody's.
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign currencies and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value
21
<PAGE>
of the Fund's total assets. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. The Fund may also employ
other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. With respect to other countries,
not more than 25% of the Fund's total assets will be invested in the
securities of issuers in any other foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is comparable to a 6-year
bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB or below by S&P, Ba or below by Moody's, an equivalent
rating by another rating organization, or if unrated by a rating organization,
determined by the Investment Adviser to be of comparable quality. The Fund may
invest in all types of fixed income securities, including senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), convertible and non-convertible corporate debt obligations,
loan participations and preferred stock. The Fund may invest up to 25% of its
total assets in obligations of domestic and foreign issuers (including
securities of issuers located in countries with emerging markets and
economies) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed income securities, including U.S. Government
Securities, Asset-Backed and Mortgage-Backed Securities and corporate
securities. The Fund may also invest in common stocks, warrants, rights and
other equity securities, but will generally hold such equity investments only
when debt or preferred stock of the issuer of such equity securities is held
by the Fund. A number of investment strategies are used to seek to achieve the
Fund's investment objective, including market sector selection, determination
of yield curve exposure, and issuer selection. In addition, the Investment
Adviser will attempt to take advantage of pricing inefficiencies in the fixed-
income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade securities are, however, considered speculative and
generally involve greater price volatility and greater risk of loss of
principal and interest than higher rated securities. See "Description of
Securities." A description of the corporate bond and preferred stock ratings
is contained in Appendix B to the Additional Statement.
22
<PAGE>
OTHER. The Fund may employ certain active management techniques to manage
the duration and term structure of the Fund, to seek to hedge its exposure to
foreign securities and to seek to enhance returns. These techniques include,
but are not limited to, the use of financial futures contracts, option
contracts (including options on futures), forward foreign currency exchange
contracts, currency options and futures, currency, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency and interest rate
management techniques involve risks different from those associated with
investing solely in U.S. dollar-denominated fixed-income securities of U.S.
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. The Fund may also employ other investment techniques to
seek to enhance returns, such as lending portfolio securities, and entering
into repurchase agreements and other investment practices described under
"Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
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FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed rate mortgage loans typically 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.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. 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. The Funds do
not intend to purchase residual interests in REMICs.
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STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities. SMBS are
usually structured with two different classes; one that receives 100% of the
interest payments and the other that receives 100% of the principal payments
from a pool of mortgage loans. If the underlying mortgage loans experience
different than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a loan agreement. One of the co-lenders usually agrees to act as
the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the High Yield Fund had purchased a direct obligation
(such as commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where
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the High Yield Fund does not have recourse directly against the borrower, both
the borrower and each agent bank and co-lender interposed between the High
Yield Fund and the borrower will be deemed issuers of a loan participation.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds, invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities.
PRIVATE ACTIVITY BONDS. Municipal Securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds' distributions attributable to the interest income from private
activity bonds may subject certain investors to the federal alternative
minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover a Fund's original investment. To the extent that a Fund invests
in unrated municipal leases or participates in such leases, the Trust's Board
of Trustees will monitor on an ongoing basis the credit quality rating and
risk of cancellation of such unrated leases. Certain municipal lease
obligations and certificates of participation may be deemed illiquid for the
purpose of a Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund
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to receive only the face or par value of the securities held by the Fund. The
insurance does not guarantee the market value of the Municipal Securities or
the net asset value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
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FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, making it more difficult to conduct such
transactions.
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in
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volatility of market prices of sovereign debt, and in turn a Fund's net asset
value, to a greater extent than the volatility inherent in debt obligations of
U.S. issuers. A sovereign debtor's willingness or ability to repay principal
and pay interest in a timely manner may be affected by, among other factors,
its cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristics of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries). See the Additional Statement
for further information regarding a Fund's investments in emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell forward foreign currency exchange contracts for
hedging purposes and to seek to protect against anticipated changes in future
foreign currency exchange rates. A Fund also may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to increase total return, forward foreign currency exchange contracts are
considered speculative. The Funds may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Advisers determine that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or sell foreign currency to seek to increase total return, the
Fund will be required to place cash or liquid assets in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. A Fund will
incur costs in connection with conversions between various currencies. A Fund
may hold foreign currency received in connection with investments in foreign
securities when, in the judgment of the Investment Adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international
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perspective. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the U.S. or
abroad. To the extent that a substantial portion of a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force a Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging markets, the Investment
Adviser does not currently anticipate that a significant portion of the Funds'
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objectives and Policies" in the Additional
Statement.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of
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zero coupon, deferred interest, pay-in-kind and capital appreciation bonds
generally are more volatile than the market prices of interest-bearing
securities and are likely to respond to a greater degree to changes in
interest rates than interest-bearing securities having similar maturities and
credit quality. A Fund's investments in zero coupon, deferred interest, pay-
in-kind and capital appreciation bonds or stripped securities may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk (i.e., where the issuer exercises
its right to pay principal on an obligation later than scheduled) causes cash
flows to be returned later than expected. This typically results when interest
rates have increased and a Fund will suffer from the inability to invest in
higher yielding securities. Certain types of U.S. Government, Asset-Backed,
corporate, foreign, Mortgage-Backed and Municipal Securities have call and/or
extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay slower. As with fixed-rate
mortgages, ARM prepayment rates vary in both stable and changing interest rate
environments. There are certain ARMs where the homeowner's payments do not
fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
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DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating-rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.
TAX RISK OF MUNICIPAL SECURITIES. Due to Municipal Securities' tax-exempt
status, their yields and market values may be more adversely impacted by
changes in tax rates and policies than taxable fixed-income securities.
Because interest income from Municipal Securities is not subject to regular
federal income taxation, the attractiveness of Municipal Securities in
relation to other investment alternatives is affected by changes in federal
income tax rates applicable to, or the continuing federal income tax-exempt
status of, such interest income. Any proposed or actual changes in such rates
or exempt status, therefore, can significantly affect the demand for and
supply, liquidity and marketability of Municipal Securities, which could in
turn affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed- income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
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A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could contract under adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the market price and a Fund's ability to
dispose of particular portfolio investments. A less liquid secondary market
also may make it more difficult for a Fund to obtain precise valuations of the
high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
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INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the 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 or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for 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 . Successful
use of mortgage dollar rolls depends upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed. The Fund
will hold and maintain in a segregated account until the settlement date cash
or liquid assets in an amount equal to the forward purchase price. For
financial reporting and tax purposes, each Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The Funds do not currently intend to
enter into mortgage dollar rolls that are accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index composed of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
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movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return or to hedge against changes in interest rates or securities
prices, or in the case of the Core Fixed Income, Global Income and High Yield
Funds, currency exchange rates, a Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or to seek to increase total return
to the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on a 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 a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets 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 Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
correctly analyze the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund
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will not enter into swap transactions unless the unsecured commercial paper,
senior debt or claims-paying ability of the other party thereto is rated
either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or, if
unrated by such rating organizations, determined to be of comparable quality
by the Investment Adviser. The use of currency swaps 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 currency exchange rates, the
investment performance of a Fund would be less favorable than it would have
been if this investment technique were not used. The staff of the SEC
currently takes the position that swaps are illiquid and thus subject to a
Fund's limitation on investments in illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Code for qualification as a regulated
investment company.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which includes securities (both
foreign and domestic) that are not readily marketable, swap transactions,
certain SMBS, certain municipal leases and participation interests, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities,
unless it is determined, based upon the continuing review of the trading
markets for a specific restricted security, that such restricted security is
eligible for resale under Rule 144A under the Securities Act of 1933 and,
therefore, is liquid. The Trustees have adopted guidelines and delegated to
the Investment Adviser the daily function of determining and monitoring the
liquidity of portfolio securities. The Trustees, however, retain oversight
focusing on factors such as valuation, liquidity and availability of
information and are ultimately responsible for each determination. Investing
in restricted securities eligible for resale pursuant to Rule 144A may
decrease the liquidity in a Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted
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and illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (a) U. S. Government Securities or
(b) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
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approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund still remains an appropriate investment in
light of their then current financial positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policies to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject to certain conditions and limitations under the Code. Since
the Global Income Fund is not diversified under the Act, it will be more
susceptible to adverse developments affecting any single issuer. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. It is
anticipated that the annual portfolio turnover rate for the High Yield Fund
will generally not exceed 150%. The portfolio turnover rate is computed by
dividing the lesser of the dollar 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
a 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 a Fund consistent with the Fund's investment objectives and
portfolio management policies. A high rate of portfolio turnover results in
increased transaction costs to a Fund. The portfolio turnover rate includes
the effect of entering into mortgage dollar rolls. See "Financial Highlights"
for a statement of each Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
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INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as the investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Asset Management International, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. Goldman Sachs Asset Management International became
a member of the Investment Management Regulatory Organization Limited in 1990
and registered as an investment adviser in 1991. As of June 23, 1997, GSAM,
GSFM and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $120 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its affiliate offices for
portfolio decisions and management with respect to certain portfolio
securities. In addition, the Investment Advisers will have access to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Fund's
portfolio manager is Jonathan A. Beinner. Mr. Beinner is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Beinner
joined the Investment Adviser in 1990 after working in the trading and
arbitrage group of Franklin Savings Association.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner. Messrs. Beinner and Lucy each specialize in investing in a
particular type of security the Fund may hold. Mr. Lucy is a Vice President of
Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
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SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Prior to
1992, he spent two years managing multi-currency fixed income and balanced
portfolios at Invesco MIM Limited, where he was a senior member of the
derivative products group. Mr. Wilson joined GSAMI in 1995 and is Executive
Director and Portfolio Manager for international fixed income. Prior to
joining GSAMI, he spent three years as an Assistant Director at Rothschild
Asset Management where he was responsible for managing global and
international bond portfolios, with specific focus on the U.S., Canadian,
Australian and Japanese economies. Prior to his employment at Rothschild, Mr.
Wilson spent seven years at the Reserve Bank of New Zealand, his most recent
position as Trading Manager of foreign reserves management. Mr. Wilson's
employment at the Reserve Bank at New Zealand also included a two year
assignment to the foreign investment unit at the Bank of England in London.
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessop joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman
40
<PAGE>
Sachs Fund. See the Additional Statement for a further description of the
Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* OCTOBER 31, 1996*
----------- -----------------
GSAM
- ----
<S> <C> <C>
Government Income................................. 0.65% 0.25%
Municipal Income.................................. 0.55% 0.55%
Short Duration Tax-Free........................... 0.40% 0.40%
Core Fixed Income................................. 0.40% 0.40%
High Yield........................................ 0.70% N/A
<CAPTION>
GSFM
- ----
<S> <C> <C>
Adjustable Rate Government........................ 0.40% 0.40%
Short Duration Government......................... 0.50% 0.40%
<CAPTION>
GSAMI
- -----
<S> <C> <C>
Global Income..................................... 0.90% 0.59%
</TABLE>
- --------
* With respect to the Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining both advisory and administration
services (and subadvisory services in the case of Global Income Fund) was
adopted effective April 30, 1997. The Management Agreements for the other
funds previously combined such services. The contractual rate set forth in
the table is the rate payable under the Management Agreements (and in the
case of Government Income, Municipal Income and Global Income Funds, is
identical to the aggregate advisory and administration fees payable by such
Funds under the previously separate investment advisory, subadvisory and
administration agreements). For the fiscal year ended October 31, 1996, the
annual rate expressed is the combined advisory and administration fees paid
(after voluntary fee limitations). The difference, if any, between the
stated fees and the actual fees paid by the Funds reflects that the
applicable Investment Adviser did not charge the full amount of the fees to
which it would have been entitled. The Investment Advisers may discontinue
or modify such limitations in the future at their discretion, although they
have no current intention to do so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses and transfer
agency fees in the case of the Global Income and High Yield Funds) to the
extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%, 0.05%, 0.06% and 0.01%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers and other persons for performing
administrative services to their customers. These services include
41
<PAGE>
maintaining account records, processing orders to purchase, redeem and
exchange Fund shares and responding to certain customer inquiries. In
addition, these services may also include responding to certain inquiries from
and providing written materials to depository institutions about a Fund;
furnishing advice about and assisting depository institutions in obtaining
from state regulatory agencies any rulings, exemptions or other authorizations
that may be required to conduct a mutual fund sales program; acting as liaison
between depository institutions and national regulatory organizations;
assisting with the preparation of sales material; and providing general
assistance and advice in establishing and maintaining mutual fund sales
programs on the premises of depository institutions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
the Global Income and High Yield Funds by Goldman Sachs (as Transfer Agent)
and the assumption by Goldman Sachs of the expenses related thereto, Goldman
Sachs is entitled to receive a fee from each such Fund, with respect to Class
A, Class B and Class C shares of $12,000 per year plus $7.50 per account,
together with out-of-pocket and transaction-related expenses (including those
out-of-pocket expenses payable to servicing and/or sub-transfer agents).
Goldman Sachs is entitled to receive a fee from the Adjustable Rate
Government, Short Duration Government, Short Duration Tax-Free, Government
Income, Municipal Income and Core Fixed Income Funds with respect to Class A,
Class B and Class C shares, where applicable, equal to its
42
<PAGE>
proportionate share of the total transfer agency fees borne by the Fund. Such
fees are equal to the fixed charges set forth above applicable to Class A,
Class B and Class C shares plus 0.04% of the average daily net assets of the
other classes of the Fund. Shareholders with inquiries regarding any Fund
should contact Goldman Sachs (as Transfer Agent) at the address or the
telephone number set forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C shares (other than the Adjustable Rate Government Fund which does not
currently offer Class B and Class C shares), as described more fully in "How
to Buy Shares of the Funds." If you do not specify in your instructions to the
Funds which class of shares you wish to purchase, the Funds will assume that
your instructions apply to Class A shares.
CLASS A SHARES. If you invest less than $1 million ($500,000 in the case of
Short Duration Government and Short Duration Tax-Free Funds) in Class A shares
you will pay an initial sales charge. Certain purchases may qualify for
reduced initial sales charges. If you initially invest $1 million ($500,000 in
the case of Short Duration Government and Short Duration Tax-Free Funds) or
more in Class A shares of a Fund, no sales charge will be imposed at the time
of purchase, but you will incur a deferred sales charge equal to 1.00% if you
redeem your shares within 18 months of purchase. Direct purchases (as opposed
to exchanges) of $1 million or more of Class A shares of the Adjustable Rate
Government Fund will not be subject to a deferred sales charge when redeemed.
Class A shares are subject to distribution fees of 0.25% (which currently are
being waived in the case of Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Core Fixed Income, Municipal Income,
Government Income and High Yield Funds and are limited to 0.21% for the Global
Income Fund) and authorized dealer service fees of 0.25%, per annum
respectively, of each Fund's average daily net assets attributable to Class A
shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 2% in the
case of the Short Duration Government and Short Duration Tax-Free Funds if
redeemed within three years of purchase and up to 5% in the case of the
Government Income, Municipal Income, Core Fixed Income, Global Income and High
Yield Funds if redeemed within six years of purchase. Class B shares are
subject to distribution and authorized dealer service fees of 0.75% (which is
currently being limited to 0.60% in the case of the Short Duration Government
and Short Duration Tax-Free Funds) and 0.25%, per annum respectively, of a
Fund's average daily net assets attributable to Class B shares. See
"Distribution and Authorized Dealer Service Plans." Class B shares will
automatically convert to Class A shares, based on their relative net asset
values, eight years after the initial purchase. Your entire investment in
43
<PAGE>
Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer
service fees of 0.75% and 0.25%, per annum, respectively, of a Fund's average
daily net assets attributable to Class C shares. See "Distribution and
Authorized Dealer Service Plans." Class C shares have no conversion feature,
and accordingly, an investor that purchases Class C shares will be subject to
the distribution fees imposed on Class C shares for an indefinite period,
subject to annual approval by the Trust's Board of Trustees and certain
regulatory limitations. Your entire investment in Class C shares is available
to work for you from the time you make your initial investment, but the
distribution fee paid by Class C shares will cause your Class C shares to have
a higher expense ratio and to pay lower dividends, to the extent dividends are
paid, than Class A shares (or Class B shares after conversion to Class A
shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $100,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years (three in the case of the Short
Duration Government and Short Duration Tax-Free Funds), you might consider
purchasing Class B shares. If you prefer not to pay an initial sales charge
and are unsure of the length of your investment or plan to hold your
investment for less than eight years, you may prefer Class C shares. There is
no size limit on the purchase of Class A shares. There is a maximum purchase
limitation of $250,000 in the aggregate on purchases of Class B shares and
$1,000,000 ($500,000 in the case of Short Duration Government and Short
Duration Tax-Free) in the aggregate on purchases of Class C shares. Although
Class C shares are subject to a CDSC for only twelve months and at a lower
rate than Class B shares, Class C shares do not have the conversion feature
applicable to Class B shares, making them subject to higher distribution fees
for an indefinite period. Authorized Dealers may receive different
compensation for selling Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUNDS -- CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. Currently, net asset value is determined
as of the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. New York time). If a purchase order for shares of a Fund (other than
Global Income Fund) is received with a specified settlement date by an
Authorized Dealer by 4:00 p.m., New York time and payment is made by (a) wire
transfer or ACH transfer, shares will be issued and dividends declared with
respect to such shares will begin to accrue 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 or (b) check, Federal Reserve draft
or bank wire, shares will be issued and dividends declared with respect to
such shares will begin to accrue on the Business Day after the date payment is
received. If a purchase order for shares of a Fund (other than the Global
Income Fund) is received without a specified settlement date, shares will be
issued and dividends declared with respect to such shares will begin to accrue
on the Business Day after payment is received. Shares of the Global Income
Fund will begin to be eligible for dividends paid on or after the day the
shares are purchased.
44
<PAGE>
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial minimum investment of $250 applies to purchases in
connection with 403(b) Plans. For purchases through the Automatic Investment
Plan, the minimum investment is $50. The minimum subsequent investment is $50.
These requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Fixed Income Funds -- (Name of Fund and Class
of shares) and sent to 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 must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
OFFERING PRICE -- CLASS A SHARES
The offering price of Class A shares of the Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds is the next
determined net asset value per share plus a sales charge, if any, paid to
Goldman Sachs at the time of purchase of shares as shown in the following
table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less Than $100,000............. 4.50% 4.71% 4.00%
$100,000 up to (but less than)
$250,000...................... 3.00 3.09 2.50
$250,000 up to (but less than)
$500,000...................... 2.50 2.56 2.00
$500,000 up to (but less than)
$1 million.................... 2.00 2.04 1.75
$1 million or more............. 0.00* 0.00* **
</TABLE>
45
<PAGE>
The offering price of Class A shares of the Short Duration Government and
Short Duration Tax-Free Funds is the next determined net asset value per share
plus a sales charge, if any, paid to Goldman Sachs at the time of purchase of
shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $250,000............. 2.00% 2.04% 1.75%
$250,000 up to (but less than)
$500,000...................... 1.50 1.52 1.25
$500,000 or more............... 0.00%* 0.00 **
The offering price of Class A shares of the Adjustable Rate Government Fund
is the next determined net asset value per share plus a sales charge, if any,
paid to Goldman Sachs at the time of purchase of shares as shown in the
following table:
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<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>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million ($500,000 in the case of Short Duration Government and Short
Duration Tax Free Funds) or more, but a CDSC may be imposed in the event
of certain redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of each Fund ($500,000 in the case of Short Duration Government and Short
Duration Tax-Free Funds) equal to 1.00% of the amount under $3 million,
0.50% of the next $2 million, and 0.25% thereafter. Goldman Sachs may also
pay, with respect to all or a portion of the amount purchased, a
commission in accordance with the foregoing schedule to Authorized Dealers
who initiate or are responsible for purchases of $500,000 or more by plans
or $1 million or more ($500,000 in the case of Short Duration Government
and Short Duration Tax-Free Funds) by "wrap" accounts satisfying the
criteria set forth in (h) or (j) below. Purchases by such plans will be
made at net asset value with no initial sales charge, but if all of the
shares held are redeemed within 18 months after the end of the calendar
month in which such purchase was made, a contingent deferred sales charge
(CDSC), as described below, of 1.00% will be imposed upon the plan sponsor
or the third party administrator. In addition, Authorized Dealers will
remit to Goldman Sachs such payments received in connection with "wrap"
accounts in the event that shares are redeemed within 18 months after the
end of the calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million ($500,000 in the case of Short Duration Government
and Short Duration Tax-Free Funds) or more of Class A shares of each Fund
(other than Adjustable Rate Government Fund) will be made at net asset value
with no initial sales charge, but if the shares are redeemed within 18 months
after the end of the calendar month in which the purchase was made, excluding
any period of time in which the shares were
46
<PAGE>
exchanged into and remained invested in an ILA Portfolio (the contingent
deferred sales charge period), a CDSC of 1.00% will be imposed. Any applicable
CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares. Upon redemption of shares subject to a CDSC,
shareholders will receive that portion of the appreciation in account value
attributable to the shares actually redeemed. In determining whether a CDSC
applies to a redemption, the calculation will be determined in a manner that
results in the lowest possible rate being charged. Therefore, it will be
assumed that the redemption is first made from any Class A shares in your
account that are not subject to the CDSC. The CDSC is waived on redemptions in
certain circumstances. See "Waiver or Reduction of Contingent Deferred Sales
Charges" below.
Class A shares of the Funds 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 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; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third-party
administrator that in the aggregate satisfies (1) or (3) above;
(i) shareholders whose purchase is attributable to redemption proceeds
(subject to appropriate documentation) from a registered open-end management
investment company not distributed or managed by Goldman Sachs or its
affiliates, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Funds and the shareholder either (a) paid an initial
sales charge or (b) was at some time subject to a deferred sales charge with
respect to the redemption proceeds; (j) "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;
(k) registered investment advisers investing for accounts for which they
receive asset-based fees; (l) accounts over which GSAM or its advisory
affiliates have investment discretion; and (m) shareholders receiving
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds and reinvesting such proceeds in a Goldman Sachs IRA. Purchasers must
certify eligibility for an exemption on the Account Application and notify
Goldman Sachs if the shareholder is no longer eligible for an exemption.
Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing shares of the Funds at net asset value
without payment of any initial sales charge may be charged a fee if they
effect transactions in shares through a broker or agent. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Funds may be reinvested in shares of each Fund at net asset value, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
RIGHT OF ACCUMULATION -- CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $100,000 or more in the case of Government Income,
47
<PAGE>
Municipal Income, Core Fixed Income, Global Income and High Yield Funds,
$250,000 or more in the case of Short Duration Government and Short Duration
Tax-Free Funds and $500,000 or more in the case of Adjustable Rate Government
Fund. Class A shares of the Goldman Sachs Funds may be combined under the
Right of Accumulation. See the Additional Statement for more information about
the Right of Accumulation.
STATEMENT OF INTENTION -- CLASS A SHARES
Purchases of $100,000 or more in the case of Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds, $250,000 or
more in the case of Short Duration Government and Short Duration Tax-Free
Funds and $500,000 in the case of the Adjustable Rate Government Fund made
over a 13-month period are eligible for reduced sales charges. Class A shares
of the Goldman Sachs Funds may be combined under the Statement of Intention.
See the Additional Statement for more information about the Statement of
Intention.
OFFERING PRICE -- CLASS B SHARES
Investors may purchase Class B shares of each Fund (other than Adjustable
Rate Government Fund) at the next determined net asset value without the
imposition of an initial sales charge. However, Class B shares redeemed within
six years (three years in the case of the Short Duration Government and Short
Duration Tax-Free Funds) of purchase will be subject to a CDSC at the
applicable rates shown in the tables that follow. At redemption, the charge
will be assessed on the amount equal to the lesser of the current market value
or the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period. As a result, a redeeming shareholder will
pay the lowest possible CDSC.
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
DOLLAR AMOUNTS SUBJECT TO CDSC
-----------------------------------------
GOVERNMENT INCOME,
MUNICIPAL INCOME, SHORT DURATION
GLOBAL INCOME, GOVERNMENT AND SHORT
YEAR SINCE CORE FIXED INCOME DURATION TAX-
PURCHASE AND HIGH YIELD FUNDS FREE FUNDS
---------- -------------------- --------------------
<S> <C> <C>
First.......................... 5.0% 2.0%
Second......................... 4.0% 1.0%
Third.......................... 3.0% 1.0%
Fourth......................... 3.0% none
Fifth.......................... 2.0% none
Sixth.......................... 1.0% none
Seventh and thereafter......... none none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.0%
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in the case of Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds and 2.0% in the case of Short Duration Government
and Short Duration Tax-Free Funds of the amount invested is paid to Authorized
Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Fund will convert into Class A shares
of such Fund based on the date of the initial purchase. Class B shares
acquired through reinvestment of distributions will convert into Class A
shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.
OFFERING PRICE -- CLASS C SHARES
Investors may purchase Class C shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
shares, the Funds will first redeem shares held for longer than 12 months, and
then shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C shares,
including the payment of compensation to Authorized Dealers. A commission
equal to 1.00% of the amount invested is paid to Authorized Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B shares of a Fund may reinvest
at net asset value any portion or all of his redemption proceeds (plus that
amount necessary to acquire a fractional share to round off his purchase to
the nearest full share) in Class A shares of the same Fund or any other
Goldman Sachs Fund. A shareholder who redeems Class C Shares of a Fund may
reinvest at net asset value any portion or all of his redemption proceeds
(plus that amount necessary to acquire a fractional share to round off his
purchase to the nearest full share) in Class C Shares of the same Fund or any
other Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested shares will
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continue to be subject to a CDSC. In this case, the holding period of the
Class A or Class C shares acquired through reinvestment for purposes of
computing the CDSC payable upon a subsequent redemption will include the
holding period of the redeemed shares. If you redeemed Class B shares and paid
a CDSC upon redemption, you are permitted to reinvest the redemption proceeds
in Class A shares at net asset value as described above, but the amount of the
CDSC paid upon redemption will not be credited to your account. 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 be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
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 may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
section 72 of the Code) of a participant or beneficiary in a Plan; (c)
hardship withdrawals by a participant or beneficiary in a Plan; (d) satisfying
the minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t) of the
Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in section 72 of the Code) of a
shareholder if the redemption is made within one year of such event; (h)
excess contributions being returned to a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C shares and 10% of the value of your Class A shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
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CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
A shareholder may also elect to exchange automatically a specified dollar
amount of shares of a Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund or ILA Portfolio. Shares acquired through
cross-reinvestment of dividends or the automatic exchange program will be
purchased at net asset value and will not be subject to any initial or
contingent deferred sales charge as a result of the cross- reinvestment or
exchange, but shares subject to a CDSC acquired under the automatic exchange
program may be subject to a CDSC at the time of redemption from the fund into
which the exchange is made determined on the basis of the date and value of
the investor's initial purchase of the fund from which the exchange (or any
prior exchange) is made. Automatic exchanges are made monthly on the fifteenth
day of each month or the first Business Day thereafter. The minimum dollar
amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(i) the value of the shareholder's account(s) in the fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $5,000 and (ii) the value of the account in the acquired fund must
equal or exceed the acquired fund's minimum initial investment requirement or
the shareholder must elect to continue cross- reinvestment or automatic
exchanges until the value of acquired fund shares in the shareholder's account
equals or exceeds the acquired fund's minimum initial investment requirement. A
Fund shareholder may elect cross-reinvestment into an identical account or an
account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus of the fund into which
dividends are invested or automatic exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds (other than the Short Duration Tax-Free and Municipal Income
Funds) offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these 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.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial sales charge or CDSC at the time of exchange for shares of the
same class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for shares of the same class (or an
equivalent class) of the original Fund at the next determined net asset value
without the imposition of an initial or contingent deferred 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
the applicable sales charge. Shares of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Funds without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month
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period. A fee of $12.50 may be charged for each subsequent exchange during
such period. The exchange privilege may be modified or withdrawn at any time
upon sixty (60) days' notice to shareholders and is subject to certain
limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Fixed
Income Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO
64141-6711 or, unless the investor has specifically declined telephone
exchange privileges on the Account Application or elected in writing not to
utilize telephone exchanges, by a telephone request to the Transfer Agent at
800-526-7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are
employed to prevent unauthorized or fraudulent exchange requests as set forth
under "How to Sell Shares of the Funds." Under the telephone exchange
privilege, shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange instructions are in writing and received in accordance with the
procedures set forth under "How to Sell Shares of the Funds." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent an initial sales
charge that would otherwise apply to the shares received in the exchange is
not imposed, the sales charge paid on such purchase of Class A shares cannot
be taken into account by the exchanging shareholder for purposes of
determining gain or loss, if any, realized on such redemption for federal
income tax purposes, but instead will be added to the tax basis of the shares
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange.
Eligible investors may exchange Class A shares for Institutional shares of
the same Fund. For further information contact Goldman Sachs at the number set
forth in the back of the Prospectus.
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.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized by
the Trust to accept purchase, exchange and redemption orders on the Trust's
behalf. In these cases, a Fund will be deemed to have received an order that
is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a Business Day, and the order will be priced at a Fund's net
asset value per share next determined after such acceptance. Otherwise, a Fund
or Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them.
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Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Funds, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A, Class B or Class C
shares (such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
a Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Funds, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed .50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN -- CLASS A SHARES
The Trust, on behalf of each Fund's Class A shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class A
Distribution Plan"). Under the Class A Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.25% of a Fund's average daily net assets attributable to
Class A shares of such Fund. Currently, Goldman Sachs has voluntarily agreed
to waive the entire amount of such fee for the Adjustable Rate Government,
Short Duration Government, Short Duration Tax-Free, Core Fixed Income,
Government Income, Municipal Income and High Yield Funds and to limit the
amount of such fee to 0.21% of average daily net assets attributable to Class
A shares of the
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Global Income Fund. Goldman Sachs has no current intention of modifying or
discontinuing such waiver, but may do so in the future at its discretion. For
the period ended October 31, 1996, the Global Income Fund paid Goldman Sachs a
fee at the rate of 0.21% of the Fund's average daily net assets attributable
to Class A shares of such Fund.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A shares of the Funds. The types of expenses for which Goldman Sachs may
be compensated for distribution services under the Class A Distribution Plan
include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and 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. If the fee received by Goldman Sachs pursuant
to the Class A Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Class A Distribution Plan will
be reviewed and is subject to approval annually by the Trustees. The aggregate
compensation that may be received under the Class A Distribution Plan for
distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.
DISTRIBUTION PLAN -- CLASS B AND CLASS C SHARES
The Trust, on behalf of each Fund's Class B and Class C shares (other than
the Adjustable Rate Government Fund which does not offer Class B or Class C
shares), has adopted Distribution Plans pursuant to Rule 12b-1 under the Act
(each a "Distribution Plan"). Goldman Sachs is entitled to a quarterly fee
from each Fund under its Class B or Class C Distribution Plan for distribution
services equal, on an annual basis, to 0.75% of its average daily net assets
attributable to Class B or Class C shares. Goldman Sachs has voluntarily
agreed to limit such fee to 0.60% of the average daily net assets of the Short
Duration Government and Short Duration Tax-Free Funds, attributable to Class B
shares of such Funds. For the fiscal year ended October 31, 1996 the Funds
then offering Class B shares paid distribution fees with respect to their
Class B shares at the foregoing rate.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class B and Class C shares of the Funds. The types of expenses for which
Goldman Sachs may be compensated for distribution services under the Class B
and Class C Distribution Plans include compensation paid to and expenses
incurred by Authorized Dealers, Goldman Sachs and their respective officers,
employees and sales representatives, commissions paid to Authorized Dealers,
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 B
and Class C shares. If the fee received by Goldman Sachs pursuant to a
Distribution Plan exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements. The Distribution Plans will be reviewed and are
subject to approval annually by the Trustees. The aggregate compensation that
may be received under each Distribution Plan for distribution services may not
exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year. Goldman Sachs pays the
distribution fee on a quarterly basis.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers
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or other persons are compensated for providing personal and account
maintenance services. Each Fund pays a fee under its Class A, Class B or Class
C Service Plan equal on an annual basis to 0.25% of its average daily net
assets attributable to Class A, Class B or Class C shares. The fee for
personal and account maintenance services paid pursuant to a Service Plan may
be used to make payments to Goldman Sachs, Authorized Dealers and their
officers, sales representatives and employees for responding to inquiries of,
and furnishing assistance to, shareholders regarding ownership of their shares
or their accounts or similar services not otherwise provided on behalf of the
Funds. The Service Plans will be reviewed and are subject to approval annually
by the Trustees. For the fiscal year ended October 31, 1996, each Fund (other
than the Short Duration Government, Short Duration Tax-Free, Core Fixed Income
and High Yield Funds which did not offer Class A or Class B shares) paid
Authorized Dealer service fees at the foregoing rate for each Fund's Class A
and Class B shares.
In connection with the sale of Class C shares of any Fund or Class A shares
or Class B shares of the Short Duration Government and Short Duration Tax-Free
Funds, Goldman Sachs begins paying the 0.25% ongoing service fee to Authorized
Dealers after the shares have been held for one year. Goldman Sachs pays the
service fee on a quarterly basis.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will be mailed by check to a shareholder within three (3)
Business Days of receipt of a properly executed request. If shares to be
redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not
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employed, the Trust may be liable for any loss due to unauthorized or
fraudulent transactions. Proceeds of telephone redemptions will be mailed to
the shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Shares of each Fund (other than Global Income Fund) earn dividends accrued
through the day on which such shares are redeemed.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B and Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See
Additional Statement for more information about the Systematic Withdrawal
Plan.
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DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid (i) in cash, (ii) in additional shares of the same
class of the Fund or (iii) in shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C) as described under "Cross-Reinvestment
of Dividends and Distributions and Automatic Exchange Program." This election
should initially be made on a shareholder's Account Application and may be
changed upon written notice to Goldman Sachs at any time prior to the record
date for a particular dividend or distribution. If no election is made, all
dividends from net investment income and capital gains distributions will be
reinvested in the Fund. Capital gains distributions will be reinvested or paid
in cash, in accordance with the shareholder's prior election, on the payment
date.
The election to reinvest dividends and distributions paid by the Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. In the case
of the Core Fixed Income, Global Income and High Yield Funds, net loss, if
any, from certain foreign currency transactions or instruments that is
otherwise taken into account in calculating net investment income or net
realized capital gains for accounting purposes may not be taken into account
in determining the amount of dividends to be declared and paid, with the
result that a portion of the Fund's dividends may be treated as a return of
capital, nontaxable to the extent of a shareholder's tax basis in his shares.
Each Fund (other than the Global Income Fund) will declare dividends daily and
pay dividends monthly. The Global Income Fund will declare and pay dividends
monthly. All of the Funds will pay dividends from net realized long-term and
short-term capital gains, reduced by available capital losses, at least
annually. From time to time a portion of any Fund's dividends may constitute a
return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the investor's shares is, as a result
of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) on each
Business Day (as such term is defined under "Additional Information")
immediately after the
57
<PAGE>
determination, if any, of the income to be declared as a dividend (except in
the case of the Global Income Fund). 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.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their tax equivalent yields in advertisements and communications
to shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The total return calculation
assumes a complete redemption of the investment at the end of the relevant
period. Total return calculations for Class A shares reflect the effect of
paying the maximum initial sales charge. Investment at a lower sales charge
would result in higher performance figures. Total return calculations for
Class B and Class C shares reflect deduction of the applicable CDSC imposed
upon redemption of Class B and Class C shares held for the applicable period.
Each Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition, each Fund may furnish
total return calculations based on investments at various sales charge levels
or at net asset value. Any performance data which is based on a Fund's net
asset value per share would be reduced if a sales charge were taken into
account. In addition to the above, each Fund may from time to time advertise
its performance relative to certain averages, performance rankings, indices,
other information prepared by recognized mutual fund statistical services and
investments for which reliable performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the tax-free yield of the Short Duration Tax-Free or the
Municipal Income Funds. Tax equivalent yield is calculated by dividing the
applicable Fund's tax-exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per
58
<PAGE>
share or maximum public offering price on the last day of the period for which
the distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
shares will be affected by the payment of a sales charge and distribution fees
and other class specific expenses. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. 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.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting for the
purpose of electing Trustees if, at any time, less than a majority of Trustees
holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
As of July 24, 1997, the shareholders listed below owned beneficially and of
record 25% or more of the outstanding shares of such Fund: Short Duration
Government Fund--State Street Bank and Trust Company, P.O. Box 1992, Boston,
MA 02105-1992 (31.49%); Core Fixed Income Fund--Vinson and Elkins Lawyers,
Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2558, Houston, TX 77252-
2558 (31.67%).
59
<PAGE>
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected or
intends to elect to be treated as a regulated investment company and intends
to qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of such a distribution may be subject to the federal alternative
minimum tax and the entire distribution may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares
of the Short Duration Tax-Free and Municipal Income Funds. Interest on
indebtedness incurred or continued to purchase or carry shares of the Short
Duration Tax-Free and Municipal Income Funds is not deductible to the extent
attributable to the Funds' distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by the Short Duration Tax-Free and Municipal Income
Funds, as described above. Dividends paid by a Fund from the excess of net
long-term capital gain over net short-term capital loss will be taxable as
long-term capital gains regardless of how long the shareholders have held
their shares. These tax consequences will apply regardless of whether
distributions are received in cash or reinvested in shares. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders
60
<PAGE>
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 Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. If more than 50% of the value of the total assets of a
Fund is comprised of stock or securities of foreign corporations at the end of
its taxable year and the applicable Fund so elects, that Fund's shareholders
will include in their gross incomes (in addition to dividends and
distributions they receive) their pro rata shares of qualified foreign taxes
paid by that Fund and may be entitled under the Code to claim foreign tax
credits or deductions with respect to such taxes. It is not expected that the
Core Fixed Income Fund will qualify to make this election with respect to such
taxes. If a Fund cannot or does not so elect, it may deduct these taxes in
computing its taxable income, if any.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $100,000 ($500,000 in the case of
the Adjustable Rate Government Fund and $250,000 in the case of Short Duration
Government and Short Duration Tax-Free Funds) or more of Class A shares of a
Fund alone or in combination with Class A shares of another Fund or another
Goldman
61
<PAGE>
Sachs Fund 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 Application. Income dividends and capital gain
distributions taken in additional shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem 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.
62
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
FIPROAB
================================================================================
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
[LOGO OF GOLDMAN SACHS APPEARS HERE]
================================================================================
<PAGE>
PROSPECTUS
August 15, 1997
GOLDMAN SACHS EQUITY FUNDS
INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in
equity and fixed income securities.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments in
equity securities that are considered to have favorable prospects for capital
appreciation and/or dividend paying ability.
GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly
diversified portfolio of large cap and blue chip equity securities representing
all major sectors of the U.S. economy.
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 Index
at the time of investment.
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital ap-
preciation potential.
GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation primarily through investments in equity
securities of companies with public stock market capitalizations of between
$500 million and $10 billion at the time of investment.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securities
of companies that are organized outside the U.S. or whose securities are
principally traded outside the U.S.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securities
of emerging country issuers.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securities
of companies related (in the manner described herein) to Asian countries.
-----------------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A PORTION
OF THEIR ASSETS ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Goldman Sachs CORE International Equity, Mid Cap Equity
and Small Cap Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds
Management, L.P. ("GSFM"), New York, New York, an affiliate of Goldman Sachs,
serves as investment adviser to the CORE U.S. Equity (formerly the "Select
Equity Fund") and Capital Growth Funds. Goldman Sachs Asset Management
International ("GSAMI"), London, England, an affiliate of Goldman Sachs, serves
as investment adviser to the International Equity, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus
as the "Investment Adviser." Goldman Sachs serves as each Fund's distributor
and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Fund Highlights.................... 3 Performance Information............. 42
Fees and Expenses.................. 8 Shares of the Trust................. 42
Financial Highlights............... 9 Taxation............................ 43
Investment Objectives and Policies. 17 Additional Information.............. 44
Description of Securities.......... 25 Reports to Shareholders............. 45
Investment Techniques.............. 30 Dividends........................... 45
Risk Factors....................... 34 Purchase of Institutional Shares.... 45
Investment Restrictions............ 36 Exchange Privilege.................. 47
Portfolio Turnover................. 36 Redemption of Institutional Shares.. 48
Management......................... 37 Appendix ........................... A-1
Net Asset Value.................... 41 Account Information Form
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ------------- --------------- --------------------------------------- -----------------
<S> <C> <C> <C>
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected returns,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
- ----------------------------------------------------------------------------------------
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
-------------- ---------------- --------------------------------------- ----------------------
<S> <C> <C> <C>
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- -------------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies Index
appreciation. with public stock market
capitalizations of between $500 million
and $10 billion at the time of
investment ("Mid-Cap Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments in companies
with public stock market
capitalizations of $500 million or less
at the time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds invest
primarily outside the United States, these Funds may involve greater risks,
since the securities markets of foreign countries are generally less liquid
and subject to greater price volatility. The securities markets of emerging
countries, including those in Asia, Latin America, Eastern Europe and
Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
CORE U.S. Equity and Capital Growth Funds. Goldman Sachs Asset Management
International serves as Investment Adviser to the International Equity,
Emerging Markets Equity and Asia Growth Funds. As of June 23, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
5
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 in Institutional Shares of
the Fund alone or in combination with Institutional Shares (or the
corresponding class) of any other mutual fund sponsored by Goldman Sachs
and designated as an eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which you have invested or you may
elect to receive dividends in cash. For further information concerning
dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH LARGE SMALL CORE MID SMALL EMERGING
AND CORE U.S. CAP CAP INTERNATIONAL CAPITAL CAP INT'L CAP MARKETS ASIA
BALANCED INCOME EQUITY GROWTH EQUITY EQUITY GROWTH EQUITY EQUITY VALUE EQUITY GROWTH
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND
-------- ------ --------- ------- ------- ------------- ------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... None None None None None None None None None None None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... None None None None None None None None None None None None
Redemption Fees. None None None None None None None None None None None None
Exchange Fees... None None None None None None None None None None None None
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average daily
net assets)
Management Fees
(after
applicable
limitations)/2/. 0.65% 0.70% 0.59% 0.60% 0.75% 0.75% 1.00% 0.75% 0.89% 1.00% 1.10% 0.86%
Distribution
(Rule 12b-1)
Fees........... None None None None None None None None None None None None
Other Expenses
(after
applicable
limitations)/3/. 0.10% 0.12% 0.06% 0.05% 0.20% 0.25% 0.09% 0.10% 0.21% 0.15% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES
(AFTER FEE AND
EXPENSE
LIMITATIONS)/4/. 0.75% 0.82% 0.65% 0.65% 0.95% 1.00% 1.09% 0.85% 1.10% 1.15% 1.30% 1.10%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced Fund................................. $ 8 $24 $ 42 $ 93
Growth and Income Fund........................ $ 8 $26 $ 46 $101
CORE U.S. Equity Fund......................... $ 7 $21 $ 36 $ 81
CORE Large Cap Growth Fund.................... $ 7 $21 n/a n/a
CORE Small Cap Equity Fund.................... $10 $30 n/a n/a
CORE International Equity Fund................ $10 $32 n/a n/a
Capital Growth Fund........................... $11 $35 $ 60 $133
Mid Cap Equity Fund........................... $ 9 $27 $ 47 $105
International Equity Fund..................... $11 $35 $ 61 $134
Small Cap Value Fund.......................... $12 $37 $ 63 $140
Emerging Markets Equity Fund.................. $13 $41 n/a n/a
Asia Growth Fund.............................. $11 $35 $ 61 $134
</TABLE>
- ---------------------
/1/Based on estimated amounts for the current fiscal year.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to 0.16%, 0.15%,
0.10%, 0.10%, 0.11%, 0.10% and 0.14%, respectively. Without such limitations,
management fees would be 0.75%, 0.75%, 0.85%, 0.85%, 1.00%, 1.20% and 1.00%
of each Fund's average daily net assets, respectively.
7
<PAGE>
/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage fees
and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of each Fund other than Balanced, CORE Small
Cap Equity, CORE International Equity, CORE Large Cap Growth and Mid Cap
Equity Funds)) for the following funds to the extent such expenses exceed the
following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced Fund.................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional shares of the Growth and Income,
CORE U.S. Equity, International Equity and Asia Growth Funds for the fiscal
year ended January 31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 0.82%
CORE U.S. Equity....................................... 0.10% 0.85%
International Equity................................... 0.25% 1.25%
Asia Growth............................................ 0.26% 1.26%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of the Balanced, CORE
Large Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap
Equity and Emerging Markets Equity Funds for the current fiscal year are
estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced Fund.......................................... 0.62% 1.27%
CORE Large Cap Growth.................................. 0.65% 1.40%
CORE Small Cap Value .................................. 0.71% 1.56%
CORE International Equity.............................. 0.86% 1.71%
Mid Cap Equity......................................... 0.26% 1.01%
Emerging Markets Equity................................ 0.82% 2.02%
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Service, Class A, Class B and Class C Shares
may be obtained from an investor's sales representative or from Goldman Sachs
by calling the number on the back cover of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1997 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer the CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds, Institutional or Service Shares of the Balanced, Capital
Growth or Small Cap Value Funds, Class A and B for Mid Cap Equity or Class C
shares of any Fund. Accordingly, there are no financial highlights for these
Funds or Classes.
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME
--------- ---------- ------------------- ---------- ------------- ----------
BALANCED FUND
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) --
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- --
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
NET NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- -------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $1.47 $18.78 18.59% 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 1.27 18.73 16.22(c) 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 3.09 17.31 28.10 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 0.04 14.22 0.87(c) 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME
--------- ---------- -------------- ---------- ------------- ----------
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01)
1997--Class B
Shares(f)...... 20.82 0.17 4.31 (0.17) (1.97) (0.06)
1997--Institu-
tional
Shares(f)...... 21.25 0.29 3.96 (0.30) (1.97) (0.04)
1997--Service
Shares(f)...... 20.71 0.28 4.50 (0.28) (1.97) (0.07)
1996--Class A
Shares......... 15.80 0.33 4.75 (0.30) (0.60) --
1995--Class A
Shares......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07)
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... 14.18 0.15 1.68 (0.15) (0.06) (0.01)
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET RATIO OF NET
NET NET ASSET ASSETS AT NET INVESTMENT
ADDITIONAL INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO
PAID-IN IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET
CAPITAL ASSET VALUE PERIOD RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS
---------- ----------- --------- --------- --------- ---------- ---------- ----------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $-- $3.20 $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997--Class B
Shares(f)...... -- 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)...... -- 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e)
1997--Service
Shares(f)...... -- 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e)
1996--Class A
Shares......... -- 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995--Class A
Shares......... 0.11(b) 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... -- 1.61 15.79 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME (LOSS)
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------
<S> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... 1.43% 1.39%
1997--Class B
Shares(f)...... 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)...... 0.82(e) 1.36(e)
1997--Service
Shares(f)...... 1.32(e) 0.94(e)
1996--Class A
Shares......... 1.45 1.42
1995--Class A
Shares......... 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... 3.24(e) (0.76)(e)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED FROM NET
NET ASSET GAIN (LOSS) ON FROM REALIZED GAIN IN EXCESS
VALUE, NET INVESTMENTS, NET ON INVESTMENT OF NET
BEGINNING INVESTMENT OPTIONS INVESTMENT AND FUTURES INVESTMENT
OF PERIOD INCOME AND FUTURES INCOME TRANSACTIONS INCOME
--------- ---------- -------------- ---------- ------------- ----------
CORE U.S. EQUITY FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997--Class B
Shares(f)...... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997--Institu-
tional Shares.. 19.71 0.30 4.51 (0.28) (0.80) --
1997--Service
Shares(f)...... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996--Class A
Shares......... 14.61 0.19 5.43 (0.16) (0.41) --
1996--Institu-
tional
Shares(d)...... 16.97 0.16 3.23 (0.24) (0.41) --
1995--Class A
Shares......... 15.93 0.20 (0.38) (0.20) (0.94) --
1994--Class A
Shares......... 15.46 0.17 2.08 (0.17) (1.61) --
1993--Class A
Shares......... 15.05 0.22 0.41 (0.22) -- --
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)...... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF
RATIO OF NET
NET NET RATIO OF NET INVESTMENT
(DECREASE) NET ASSET ASSETS AT NET INVESTMENT RATIO OF INCOME
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- ----------
CORE U.S. EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $3.66 $23.32 23.75% 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)...... 2.74 23.18 18.59(b) 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares.. 3.73 23.44 24.63 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)...... 2.25 23.27 15.92(b) 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares......... 5.05 19.66 38.63 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)...... 2.74 19.71 20.14(b) 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares......... (1.32) 14.61 (1.10) 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares......... 0.47 15.93 15.12 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares......... 0.41 15.46 4.30 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)...... 0.88 15.05 7.01(b) 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME
--------- ---------- ------------------- ---------- -------------- ----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02)
1997--Class B
Shares(b)...... 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996--Class A
Shares......... 13.67 0.12 3.93 (0.12) (2.69) --
1995--Class A
Shares......... 15.96 0.03 (0.69) (0.01) (1.62) --
1994--Class A
Shares......... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993--Class A
Shares......... 13.65 0.06 2.28 (0.07) (1.28) --
1992--Class A
Shares......... 11.10 0.28 2.90 (0.31) (0.32) --
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)...... 11.34 0.34 (0.27) (0.31) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
------------------------
RATIO OF
NET RATIO OF
NET NET RATIO OF INVESTMENT NET
INCREASE NET ASSET ASSETS AT NET INCOME RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- -------------
CAPITAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $1.82 $16.73 25.97% 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)...... 1.00 16.67 19.39(d) 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares......... 1.24 14.91 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares......... (2.29) 13.67 (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares......... 1.32 15.96 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares......... 0.99 14.64 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares......... 2.55 13.65 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)...... (0.24) 11.10 0.84(d) 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------- ------------------------------------------------
NET
REALIZED TOTAL FROM NET
AND INCOME REALIZED
NET ASSET UNREALIZED (LOSS) IN EXCESS GAIN ON TOTAL
VALUE, NET GAIN ON FROM FROM NET OF NET INVESTMENTS DISTRIBUTIONS
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT INVESTMENT AND OPTION TO
OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME INCOME TRANSACTIONS SHAREHOLDERS
--------- ---------- ----------- ---------- ---------- ---------- ------------ -------------
MID CAP EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended Janu-
ary31,
1997--Institu-
tional Shares.. $15.91 $0.24 $3.77 $4.01 $(0.24) $(0.02) $(0.93) $(1.19)
For the Year
Ended Janu-
ary31,
1996--Institu-
tional
Shares(a)...... 15.00 0.13 0.90 1.03 (0.12) -- -- (0.12)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
--------------------
NET RATIO OF RATIO OF
ASSETS NET RATIO OF NET
NET NET AT END INVESTMENT EXPENSES INVESTMENT
INCREASE ASSET OF RATIO OF NET INCOME TO TO INCOME TO
IN NET VALUE, PORTFOLIO AVERAGE PERIOD EXPENSES TO AVERAGE AVERAGE AVERAGE
ASSET END OF TOTAL TURNOVER COMMISSION (IN AVERAGE NET NET NET NET
VALUE PERIOD RETURN(B) RATE RATE(E) 000'S) ASSETS(C) ASSETS(C) ASSETS(C) ASSETS(C)
-------- ------ --------- --------- ---------- -------- ------------ ---------- --------- ----------
MID CAP EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended Janu-
ary31,
1997--Institu-
tional Shares.. $2.82 $18.73 25.63% 74.03% $.0547 $145,253 0.85% 1.35% 0.91% 1.29%
For the Year
Ended Janu-
ary31,
1996--Institu-
tional
Shares(a)...... 0.91 15.91 6.89(d) 58.77(d) -- 135,671 0.85 1.67 0.98 1.54
</TABLE>
- -----------------
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(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) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT,
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS
--------- ------------- ------------------- ---------------- ---------- ------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997--Class B
Shares(e)...... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997--Institu-
tional
Shares(e)...... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997--Service
Shares(e)...... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996--Class A
Shares......... 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995--Class A
Shares......... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994--Class A
Shares......... 14.35 0.05 4.08 (0.38) -- --
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 14.18 (0.01) 0.29 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET NET RATIO OF NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS
----------- --------- --------- --------- ---------- --------- ----------- ----------------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $2.12 $19.32 13.48% 38.01% $.0318 $536,283 1.69% (0.07)%
1997--Class B
Shares(e)...... 0.33 19.24 2.83(c) 38.01 .0318 19,198 2.23(d) (0.97)(d)
1997--Institu-
tional
Shares(e)...... 1.95 19.40 12.53(c) 38.01 .0318 68,374 1.10(d) 0.43(d)
1997--Service
Shares(e)...... 1.64 19.34 10.42(c) 38.01 .0318 674 1.60(d) (0.40)(d)
1996--Class A
Shares......... 2.68 17.20 28.68 68.48 -- 330,860 1.52 0.26
1995--Class A
Shares......... (3.58) 14.52 (16.65) 84.54 -- 275,086 1.73 0.40
1994--Class A
Shares......... 3.75 18.10 26.13 60.04 -- 269,091 1.76 0.51
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 0.17 14.35 1.23(c) 0.00 -- 66,063 1.80(d) (0.42)(d)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME (LOSS)
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- -------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------
<S> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... 1.88% (0.26)%
1997--Class B
Shares(e)...... 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)...... 1.25(d) 0.28(d)
1997--Service
Shares(e)...... 1.75(d) (0.55)(d)
1996--Class A
Shares......... 1.77 0.01
1995--Class A
Shares......... 1.98 0.15
1994--Class A
Shares......... 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 2.58(d) (1.20)(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT,
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS
--------- ---------- ------------------- ---------- -------------- ------------
SMALL CAP VALUE FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ --
1997--Class B
Shares(b)...... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 14.18 0.03 2.50 (0.03) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
---------------------
RATIO OF RATIO OF
NET NET RATIO OF NET NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ------------- ---------- ----------
SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $ 3.62 $20.91 $ 27.28% 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)...... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares......... 1.15 17.29 7.20 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares......... 3.99 20.67 30.13 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME
--------- ---------- -------------- ------------ ---------- ----------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997--Class B
Shares(e)...... 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997--Institu-
tional
Shares(e)...... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996--Class A
Shares......... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)...... 14.18 0.11 (0.89) 0.01 (0.10) --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET RATIO OF NET NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)...... (1.07) 16.24 (6.02)(c) 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)...... (0.28) 16.33 (1.09)(c) 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares......... 3.18 16.49 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)...... (0.87) 13.31 (5.46)(c) 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
17
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects the Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. In the case of a U.S. equity
security followed by the Goldman Sachs Global Investment Research Department
(the "Research Department"), a second rating is assigned based upon the
Research Department's evaluation. In the discretion of the Investment Adviser,
such ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional,
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
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BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
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CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
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style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
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CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the company's capitalization of an issuer increases above $10
billion after purchase of such issuer's securities, the Fund may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those
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associated with investing solely in securities of U.S. issuers quoted in U.S.
dollars. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors." Up to 35% of the Fund's total
assets may be invested in fixed income securities.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
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An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
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countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or 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 convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities
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of foreign issuers that are traded in the U.S. and comply with U.S. accounting
standards). Investments in foreign securities may offer potential benefits
that are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and
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the underlying securities are quoted. However, by investing in Depository
Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund will avoid
currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may have currency exposure independent of their securities
positions, the value of the assets of a Fund as measured in U.S. dollars will
be affected by changes in foreign currency exchange rates. A Fund may, to the
extent it invests in foreign securities, purchase or sell forward foreign
currency exchange contracts for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps
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or other privately negotiated currency instruments unless the credit quality
of the unsecured senior debt or the claims-paying ability of the counterparty
is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian countries, the Investment Advisers do not currently
anticipate that a significant portion of Emerging Markets Equity and Asia
Growth Fund's currency exposure will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objective and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward international lenders and the political constraints to which a
sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds, which only invest in debt instruments that are cash equivalents)
may invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%,
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10%, 35%, 35%, 35% and 35%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by
Standard & Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or
lower by Moody's), including securities rated D by Moody's or Standard &
Poor's. Mid Cap Equity Fund may invest up to 10% of its total assets in below
investment grade debt securities rated B or higher by Standard & Poor's or B
or higher by Moody's. Fixed income securities rated BBB or Baa are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Fixed income securities rated BB
or Ba or below (or comparable unrated securities) are commonly referred to as
"junk bonds," are considered predominately speculative and may be questionable
as to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
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securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that a Fund has written is exercised, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to a Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. In addition
to purchasing call and put options for hedging purposes, the Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets 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 Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use
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of futures may increase the volatility of a Fund's net asset value. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of the Investment Adviser to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to a Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of
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interest on or principal of the security and costs associated with delay and
enforcement of the repurchase agreement. The Trustees have reviewed and
approved certain counterparties whom they believe to be creditworthy and have
authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with an Investment Adviser,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may 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 an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may no
longer be used to defer the recognition of gain for tax purposes with respect
to appreciated securities in a Fund's portfolio.
MORTGAGE DOLLAR ROLLS
The Balanced 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 substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund 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 or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for 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. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. 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.
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TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Markets Equity Fund may only
hold up to 35% of their respective total assets) in U.S. Government
securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies and (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. The CORE International Equity Fund may invest up to
25%, the Balanced, Growth and Income, Small Cap Value and Mid Cap Equity Funds
may each invest up to 15% and the Capital Growth Fund may invest up to 10% of
its total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates
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and their respective clients and other service providers. A Fund may not be
able to sell securities in circumstances where price, trading or settlement
volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such Emerging Countries.
Economies in Emerging Countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
35
<PAGE>
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps transactions, structured securities and
currency forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's (other than the CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity and Emerging Markets Equity Funds will generally not
exceed 70%, 70%, 70% and 100%, respectively. The portfolio turnover rate is
calculated by dividing the lesser of the dollar amount of sales or purchases
of portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. Notwithstanding the foregoing, the Investment Adviser may,
from time to time, make short-term investments when it believes such
investments are in the best interest of a Fund.
36
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity, Growth and Income, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of June 23, 1997,
GSAM, GSFM and GSAMI, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
37
<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- ----------------------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Mid Cap Equity 1997 1992. Prior to 1992, he
Balanced (Equity) 1996 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- ----------------------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman jointed the
Vice President Mid Cap Equity 1996 Investment Adviser in
Growth and Income 1996 1993. Prior to 1993, she
Balanced (Equity) 1996 was an equity analyst at
Delphi Management.
- ----------------------------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Co-Head Balanced (Fixed Income) 1994 Investment Adviser in
U.S. Fixed Income 1990.
Department
- ----------------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- ----------------------------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- ----------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- ----------------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- ----------------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income Investment Adviser in
Mid Cap Equity 1993 1993. Prior to 1993, he
Balanced (Equity) 1995 was a principal of
1994 Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
- ----------------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Assistant Portfolio Since Mr. McLennan joined the
Associate Manager-- 1996 Investment Adviser in
Small Cap Value 1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Danny Truell Portfolio Manager-- Since Mr. Truell joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for six
years.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
39
<PAGE>
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
CORE Small Cap Equity........................ 0.85% n/a
CORE International Equity ................... 0.85% n/a
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of International Equity Fund) and administration agreements. For the
fiscal year ended January 31, 1997, the annual rate expressed is the combined
advisory and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Advisers may discontinue or modify such voluntary limitations in the future at
their discretion, although they have no current intention to do so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the Balanced, CORE Small Cap Equity, CORE International Equity,
CORE Large Cap Growth and Mid Cap Equity Funds) to the extent such expenses
exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%, 0.16% and 0.24%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
40
<PAGE>
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10009, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity,
International Equity and Asia Growth Funds with respect to Institutional or
Service Shares. Goldman Sachs is entitled to receive a transfer agency fee
from the Capital Growth, Growth and Income, Small Cap Value and Emerging
Markets Equity Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE International Equity, CORE Large Cap
Growth, CORE Small Cap Equity and Mid Cap Equity Funds, with respect to
Institutional and Service shares, equal to their proportionate share of the
total transfer agency fees borne by the Fund. Such fees are equal to the fixed
per account charge of $12,000 per year plus $7.50 per account, together with
out-of-pocket and transaction related expenses (including those out-of-pocket
expenses payable to servicing and/or sub-transfer agents) applicable to Class
A, B and C shares plus 0.04% of the average daily net assets of the
Institutional and Service classes.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), 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. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
41
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Each Fund may also from time to
time advertise total return on a cumulative, average, year-by-year or other
basis for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rates are being calculated.
Each Fund's total return, yield 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 total return, yield and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.
42
<PAGE>
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of July 24, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 95.80% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to qualify for
such treatment for each taxable year under Subchapter M of the Code. To
qualify as such, a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Fund will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds are not
43
<PAGE>
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
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 their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other 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 Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property 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. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
44
<PAGE>
REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and a quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide subaccounting
services with respect to beneficial ownership of Institutional Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of such Fund. 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 gain distributions will be reinvested in Institutional
Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund 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 Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-term
and short-term capital gains, reduced by available capital losses, at least
annually. From time to time, a portion of a Fund's dividends may constitute a
return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by 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), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the
45
<PAGE>
day the purchase order is received. See "Net Asset Value." Purchases of
Institutional Shares of the Funds must be settled within three (3) Business
Days of the receipt of a complete purchase order. Payment of the proceeds of
redemption of shares purchased by check may be delayed for a period of time as
described under "Redemption of Institutional Shares."
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer.
Purchases may also be made by check (except that the Trust will not accept a
check drawn on a foreign bank or a third party check) or Federal Reserve draft
made payable to "Goldman Sachs Equity Funds--Name of Fund and Class of shares"
and should be directed to "Goldman Sachs Equity Funds--Name of Fund and Class
of shares," c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box
419711, Kansas City, MO 64141-6711.
The minimum initial investment is $1,000,000 in Institutional Shares of a
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or agency
thereof; (e) corporations and other for-profit business organizations with
assets of at least $100 million or publicly traded securities outstanding; (f)
"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; (g) registered investment advisers investing for
accounts for which they receive asset-based fees; and (h) accounts over which
GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
OTHER PURCHASE INFORMATION
The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Trust will give sixty (60) days'
prior written notice to Institutional Shareholders whose Institutional Shares
are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
46
<PAGE>
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Equity Funds--Name of Fund
and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in the Fund's Account Information
Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its shares and consider its investment objective, policies and applicable
fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "Redemptions of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. 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 Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
47
<PAGE>
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem their Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. An Institutional Shareholder may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Information Form accompanying this Prospectus. It may be difficult to
implement redemptions by telephone in times of drastic economic or market
changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. 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 Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each Institutional
Shareholder whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would originally be wired. Redemption proceeds paid
by check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the Funds,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries
48
<PAGE>
or the Institutional Shareholder's bank in the transfer process. If a problem
with such performance arises, the Institutional Shareholder should deal
directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
--------------------
49
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report 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 of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid 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.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT GOLDMAN SACHS EQUITY FUNDS
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 ------------------------------------
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P. PROSPECTUS
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 INSTITUTIONAL SHARES
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110 [LOGO OF GOLDMAN SACHS APPEARS HERE]
TOLL FREE (IN U.S.) . . . . .800-621-2550
EQPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
August 15, 1997
GOLDMAN SACHS EQUITY FUNDS
SERVICE SHARES
GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through diversified investments in eq-
vestments in equity and fixed uity securities of companies that are
income securities. considered to have long-term capital ap-
preciation potential.
GOLDMAN SACHS GROWTH AND INCOME GOLDMAN SACHS MID CAP EQUITY FUND
FUND
Seeks long-term growth of cap- Seeks long-term capital appreciation
ital and growth of income primarily through investments in equity
through investments in equity securities of companies with public
securities that are considered stock market capitalizations of between
to have favorable prospects $500 million and $10 billion at the time
for capital appreciation of investment.
and/or dividend paying abili-
ty.
GOLDMAN SACHS CORE U.S. EQUITY GOLDMAN SACHS INTERNATIONAL EQUITY FUND
FUND
Seeks long-term growth of cap- Seeks long-term capital appreciation
ital and dividend income through investments in equity securities
through a broadly diversified of companies that are organized outside
portfolio of large cap and the U.S. or whose securities are princi-
blue chip equity securities pally traded outside the U.S.
representing all major sectors
of the U.S. economy.
GOLDMAN SACHS CORE LARGE CAP GOLDMAN SACHS SMALL CAP VALUE FUND
GROWTH FUND
Seeks long-term growth of cap- Seeks long-term capital growth through
ital through a broadly diver- investments in equity securities of com-
sified portfolio of equity se- panies with public stock market capital-
curities of large cap U.S. is- izations of $1 billion or less at the
suers that are expected to time of investment.
have better prospects for
earnings growth than the GOLDMAN SACHS EMERGING MARKETS
growth rate of the general do- EQUITY FUND
mestic economy. Dividend in- Seeks long-term capital appreciation
come is a secondary considera- through investments in equity securities
tion. of emerging country issuers.
GOLDMAN SACHS CORE SMALL CAP EQ- GOLDMAN SACHS ASIA GROWTH FUND
UITY FUND
Seeks long-term growth of cap- Seeks long-term capital appreciation
ital through a broadly diver- through investments in equity securities
sified portfolio of equity se- of companies related (in the manner de-
curities of U.S. issuers which scribed herein) to Asian countries.
are included in the Russell
2000 Index at the time of in-
vestment.
GOLDMAN SACHS CORE INTERNATIONAL
EQUITY FUND
Seeks long term growth of cap-
ital through a broadly diver-
sified portfolio of equity se-
curities of large cap compa-
nies that are organized out-
side the U.S. or whose securi-
ties are principally traded
outside the U.S.
-------------
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A PORTION
OF THEIR ASSETS, ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and Small Cap
Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds Management, L.P.
("GSFM"), New York, New York, an affiliate of Goldman Sachs, serves as
investment adviser to the CORE U.S. Equity (formerly the "Select Equity Fund")
and Capital Growth Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as each Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 17
Description of Securities.......... 25
Investment Techniques.............. 30
Risk Factors....................... 34
Investment Restrictions............ 36
Portfolio Turnover................. 36
Management......................... 37
Net Asset Value.................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 42
Shares of the Trust........... 42
Taxation...................... 43
Additional Information........ 44
Additional Services........... 45
Reports to Shareholders....... 45
Dividends..................... 46
Purchase of Service Shares.... 46
Exchange Privilege............ 48
Redemption of Service Shares.. 48
Appendix...................... A-1
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
--------------
-----------------------
------------------------------------------------------
---------------------
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
-------------- ----------------- ---------------------------------------- ----------------
<S> <C> <C> <C>
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of Investments. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- -------------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies Index
appreciation. with public stock market
capitalizations of between $500 million
and $10 billion at the time of
investment ("Mid-Cap Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments in companies
with public stock market
capitalizations of $500 million or less
at the time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital its total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds invest
primarily outside the United States, these Funds may involve greater risks,
since the securities markets of foreign countries are generally less liquid
and subject to greater price volatility. The securities markets of emerging
countries, including those in Asia, Latin America, Eastern Europe and
Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
CORE U.S. Equity and Capital Growth Funds. Goldman Sachs Asset Management
International serves as Investment Adviser to the International Equity,
Emerging Markets Equity and Asia Growth Funds. As of June 23, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
5
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value without any sales load. See "Purchase of
Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund in which you have invested or you may elect to
receive dividends in cash. For further information concerning dividends,
see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH CORE LARGE SMALL CORE MID SMALL EMERGING
AND U.S. CAP CAP INTERNATIONAL CAPITAL CAP INT'L CAP MARKETS ASIA
BALANCED INCOME EQUITY GROWTH EQUITY EQUITY GROWTH EQUITY EQUITY VALUE EQUITY GROWTH
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND
-------- ------ ------ ------- ------- ------------- ------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... None None None None None None None None None None None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... None None None None None None None None None None None None
Redemption Fees. None None None None None None None None None None None None
Exchange Fees... None None None None None None None None None None None None
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average daily
net assets)
Management Fees
(after
applicable
limitations)/2/. 0.65% 0.70% 0.59% 0.60% 0.75% 0.75% 1.00% 0.75% 0.89% 1.00% 1.10% 0.86%
Service Fees/5/. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses
(after
applicable lim-
itations)/3/... 0.10% 0.12% 0.06% 0.05% 0.20% 0.25% 0.09% 0.10% 0.21% 0.15% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES
(AFTER FEE AND
EXPENSE
LIMITATIONS)/4/. 1.25% 1.32% 1.15% 1.15% 1.45% 1.50% 1.59% 1.35% 1.60% 1.65% 1.80% 1.60%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced Fund................................. $13 $40 $ 69 $151
Growth and Income Fund........................ $13 $42 $ 72 $159
CORE U.S. Equity Fund......................... $12 $37 $ 63 $140
CORE Large Cap Growth Fund.................... $12 $37 n/a n/a
CORE Small Cap Equity Fund.................... $15 $46 n/a n/a
CORE International Equity Fund................ $15 $47 n/a n/a
Capital Growth Fund........................... $16 $50 $ 87 $189
Mid Cap Equity Fund........................... $14 $43 $ 74 $162
International Equity Fund..................... $16 $50 $ 87 $190
Small Cap Value Fund.......................... $17 $52 $ 90 $195
Emerging Markets Equity Fund.................. $18 $57 n/a n/a
Asia Growth Fund.............................. $16 $50 $ 87 $190
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to 0.16%, 0.15%,
0.10%, 0.10%, 0.11%, 0.10% and 0.14%, respectively. Without such
limitations, management fees would be 0.75%, 0.75%, 0.85%, 0.85%, 1.00%,
1.20% and 1.00% of each Fund's average daily net assets, respectively.
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of each Fund other than
Balanced, CORE Small Cap Equity, CORE International Equity, CORE Large Cap
Growth and Mid Cap Equity Funds)) for the following funds to the extent such
expenses exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
7
<PAGE>
/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" for the Service Shares of the Growth and Income, CORE
U.S. Equity and International Equity Funds for the fiscal year ended January
31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 1.32%
CORE U.S. Equity....................................... 0.10% 1.35%
International Equity................................... 0.25% 1.75%
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Service Shares of the Balanced, CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap Equity,
Emerging Markets Equity and Asia Growth Funds for the current fiscal year are
estimated to be as follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced .............................................. 0.62% 1.77%
CORE Large Cap Growth.................................. 0.65% 1.90%
CORE Small Cap Equity.................................. 0.71% 2.06%
CORE International Equity.............................. 0.86% 2.21%
Mid Cap Equity......................................... 0.26% 1.51%
Emerging Markets Equity................................ 0.82% 2.52%
Asia Growth............................................ 0.26% 1.76%
</TABLE>
/5/Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each
Fund also offers Institutional Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Institutional, Class A, Class B and Class C
Shares may be obtained from an investor's sales representative or from Goldman
Sachs by calling the number on the back of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1997 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer the CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds, Institutional or Service Shares of the Balanced, Capital
Growth or Small Cap Value Funds, Class A and B for Mid Cap Equity or Class C
shares of any Fund. Accordingly, there are no financial highlights for these
Funds or Classes.
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME
--------- ---------- ------------------- ---------- ------------- ----------
BALANCED FUND
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) --
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- --
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
NET NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- -------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $1.47 $18.78 18.59% 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 1.27 18.73 16.22(c) 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 3.09 17.31 28.10 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 0.04 14.22 0.87(c) 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME
--------- ---------- -------------- ---------- ------------- ----------
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01)
1997--Class B
Shares(f)...... 20.82 0.17 4.31 (0.17) (1.97) (0.06)
1997--Institu-
tional
Shares(f)...... 21.25 0.29 3.96 (0.30) (1.97) (0.04)
1997--Service
Shares(f)...... 20.71 0.28 4.50 (0.28) (1.97) (0.07)
1996--Class A
Shares......... 15.80 0.33 4.75 (0.30) (0.60) --
1995--Class A
Shares......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07)
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... 14.18 0.15 1.68 (0.15) (0.06) (0.01)
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET RATIO OF NET
NET NET ASSET ASSETS AT NET INVESTMENT
ADDITIONAL INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO
PAID-IN IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET
CAPITAL ASSET VALUE PERIOD RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS
---------- ----------- --------- --------- --------- ---------- ---------- ----------- -----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $-- $3.20 $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997--Class B
Shares(f)...... -- 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)...... -- 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e)
1997--Service
Shares(f)...... -- 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e)
1996--Class A
Shares......... -- 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995--Class A
Shares......... 0.11(b) 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... -- 1.61 15.79 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME (LOSS)
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------
<S> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... 1.43% 1.39%
1997--Class B
Shares(f)...... 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)...... 0.82(e) 1.36(e)
1997--Service
Shares(f)...... 1.32(e) 0.94(e)
1996--Class A
Shares......... 1.45 1.42
1995--Class A
Shares......... 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)...... 3.24(e) (0.76)(e)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED FROM NET
NET ASSET GAIN (LOSS) ON FROM REALIZED GAIN IN EXCESS
VALUE, NET INVESTMENTS, NET ON INVESTMENT OF NET
BEGINNING INVESTMENT OPTIONS INVESTMENT AND FUTURES INVESTMENT
OF PERIOD INCOME AND FUTURES INCOME TRANSACTIONS INCOME
--------- ---------- -------------- ---------- ------------- ----------
CORE U.S. EQUITY FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997--Class B
Shares(f)...... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997--Institu-
tional Shares.. 19.71 0.30 4.51 (0.28) (0.80) --
1997--Service
Shares(f)...... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996--Class A
Shares......... 14.61 0.19 5.43 (0.16) (0.41) --
1996--Institu-
tional
Shares(d)...... 16.97 0.16 3.23 (0.24) (0.41) --
1995--Class A
Shares......... 15.93 0.20 (0.38) (0.20) (0.94) --
1994--Class A
Shares......... 15.46 0.17 2.08 (0.17) (1.61) --
1993--Class A
Shares......... 15.05 0.22 0.41 (0.22) -- --
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)...... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF
RATIO OF NET
NET NET RATIO OF NET INVESTMENT
(DECREASE) NET ASSET ASSETS AT NET INVESTMENT RATIO OF INCOME
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(G) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- ----------
CORE U.S. EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $3.66 $23.32 23.75% 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)...... 2.74 23.18 18.59(b) 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares.. 3.73 23.44 24.63 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)...... 2.25 23.27 15.92(b) 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares......... 5.05 19.66 38.63 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)...... 2.74 19.71 20.14(b) 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares......... (1.32) 14.61 (1.10) 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares......... 0.47 15.93 15.12 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares......... 0.41 15.46 4.30 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)...... 0.88 15.05 7.01(b) 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME
--------- ---------- ------------------- ---------- -------------- ----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02)
1997--Class B
Shares(b)...... 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996--Class A
Shares......... 13.67 0.12 3.93 (0.12) (2.69) --
1995--Class A
Shares......... 15.96 0.03 (0.69) (0.01) (1.62) --
1994--Class A
Shares......... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993--Class A
Shares......... 13.65 0.06 2.28 (0.07) (1.28) --
1992--Class A
Shares......... 11.10 0.28 2.90 (0.31) (0.32) --
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)...... 11.34 0.34 (0.27) (0.31) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
------------------------
RATIO OF
NET RATIO OF
NET NET RATIO OF INVESTMENT NET
INCREASE NET ASSET ASSETS AT NET INCOME RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ----------- ---------- -------------
CAPITAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $1.82 $16.73 25.97% 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)...... 1.00 16.67 19.39(d) 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares......... 1.24 14.91 30.45 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares......... (2.29) 13.67 (4.38) 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares......... 1.32 15.96 16.89 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares......... 0.99 14.64 18.01 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares......... 2.55 13.65 29.31 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)...... (0.24) 11.10 0.84(d) 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------- ------------------------------------------------
NET
REALIZED TOTAL FROM NET
AND INCOME REALIZED
NET ASSET UNREALIZED (LOSS) IN EXCESS GAIN ON TOTAL
VALUE, NET GAIN ON FROM FROM NET OF NET INVESTMENTS DISTRIBUTIONS
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT INVESTMENT AND OPTION TO
OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME INCOME TRANSACTIONS SHAREHOLDERS
--------- ---------- ----------- ---------- ---------- ---------- ------------ -------------
MID CAP EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended Janu-
ary31,
1997--Institu-
tional Shares.. $15.91 $0.24 $3.77 $4.01 $(0.24) $(0.02) $(0.93) $(1.19)
For the Year
Ended Janu-
ary31,
1996--Institu-
tional
Shares(a)...... 15.00 0.13 0.90 1.03 (0.12) -- -- (0.12)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
--------------------
NET RATIO OF RATIO OF
ASSETS NET RATIO OF NET
NET NET AT END INVESTMENT EXPENSES INVESTMENT
INCREASE ASSET OF RATIO OF NET INCOME TO TO INCOME TO
IN NET VALUE, PORTFOLIO AVERAGE PERIOD EXPENSES TO AVERAGE AVERAGE AVERAGE
ASSET END OF TOTAL TURNOVER COMMISSION (IN AVERAGE NET NET NET NET
VALUE PERIOD RETURN(B) RATE RATE(E) 000'S) ASSETS(C) ASSETS(C) ASSETS(C) ASSETS(C)
-------- ------ --------- --------- ---------- -------- ------------ ---------- --------- ----------
MID CAP EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended Janu-
ary31,
1997--Institu-
tional Shares.. $2.82 $18.73 25.63% 74.03% $.0547 $145,253 0.85% 1.35% 0.91% 1.29%
For the Year
Ended Janu-
ary31,
1996--Institu-
tional
Shares(a)...... 0.91 15.91 6.89(d) 58.77(d) -- 135,671 0.85 1.67 0.98 1.54
</TABLE>
- -----------------
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(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) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT,
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS
--------- ------------- ------------------- ---------------- ---------- ------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997--Class B
Shares(e)...... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997--Institu-
tional
Shares(e)...... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997--Service
Shares(e)...... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996--Class A
Shares......... 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995--Class A
Shares......... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994--Class A
Shares......... 14.35 0.05 4.08 (0.38) -- --
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 14.18 (0.01) 0.29 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET NET RATIO OF NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS
----------- --------- --------- --------- ---------- --------- ----------- ----------------
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $2.12 $19.32 13.48% 38.01% $.0318 $536,283 1.69% (0.07)%
1997--Class B
Shares(e)...... 0.33 19.24 2.83(c) 38.01 .0318 19,198 2.23(d) (0.97)(d)
1997--Institu-
tional
Shares(e)...... 1.95 19.40 12.53(c) 38.01 .0318 68,374 1.10(d) 0.43(d)
1997--Service
Shares(e)...... 1.64 19.34 10.42(c) 38.01 .0318 674 1.60(d) (0.40)(d)
1996--Class A
Shares......... 2.68 17.20 28.68 68.48 -- 330,860 1.52 0.26
1995--Class A
Shares......... (3.58) 14.52 (16.65) 84.54 -- 275,086 1.73 0.40
1994--Class A
Shares......... 3.75 18.10 26.13 60.04 -- 269,091 1.76 0.51
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 0.17 14.35 1.23(c) 0.00 -- 66,063 1.80(d) (0.42)(d)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET
RATIO OF INVESTMENT
EXPENSES INCOME (LOSS)
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
---------- -------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------
<S> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... 1.88% (0.26)%
1997--Class B
Shares(e)...... 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)...... 1.25(d) 0.28(d)
1997--Service
Shares(e)...... 1.75(d) (0.55)(d)
1996--Class A
Shares......... 1.77 0.01
1995--Class A
Shares......... 1.98 0.15
1994--Class A
Shares......... 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)...... 2.58(d) (1.20)(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT,
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS
--------- ---------- ------------------- ---------- -------------- ------------
SMALL CAP VALUE FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ --
1997--Class B
Shares(b)...... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 14.18 0.03 2.50 (0.03) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
---------------------
RATIO OF RATIO OF
NET NET RATIO OF NET NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ------------- ---------- ----------
SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $ 3.62 $20.91 $ 27.28% 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)...... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares......... 1.15 17.29 7.20 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares......... 3.99 20.67 30.13 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME
--------- ---------- -------------- ------------ ---------- ----------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997--Class B
Shares(e)...... 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997--Institu-
tional
Shares(e)...... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996--Class A
Shares......... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)...... 14.18 0.11 (0.89) 0.01 (0.10) --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET RATIO OF NET NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)...... (1.07) 16.24 (6.02)(c) 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)...... (0.28) 16.33 (1.09)(c) 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares......... 3.18 16.49 26.49 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)...... (0.87) 13.31 (5.46)(c) 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
17
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects the Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. In the case of a U.S. equity
security followed by the Goldman Sachs Global Investment Research Department
(the "Research Department"), a second rating is assigned based upon the
Research Department's evaluation. In the discretion of the Investment Adviser,
such ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional,
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
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BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
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CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
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style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
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CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the company's capitalization of an issuer increases above $10
billion after purchase of such issuer's securities, the Fund may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those
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associated with investing solely in securities of U.S. issuers quoted in U.S.
dollars. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors." Up to 35% of the Fund's total
assets may be invested in fixed income securities.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
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An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
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countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or 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 convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities
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of foreign issuers that are traded in the U.S. and comply with U.S. accounting
standards). Investments in foreign securities may offer potential benefits
that are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and
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the underlying securities are quoted. However, by investing in Depository
Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund will avoid
currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may have currency exposure independent of their securities
positions, the value of the assets of a Fund as measured in U.S. dollars will
be affected by changes in foreign currency exchange rates. A Fund may, to the
extent it invests in foreign securities, purchase or sell forward foreign
currency exchange contracts for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps
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or other privately negotiated currency instruments unless the credit quality
of the unsecured senior debt or the claims-paying ability of the counterparty
is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian countries, the Investment Advisers do not currently
anticipate that a significant portion of Emerging Markets Equity and Asia
Growth Fund's currency exposure will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objective and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward international lenders and the political constraints to which a
sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage loans are generally higher
than prevailing market yields on other Mortgage-Backed Securities because
their cash flow patterns are more volatile and there is a greater risk that
the initial investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds, which only invest in debt instruments that are cash equivalents)
may invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%,
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10%, 35%, 35%, 35% and 35%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by
Standard & Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or
lower by Moody's), including securities rated D by Moody's or Standard &
Poor's. Mid Cap Equity Fund may invest up to 10% of its total assets in below
investment grade debt securities rated B or higher by Standard & Poor's or B
or higher by Moody's. Fixed income securities rated BBB or Baa are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Fixed income securities rated BB
or Ba or below (or comparable unrated securities) are commonly referred to as
"junk bonds," are considered predominately speculative and may be questionable
as to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
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securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that a Fund has written is exercised, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to a Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. In addition
to purchasing call and put options for hedging purposes, the Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets 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 Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use
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of futures may increase the volatility of a Fund's net asset value. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of the Investment Adviser to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to a Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of
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interest on or principal of the security and costs associated with delay and
enforcement of the repurchase agreement. The Trustees have reviewed and
approved certain counterparties whom they believe to be creditworthy and have
authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with an Investment Adviser,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may 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 an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may no
longer be used to defer the recognition of gain for tax purposes with respect
to appreciated securities in a Fund's portfolio.
MORTGAGE DOLLAR ROLLS
The Balanced 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 substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund 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 or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for 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. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. 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.
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TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Markets Equity Fund may only
hold up to 35% of their respective total assets) in U.S. Government
securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies and (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. The CORE International Equity Fund may invest up to
25%, the Balanced, Growth and Income, Small Cap Value and Mid Cap Equity Funds
may each invest up to 15% and the Capital Growth Fund may invest up to 10% of
its total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates
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and their respective clients and other service providers. A Fund may not be
able to sell securities in circumstances where price, trading or settlement
volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such Emerging Countries.
Economies in Emerging Countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
35
<PAGE>
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps transactions, structured securities and
currency forward contracts involve certain risks, including a possible lack of
correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's use of certain derivative transactions may
be limited by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's (other than the CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity and Emerging Markets Equity Funds will generally not
exceed 70%, 70%, 70% and 100%, respectively. The portfolio turnover rate is
calculated by dividing the lesser of the dollar amount of sales or purchases
of portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. Notwithstanding the foregoing, the Investment Adviser may,
from time to time, make short-term investments when it believes such
investments are in the best interest of a Fund.
36
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity, Growth and Income, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of June 23, 1997,
GSAM, GSFM and GSAMI, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
37
<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- ----------------------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Mid Cap Equity 1997 1992. Prior to 1992, he
Balanced (Equity) 1996 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- ----------------------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman jointed the
Vice President Mid Cap Equity 1996 Investment Adviser in
Growth and Income 1996 1993. Prior to 1993, she
Balanced (Equity) 1996 was an equity analyst at
Delphi Management.
- ----------------------------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Co-Head Balanced (Fixed Income) 1994 Investment Adviser in
U.S. Fixed Income 1990.
Department
- ----------------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- ----------------------------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- ----------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- ----------------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- ----------------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income Investment Adviser in
Mid Cap Equity 1993 1993. Prior to 1993, he
Balanced (Equity) 1995 was a principal of
1994 Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
- ----------------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Assistant Portfolio Since Mr. McLennan joined the
Associate Manager-- 1996 Investment Adviser in
Small Cap Value 1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Danny Truell Portfolio Manager-- Since Mr. Truell joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for six
years.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
39
<PAGE>
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
CORE Small Cap Equity........................ 0.85% n/a
CORE International Equity ................... 0.85% n/a
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of International Equity Fund) and administration agreements. For the
fiscal year ended January 31, 1997, the annual rate expressed is the combined
advisory and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Advisers may discontinue or modify such voluntary limitations in the future at
their discretion, although they have no current intention to do so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the Balanced, CORE Small Cap Equity, CORE International Equity,
CORE Large Cap Growth and Mid Cap Equity Funds) to the extent such expenses
exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%, 0.16% and 0.24%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
40
<PAGE>
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10009, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity,
International Equity and Asia Growth Funds with respect to Institutional or
Service Shares. Goldman Sachs is entitled to receive a transfer agency fee
from the Capital Growth, Growth and Income, Small Cap Value and Emerging
Markets Equity Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE International Equity, CORE Large Cap
Growth, CORE Small Cap Equity and Mid Cap Equity Funds, with respect to
Institutional and Service shares, equal to their proportionate share of the
total transfer agency fees borne by the Fund. Such fees are equal to the fixed
per account charge of $12,000 per year plus $7.50 per account, together with
out-of-pocket and transaction related expenses (including those out-of-pocket
expenses payable to servicing and/or sub-transfer agents) applicable to Class
A, B and C shares plus 0.04% of the average daily net assets of the
Institutional and Service classes.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), 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. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
41
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Each Fund may also from time to
time advertise total return on a cumulative, average, year-by-year or other
basis for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rates are being calculated.
Each Fund's total return, yield 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 total return, yield and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.
42
<PAGE>
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of July 24, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 95.80% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to qualify for
such treatment for each taxable year under Subchapter M of the Code. To
qualify as such, a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Fund will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds are not
43
<PAGE>
generally expected to qualify, in the hands of corporate shareholders, for the
corporate dividends-received deduction, but a portion of each other Fund's
dividends may generally so qualify. Certain distributions paid by a Fund in
January of a given year may be taxable to shareholders as if received the
prior December 31. Shareholders will be informed annually about the amount and
character of distributions received from the Funds for federal income tax
purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
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 their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other 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 Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property 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. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
44
<PAGE>
ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services shall
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
Normally, purchase, exchange and redemption orders processed by a Service
Organization on behalf of its customers will not be effective until received by
Goldman Sachs as described herein. The Trust may, however, authorize certain
Service Organizations that provide recordkeeping, reporting and processing
services to qualified employee benefit plans to accept on the Trust's behalf
orders placed by such plans and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form from a plan when the order is accepted by
the authorized Service Organization or intermediary on a Business Day, and the
order will be priced at a Fund's net asset value per share next determined
after such acceptance. The Service Organization or intermediary will be
responsible for transmitting accepted orders to the Trust within the period
agreed upon by them. An employee benefit plan may contact its Service
Organization to learn whether the Service Organization is authorized to accept
orders.
For the fiscal year ended January 31, 1997, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares outstanding during the period.
Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations for their services with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs. The Funds do not generally provide
subaccounting services with respect to beneficial ownership of Service Shares.
45
<PAGE>
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. 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 gain
distributions will be reinvested in Service Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-term
and short-term capital gains, reduced by available capital losses, at least
annually. From time to time, a portion of a Fund's dividends may constitute a
return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
Service Organizations. Service Shares may be purchased on any Business Day at
the net asset value per share next determined after receipt of an order by
Goldman Sachs from a Service Organization. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may be authorized to accept orders for the Funds.) No sales load will be
charged. Currently, net asset value is determined as of the close of regular
46
<PAGE>
trading on the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00
p.m. New York time), as described under "Net Asset Value." Purchases of Service
Shares of the Fund must be settled within three (3) Business Days of the re-
ceipt of a complete purchase order. Payment of the proceeds of redemption of
shares purchased by check may be delayed for a period of time as described un-
der "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street. In order to
facilitate timely transmittal, the Service Organizations have established times
by which purchase orders and payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third party
check) or Federal Reserve draft made payable to "Goldman Sachs Equity Funds--
Name of Fund and Class of shares" and should be directed to "Goldman Sachs
Equity Funds--Name of Fund and Class of shares," c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of such shareholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give sixty (60) days' prior written notice to Service
Organizations whose Service Shares are being redeemed to allow them to purchase
sufficient additional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
47
<PAGE>
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose and (ii) the corresponding class
of any Goldman Sachs Money Market Fund at the net asset value next determined
either by writing to Goldman Sachs, Attention: Goldman Sachs Equity Funds--Name
of Fund and Class of shares, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account Infor-
mation Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Service Shares acquired by telephone
exchange must be registered in the same name(s) and have the same address as
Service Shares of the Fund for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be modified or with-
drawn at any time on sixty (60) days' written notice to recordholders of Serv-
ice Shares and is subject to certain limitations. See "Purchase of Service
Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder
of such Shares on any Business Day at the net asset value next determined after
receipt of such request in proper form by Goldman Sachs from a Service Organi-
zation. (See "Additional Services" for a description of limited situations
where a Service Organization or other intermediary may be authorized to accept
requests for the Funds.) If Service Shares to be redeemed were recently pur-
chased by check, a Fund may delay transmittal of redemption proceeds until such
time as it has assured itself that good funds have been collected for the pur-
chase of such Service Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a Service Organization by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A Service Organization may request redemptions by telephone
if the optional telephone redemption privilege is elected on the Account Infor-
mation Form. It may be difficult to implement redemptions by telephone in times
of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the
48
<PAGE>
Account Information Form. Any such written request is also confirmed by
telephone with both the requesting party and the designated bank account to
verify instructions. Exchanges among accounts with different names, addresses
and social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time concerning telephone
redemptions and exchanges. 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 Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares, or if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once wire
transfer instructions have been given by Goldman Sachs, neither the Funds, the
Trust nor Goldman Sachs assumes any further responsibility for the performance
of intermediaries or the customer's Service Organization in the transfer
process. If a problem with such performance arises, the customer should deal
directly with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
--------------------
49
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report 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 of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid 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.
A-1
<PAGE>
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
[LOGO] GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
August 15, 1997
GOLDMAN SACHS EQUITY FUNDS
CLASS A, B AND C SHARES
GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in eq-
uity and fixed income securities.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments
in equity securities that are considered to have favorable prospects for
capital appreciation and/or dividend paying ability.
GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly di-
versified portfolio of large cap and blue chip equity securities represent-
ing all major sectors of the U.S. economy.
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 In-
dex at the time of investment.
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital appre-
ciation potential.
GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation primarily through investments in equity
securities of companies with public stock market capitalizations of between
$500 million and $10 billion at the time of investment.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and Small Cap
Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds Management, L.P.
("GSFM"), New York, New York, an affiliate of Goldman Sachs, serves as
investment adviser to the CORE U.S. Equity (formerly the "Select Equity Fund")
and Capital Growth Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as each Fund's distributor and
transfer agent.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS
OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA
GROWTH FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A
PORTION OF THEIR ASSETS, ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY,
HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE
NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER
REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND
CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS
IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED
WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated August 15, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights....................................................... 3
Fees and Expenses..................................................... 8
Financial Highlights.................................................. 14
Investment Objectives and Policies.................................... 22
Description of Securities............................................. 30
Investment Techniques................................................. 35
Risk Factors.......................................................... 39
Investment Restrictions............................................... 41
Portfolio Turnover.................................................... 41
Management............................................................ 42
Reports to Shareholders............................................... 47
How to Invest......................................................... 47
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders.................................... 53
Distribution and Authorized Dealer Service Plans...................... 56
How to Sell Shares of the Funds....................................... 58
Dividends............................................................. 59
Net Asset Value....................................................... 60
Performance Information............................................... 60
Shares of the Trust................................................... 61
Taxation.............................................................. 62
Additional Information................................................ 63
Appendix ............................................................. A-1
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
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<TABLE>
<S> <C> <C> <C>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARKS
---------- --------------------- ------------------- ----------
BALANCED FUND Long-term capital growth Between 45% and 65% of Lehman Aggregate Bond
and current income. total assets in equity Index and the Standard &
securities and at least Poor's Index of 500
25% in fixed income Common Stocks (the "S&P
senior securities. 500 Index")
- --------------------------------------------------------------------------------------------
GROWTH AND Long-term growth of At least 65% of total S&P 500 Index
INCOME FUND capital and growth of assets in equity
income. securities that the
Investment Adviser
considers to have
favorable prospects for
capital appreciation
and/or dividend paying
ability.
- --------------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total S&P 500 Index
EQUITY FUND capital and dividend assets in
income. equity securities of
U.S. issuers. The Fund
seeks to achieve its
objective through a
broadly diversified
portfolio of large cap
and blue chip equity
securities representing
all major sectors of
the U.S. economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's expected return,
while maintaining risk,
style, capitalization
and industry characteristics
similar to the S&P 500
Index.
</TABLE>
(continued)
3
<PAGE>
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<TABLE>
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- --------------- --------------------- ------------------------------ ----------------
CORE LARGE Long-term growth of At least 90% of total assets Russell 1000 Growth
CAP GROWTH capital. in equity securities of U.S. Index
FUND Dividend income is a issuers, including certain
secondary foreign issuers traded in the
consideration. U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of large
cap U.S. issuers that are
expected to have better
prospects for earnings growth
than the growth rate of the
general domestic economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- -------------------------------------------------------------------------------------------
CORE SMALL Long-term growth of At least 90% of total assets Russell 2000 Index
CAP EQUITY capital. in equity securities of U.S.
FUND issuers, including certain
foreign issuers traded in the
U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of U.S.
issuers which are included in
the Russell 2000 Index at the
time of investment. The Fund's
investments are selected using
both a variety of quantitative
techniques and fundamental
research in seeking to
maximize the Fund's expected
return, while maintaining
risk, style, capitalization
and industry characteristics
similar to the Russell 2000
Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth of At least 90% of total assets EAFE Index (unhedged)
INTERNATIONAL capital. in equity securities of
EQUITY FUND companies organized outside
the United States or whose
securities are principally
traded outside the United
States. The Fund seeks broad
representation of large cap
issuers across major countries
and sectors of the
international economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
unhedged Morgan Stanley
Capital International (MSCI)
Europe, Australia and Far East
Index (the "EAFE Index"). The
Fund may employ certain
currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term capital At least 90% of total assets S&P 500 Index
GROWTH FUND growth. in a diversified portfolio of
equity securities. The
Investment Adviser considers
long-term capital appreciation
potential in selecting
investments.
</TABLE>
4
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- --------------- --------------------- ------------------------------ ---------------------
MID CAP Long-term capital At least 65% of total assets Russell Midcap Index
EQUITY FUND appreciation. in equity securities of
companies with public stock
market capitalizations of
between $500 million and $10
billion at the time of
investment ("Mid-Cap
Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at FT/S&P Actuaries
EQUITY FUND appreciation. least 65%, of total assets in Europe & Pacific
equity securities of companies Index (unhedged)
organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term capital At least 65% of total assets Russell 2000
VALUE FUND growth. in equity securities of
companies with public stock
market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments
in companies with
public stock market
capitalizations
of $500 million or less at the
time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and at Morgan Stanley
MARKETS appreciation. least 65%, of total assets in Capital International
EQUITY FUND equity securities of emerging Emerging Markets Free
country issuers. The Fund may Index
employ certain currency
management techniques.
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and at Morgan Stanley
FUND appreciation. least 65%, of total assets in Capital International
equity securities of companies All Country Asia Free
in China, Hong Kong, India, ex Japan Index
Indonesia, Malaysia, Pakistan,
the Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan and Thailand.
The Fund may employ certain
currency management
techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment
in any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility . Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments
5
<PAGE>
and currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. Generally, there is less availability of
data on foreign companies and securities markets as well as less regulation of
foreign stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United States,
Canada, Australia, New Zealand and Japan. In addition, because the CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds invest primarily outside the United States, these Funds may
involve greater risks, since the securities markets of foreign countries are
generally less liquid and subject to greater price volatility. The securities
markets of emerging countries, including those in Asia, Latin America, Eastern
Europe and Africa are marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors.
Other. A Fund's use of certain investment techniques, including derivatives,
forward contracts, options and futures, will subject the Fund to greater risk
than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Mid Cap Equity and Small Cap Value Funds. Goldman Sachs
Funds Management, L.P. serves as Investment Adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the International Equity, Emerging Markets Equity and
Asia Growth Funds. As of June 23, 1997, the Investment Advisers, together with
their affiliates, acted as investment adviser or distributor for assets in
excess of $120 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases.......................................... $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA Purchases..... $ 250 $50
Automatic Investment Plan.................................. $ 50 $50
403(b) Plans............................................... $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 48.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of shares ("Authorized
Dealers"). See "How to Invest" on page 47.
6
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of shares through this Prospectus. These shares
may be purchased at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A shares"), (ii) with a contingent deferred sales
charge imposed on redemptions within six years of purchase ("Class B shares")
or (iii) without any initial or contingent deferred sales charge, as long as
shares are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A shares will be sold without an initial sales charge
and will be subject to a contingent deferred sales charge at the time of
certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B or Class C shares will exceed the initial sales charge and the
distribution fees attributable to Class A shares. Class B shares convert to
Class A shares, which are subject to lower distribution fees, eight years after
initial purchase. Class C shares, which are subject to the same distribution
fees as Class B shares, do not convert to Class A shares and are subject to the
higher distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page 47.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after receipt
of such request in proper form, subject to any applicable contingent deferred
sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
You may receive dividends in additional shares of the same class of the Fund
in which you have invested or you may elect to receive dividends in cash,
shares of the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Funds") or ILA Service Units of the Prime Obligations Portfolio
or the Tax-Exempt Diversified Portfolio, if you hold Class A shares of a Fund,
or ILA Class B or Class C Units of the Prime Obligations Portfolio, if you hold
Class B or Class C shares of a Fund (the "ILA Portfolios"). For further
information concerning dividends, see "Dividends."
7
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
GROWTH
AND CORE U.S.
BALANCED INCOME EQUITY
FUND FUND FUND
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C/5/
------- ------- ---------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.65% 0.65% 0.65% 0.70% 0.70% 0.70% 0.59% 0.59% 0.59%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.04% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.10% 0.10% 0.10% 0.23% 0.23% 0.23% 0.24% 0.24% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 1.00% 1.75% 1.75% 1.22% 1.93% 1.93% 1.29% 1.83% 1.83%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CORE CORE CORE
LARGE CAP SMALL CAP INTERNATIONAL
GROWTH FUND/5/ EQUITY FUND/5/ EQUITY FUND/5/
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.60% 0.60% 0.60% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.05% 0.75% 0.75% 0.25% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.05% 0.05% 0.05% 0.20% 0.20% 0.20% 0.25% 0.25% 0.25%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 0.90% 1.65% 1.65% 1.25% 1.95% 1.95% 1.50% 2.00% 2.00%
========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
8
<PAGE>
FEES AND EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL MID CAP INT'L
GROWTH EQUITY EQUITY
FUND FUND/5/ FUND
-------------------------------- ----------------------------- --------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
------- ------- ---------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... none none none none none none none none none
Maximum Deferred
Sales Charge.... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/......... none none none none none none none none none
Exchange
Fees/4/......... none none none none none none none none none
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average net
assets)
Management Fees
(after
applicable
limitations)/6/. 1.00% 1.00% 1.00% 0.75% 0.75% 0.75% 0.89% 0.89% 0.89%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.15% 0.15% 0.15% 0.10% 0.10% 0.10% 0.34% 0.34% 0.34%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/.. 1.40% 2.15% 2.15% 1.35% 1.85% 1.85% 1.69% 2.23% 2.23%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
SMALL EMERGING
CAP MARKETS ASIA
VALUE EQUITY GROWTH
FUND FUND/5/ FUND
--------------------------------- -------------------------------- ---------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... none none none none none none none none none
Maximum Deferred
Sales Charge.... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/......... none none none none none none none none none
Exchange
Fees/4/......... none none none none none none none none none
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average net
assets)
Management Fees
(after
applicable
limitations)/6/. 1.00% 1.00% 1.00% 1.10% 1.10% 1.10% 0.86% 0.86% 0.86%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.35% 0.35% 0.35% 0.30% 0.30% 0.30% 0.35% 0.35% 0.35%
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/.. 1.60% 2.35% 2.35% 1.90% 2.40% 2.40% 1.67% 2.21% 2.21%
========== ========== =========== ========== ========== ========== ========== ========== ===========
</TABLE>
- ----
/1/As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest--Offering Price--Class A Shares."
/2/A contingent deferred sales charge is imposed upon shares redeemed within
six years of purchase at a rate of 5% in the first year, declining to 1% in
the sixth year, and eliminated thereafter. See "How to Invest--Offering
Price--Class B Shares."
/3/A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/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 Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/5/Based on estimated amounts for the current fiscal year.
/6/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to .16%, .15%,
.10%, .10%, .11%, .10% and .14%, respectively. Without such limitations,
management fees would be .75%, .75%, .85%, .85%, 1.00%, 1.20% and 1.00% of
each Fund's average daily net assets, respectively.
/7/Goldman Sachs is imposing the entire distribution fee attributable to Class
A shares of the CORE International Equity, Mid Cap Equity and Emerging
Markets Equity Funds. Goldman Sachs voluntarily has agreed not to impose the
entire distribution fee attributable to Class A shares of each other Fund,
except Growth and Income,
9
<PAGE>
CORE U.S. Equity, CORE Small Cap Equity, International Equity and Asia Growth
Funds where Goldman Sachs voluntarily has agreed not to impose a portion of
the distribution fee equal to .21%, .04%, .20%, .04% and .04%, respectively,
of the distribution fee. Distribution fees for Class A shares would otherwise
be payable at the rate of .25% of average daily net assets.
/8/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of each Fund other than Balanced, CORE Large Cap Growth, CORE
Small Cap Equity, CORE International Equity and Mid Cap Equity Funds) for
the following funds to the extent such expenses exceed the following
percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/9/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for Class A and Class B shares of the Balanced, Growth and
Income, CORE U.S. Equity, Capital Growth, International Equity, Small Cap
Value and Asia Growth Funds is shown for the fiscal year ended January 31,
1997. Information for the Class A and B shares of the CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and
Emerging Markets Equity Funds, and Class C shares of each Fund are estimated
for the current fiscal year.
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced
Class A.............................................. 0.62% 1.77%
Class B.............................................. 0.62% 2.27%
Class C.............................................. 0.62% 2.27%
Growth and Income
Class A.............................................. 0.23% 1.43%
Class B.............................................. 0.23% 1.93%
Class C.............................................. 0.23% 1.93%
CORE U.S. Equity
Class A.............................................. 0.28% 1.53%
Class B.............................................. 0.28% 2.03%
Class C.............................................. 0.28% 2.03%
CORE Large Cap Growth
Class A.............................................. 0.65% 1.90%
Class B.............................................. 0.65% 2.40%
Class C.............................................. 0.65% 2.40%
CORE Small Cap Equity
Class A.............................................. 0.71% 2.06%
Class B.............................................. 0.71% 2.56%
Class C.............................................. 0.71% 2.56%
CORE International Equity
Class A.............................................. 0.86% 2.21%
Class B.............................................. 0.86% 2.71%
Class C.............................................. 0.86% 2.71%
Capital Growth
Class A.............................................. 0.15% 1.65%
Class B.............................................. 0.15% 2.15%
Class C.............................................. 0.15% 2.15%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Mid Cap Equity
Class A.............................................. 0.26% 1.51%
Class B.............................................. 0.26% 2.01%
Class C.............................................. 0.26% 2.01%
International Equity
Class A.............................................. 0.38% 1.88%
Class B.............................................. 0.38% 2.38%
Class C.............................................. 0.38% 2.38%
Small Cap Value
Class A.............................................. 0.35% 1.85%
Class B.............................................. 0.35% 2.35%
Class C.............................................. 0.35% 2.35%
Emerging Markets Equity
Class A.............................................. 0.92% 2.62%
Class B.............................................. 0.92% 3.12%
Class C.............................................. 0.92% 3.12%
Asia Growth
Class A.............................................. 0.37% 1.87%
Class B.............................................. 0.37% 2.37%
Class C.............................................. 0.37% 2.37%
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A Shares................................ $65 $85 $107 $171
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 68 85 115 181
--Assuming no redemption...................... 18 55 95 181
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 28 55 95 206
--Assuming no redemption...................... 18 55 95 206
Growth and Income Fund
Class A Shares................................ 67 92 118 195
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 91 124 200
--Assuming no redemption...................... 20 61 104 200
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 61 104 225
--Assuming no redemption...................... 20 61 104 225
CORE U.S. Equity Fund
Class A Shares................................ 67 94 122 202
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 69 88 119 193
--Assuming no redemption...................... 19 58 99 193
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 29 58 99 215
--Assuming no redemption...................... 19 58 99 215
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
CORE Large Cap Growth Fund
Class A Shares................................ 64 82 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 67 82 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 27 52 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
CORE Small Cap Equity Fund
Class A Shares................................ 67 92 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 91 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 61 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
CORE International Equity Fund
Class A Shares................................ 69 100 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 93 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Capital Growth Fund
Class A Shares................................ 68 97 127 214
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 97 135 222
--Assuming no redemption...................... 22 67 115 222
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 32 67 115 248
--Assuming no redemption...................... 32 67 115 248
Mid Cap Equity Fund
Class A Shares................................ 68 95 125 208
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 69 88 120 194
--Assuming no redemption...................... 19 58 100 194
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 29 58 100 217
--Assuming no redemption...................... 19 58 100 217
International Equity Fund
Class A Shares................................ 71 105 142 244
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 73 100 139 234
--Assuming no redemption...................... 23 70 119 234
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 33 70 119 256
--Assuming no redemption...................... 23 70 119 256
Small Cap Value Fund
Class A Shares................................ 70 103 137 235
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 103 146 242
--Assuming no redemption...................... 24 73 126 242
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 34 73 126 269
--Assuming no redemption...................... 24 73 126 269
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Equity Fund
Class A Shares................................ 73 111 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 105 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 34 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Asia Growth Fund
Class A Shares................................ 71 105 141 242
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 99 138 233
--Assuming no redemption...................... 22 69 118 233
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 32 69 118 254
--Assuming no redemption...................... 22 69 118 254
</TABLE>
The hypothetical example assumes that a contingent deferred sales charge
will not apply to redemptions of Class A shares within the first 18 months.
Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight.
The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information set forth in the
foregoing table and hypothetical example relates only to Class A, B and C
shares. Each Fund also offers Institutional and Service Shares, which are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services than Class A, Class B and Class C shares. Information regarding
Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A, Class B and Class C shares of the
Funds or for services to the Funds. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
13
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1997 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer Class A, Class B
or Class C shares of the CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Mid Cap Equity and Emerging Markets Equity Funds or
Class C shares of any other Fund. Accordingly, there are no financial
highlights for these Funds or Classes.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H)
------------------------------
NET REALIZED
NET ASSET AND UNREALIZED
VALUE, NET GAIN (LOSS) ON
BEGINNING INVESTMENT INVESTMENTS,
OF PERIOD INCOME OPTIONS AND FUTURES
--------- ---------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.31 $0.66 $2.47
1997--Class B
Shares(b)....... 17.46 0.42 2.34
1996--Class A
Shares.......... 14.22 0.51 3.43
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------------------
FROM NET NET RATIO OF
FROM REALIZED GAIN IN EXCESS NET NET ASSET ASSETS AT NET
NET ON INVESTMENT OF NET INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT AND FUTURE INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S) ASSETS
---------- ------------- ---------- ----------- --------- ---------- ----------- ---------- ---------- -----------
BALANCED FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $(0.66) $(1.00) -- $1.47 $18.78 18.59% 208.11(f) $.0587 $81,410 1.00%
1997--Class B
Shares(b)....... (0.42) (1.00) (0.07) 1.27 18.73 16.22(c) 208.11(f) .0587 2,110 1.75(e)
1996--Class A
Shares.......... (0.50) (0.35) -- 3.09 17.31 28.10 197.10(f) -- 50,928 1.00
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... (0.08) -- -- 0.04 14.22 0.87(c) 14.71(c) -- 7,510 1.00(e)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET
INVESTMENT RATIO OF INVESTMENT
INCOME TO EXPENSES INCOME (LOSS)
AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS NET ASSETS NET ASSETS
----------- ---------- -------------
- ----------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 3.65 1.90 2.75
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H)
--------------------------
NET REALIZED
NET ASSET AND UNREALIZED
VALUE, NET GAIN (LOSS) ON
BEGINNING INVESTMENT INVESTMENTS
OF PERIOD INCOME AND OPTIONS
--------- ---------- --------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.98 $0.35 $5.18
1997--Class B
Shares(f)....... 20.82 0.17 4.31
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96
1997--Service
Shares(f)....... 20.71 0.28 4.50
1996--Class A
Shares.......... 15.80 0.33 4.75
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b)
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------------------
FROM NET NET
FROM REALIZED GAIN IN EXCESS NET NET ASSET ASSETS AT
NET ON INVESTMENT OF NET ADDITIONAL INCREASE VALUE, PORTFOLIO AVERAGE END OF
INVESTMENT AND OPTION INVESTMENT PAID-IN IN NET END OF TOTAL TURNOVER COMMISSION PERIOD
INCOME TRANSACTIONS INCOME CAPITAL ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S)
---------- ------------- ---------- ---------- ----------- --------- ---------- ----------- ---------- ----------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $(0.35) $(1.97) $(0.01) $-- $3.20 $23.18 28.42% 53.03% $.0586 $615,103
1997--Class B
Shares(f)....... (0.17) (1.97) (0.06) -- 2.28 23.10 22.23(d) 53.03 .0586 17,346
1997--Institu-
tional
Shares(f)....... (0.30) (1.97) (0.04) -- 1.94 23.19 20.77(d) 53.03 .0586 193
1997--Service
Shares(f)....... (0.28) (1.97) (0.07) -- 2.46 23.17 23.87(d) 53.03 .0586 3,174
1996--Class A
Shares.......... (0.30) (0.60) -- -- 4.18 19.98 32.45 57.93 -- 436,757
1995--Class A
Shares.......... (0.20) (0.33) (0.07) 0.11(b) 0.01 15.80 3.97 71.80 -- 193,772
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... (0.15) (0.06) (0.01) -- 1.61 15.79 13.08(d) 102.23(d) -- 41,528
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS ASSETS NET ASSETS NET ASSETS
----------- ----------- ---------- -------------
- -----------------
<S> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 1.25 1.28 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(H)
------------------------------
NET REALIZED
NET ASSET AND UNREALIZED
VALUE, NET GAIN (LOSS) ON
BEGINNING INVESTMENT INVESTMENTS,
OF PERIOD INCOME OPTIONS AND FUTURES
--------- ---------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $19.66 $0.16 $4.46
1997--Class B
Shares(f)....... 20.44 0.04 3.70
1997--Institu-
tional Shares... 19.71 0.30 4.51
1997--Service
Shares(f)....... 21.02 0.13 3.15
1996--Class A
Shares.......... 14.61 0.19 5.43
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23
1995--Class A
Shares.......... 15.93 0.20 (0.38)
1994--Class A
Shares.......... 15.46 0.17 2.08
1993--Class A
Shares.......... 15.05 0.22 0.41
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------------------
FROM NET NET NET RATIO OF
FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET ASSETS AT NET
NET ON INVESTMENT OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S) ASSETS
---------- ------------- ---------- ----------- --------- ---------- ----------- ---------- ---------- ------------
CORE U.S. EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $(0.16) $(0.80) -- $3.66 $23.32 23.75% 37.28% $.0417 $225,968 1.29%
1997--Class B
Shares(f)....... (0.04) (0.80) (0.16) 2.74 23.18 18.59(b) 37.28 .0417 17,258 1.83(c)
1997--Institu-
tional Shares... (0.28) (0.80) -- 3.73 23.44 24.63 37.28 .0417 148,942 0.65
1997--Service
Shares(f)....... (0.13) (0.80) (0.10) 2.25 23.27 15.92(b) 37.28 .0417 3,666 1.15(c)
1996--Class A
Shares.......... (0.16) (0.41) -- 5.05 19.66 38.63 39.35 -- 129,045 1.25
1996--Institu-
tional
Shares(d)....... (0.24) (0.41) -- 2.74 19.71 20.14(b) 39.35(b) -- 64,829 0.65(c)
1995--Class A
Shares.......... (0.20) (0.94) -- (1.32) 14.61 (1.10) 56.18 -- 94,968 1.38
1994--Class A
Shares.......... (0.17) (1.61) -- 0.47 15.93 15.12 87.73 -- 92,769 1.42
1993--Class A
Shares.......... (0.22) -- -- 0.41 15.46 4.30 144.93 -- 117,757 1.28
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... (0.11) -- -- 0.88 15.05 7.01(b) 135.02(c) -- 151,142 1.57(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET INVESTMENT
INVESTMENT RATIO OF INCOME
INCOME TO EXPENSES (LOSS)
AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS NET ASSETS NET ASSETS
----------- ---------- ------------
- ----------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 1.52 0.85 1.32
1997--Service
Shares(f)....... 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 1.33 1.63 1.08
1994--Class A
Shares.......... 0.92 1.67 0.67
1993--Class A
Shares.......... 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(G)
------------------------------
NET REALIZED
NET ASSET AND UNREALIZED
VALUE, NET GAIN (LOSS) ON
BEGINNING INVESTMENT INVESTMENTS,
OF PERIOD INCOME OPTIONS AND FUTURES
--------- ---------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $14.91 $0.10 $3.56
1997--Class B
Shares(b)....... 15.67 0.01 2.81
1996--Class A
Shares.......... 13.67 0.12 3.93
1995--Class A
Shares.......... 15.96 0.03 (0.69)
1994--Class A
Shares.......... 14.64 0.02 2.40
1993--Class A
Shares.......... 13.65 0.06 2.28
1992--Class A
Shares.......... 11.10 0.28 2.90
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
------------------------------------
FROM NET NET NET RATIO OF
FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET ASSETS AT NET
NET ON INVESTMENTS OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT OPTIONS INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME AND FUTURES INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(F) IN (000'S) ASSETS
---------- -------------- ---------- ----------- --------- ---------- ---------- ---------- ---------- -----------
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $(0.10) $(1.72) $(0.02) $1.82 $16.73 25.97% 52.92% $.0563 $920,646 1.40%
1997--Class B
Shares(b)....... (0.01) (1.72) (0.09) 1.00 16.67 19.39(d) 52.92 .0563 3,221 2.15(e)
1996--Class A
Shares.......... (0.12) (2.69) -- 1.24 14.91 30.45 63.90 -- 881,056 1.36
1995--Class A
Shares.......... (0.01) (1.62) -- (2.29) 13.67 (4.38) 38.36 -- 862,105 1.38
1994--Class A
Shares.......... (0.01) (1.07) (0.02) 1.32 15.96 16.89 36.12 -- 833,682 1.38
1993--Class A
Shares.......... (0.07) (1.28) -- 0.99 14.64 18.01 58.93 -- 665,976 1.41
1992--Class A
Shares.......... (0.31) (0.32) -- 2.55 13.65 29.31 48.93 -- 500,307 1.53
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... (0.31) -- -- (0.24) 11.10 0.84(d) 35.63(d) -- 437,533 1.27(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
RATIO OF ------------------------
NET RATIO OF
INVESTMENT NET
INCOME RATIO OF INVESTMENT
(LOSS) TO EXPENSES INCOME (LOSS)
AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS NET ASSETS NET ASSETS
------------ ---------- -------------
- -------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY 31,
1997--Class A
Shares.......... 0.62% 1.65% 0.37%
1997--Class B
Shares(b)....... (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 0.65 1.61 0.40
1995--Class A
Shares.......... 0.16 1.63 (0.09)
1994--Class A
Shares.......... 0.13 1.63 (0.12)
1993--Class A
Shares.......... 0.42 1.66 0.17
1992--Class A
Shares.......... 2.09 1.78 1.84
FOR THE PERIOD
ENDED JANUARY 31,
1991--Class A
Shares(c)....... 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
17
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------- ------------------------------------------------
NET
REALIZED TOTAL FROM NET
AND INCOME REALIZED NET NET
NET ASSET UNREALIZED (LOSS) IN EXCESS GAIN ON TOTAL INCREASE ASSET
VALUE, NET GAIN ON FROM FROM NET OF NET INVESTMENTS DISTRIBUTIONS IN NET VALUE,
BEGINNING INVESTMENT INVESTMENTS INVESTMENT INVESTMENT INVESTMENT AND OPTION TO ASSET END OF
OF PERIOD INCOME AND OPTIONS OPERATIONS INCOME INCOME TRANSACTIONS SHAREHOLDERS VALUE PERIOD
--------- ---------- ----------- ---------- ---------- ---------- ------------ ------------- -------- ------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Institu-
tional Shares... $15.91 $0.24 $3.77 $4.01 $(0.24) $(0.02) $(0.93) $(1.19) $2.82 $18.73
FOR THE PERIOD
ENDED JANUARY
31,
1996--Institu-
tional
Shares(a)....... 15.00 0.13 0.90 1.03 (0.12) -- -- (0.12) 0.91 15.91
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
-----------------------
NET RATIO OF RATIO OF
ASSETS NET RATIO OF NET
AT END INVESTMENT EXPENSES INVESTMENT
OF RATIO OF NET INCOME TO TO INCOME TO
PORTFOLIO AVERAGE PERIOD EXPENSES TO AVERAGE AVERAGE AVERAGE
TOTAL TURNOVER COMMISSION (IN AVERAGE NET NET NET NET
RETURN(B) RATE RATE(E) 000'S) ASSETS(C) ASSETS(C) ASSETS(C) ASSETS(C)
------ --------- ---------- -------- ------------ --------- --------- ----------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Institu-
tional Shares...25.63% 74.03% $.0547 $145,253 0.85% 1.35% 0.91% 1.29%
FOR THE PERIOD
ENDED JANUARY
31,
1996--Institu-
tional
Shares(a).......6.89(d) 58.77(d) -- 135,671 0.85 1.67 0.98 1.54
</TABLE>
- ----
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(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) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
18
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
---------------------------------------- -----------------------
NET NET REALIZED FROM NET
REALIZED AND UNREALIZED REALIZED
AND UNREALIZED GAIN (LOSS) GAIN ON NET
NET ASSET NET GAIN (LOSS) ON ON FOREIGN FROM INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT INVESTMENTS, CURRENCY NET OPTION AND (DECREASE) VALUE,
BEGINNING INCOME OPTIONS RELATED INVESTMENT FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ------------ ----------- --------- ---------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21) $2.12 $19.32 13.48%
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34) -- (0.21) 0.33 19.24 2.83(c)
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24) (0.03) (0.21) 1.95 19.40 12.53(c)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08) -- (0.21) 1.64 19.34 10.42(c)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42 (0.58) (0.87) 2.68 17.20 28.68
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01) -- (0.59) (3.58) 14.52 (16.65)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38) -- -- 3.75 18.10 26.13
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11) -- -- 0.17 14.35 1.23(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSES
--------------------
RATIO OF RATIO OFF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
--------- ---------- ---------- ----------- ------------ ---------- -----------
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 38.01% $.0318 $536,283 1.69% (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... 38.01 .0318 19,198 2.23(d) (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 38.01 .0318 68,374 1.10(d) 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... 38.01 .0318 674 1.60(d) (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 68.48 -- 330,860 1.52 0.26 1.77 0.01
1995--Class A
Shares.......... 84.54 -- 275,086 1.73 0.40 1.98 0.15
1994--Class A
Shares.......... 60.04 -- 269,091 1.76 0.51 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 0.00 -- 66,063 1.80(d) (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
19
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT,
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS
--------- ---------- ------------------- ---------- -------------- ------------
SMALL CAP VALUE FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ --
1997--Class B
Shares(b)...... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 14.18 0.03 2.50 (0.03) -- --
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
---------------------
RATIO OF RATIO OF
NET NET RATIO OF NET NET
INCREASE NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
----------- --------- --------- --------- ---------- ---------- ----------- ------------- ---------- ----------
SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares......... $ 3.62 $20.91 $ 27.28% 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)...... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares......... 1.15 17.29 7.20 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares......... 3.99 20.67 30.13 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)...... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
20
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(g) SHAREHOLDERS
---------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN (LOSS) ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- -------------- ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(f) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
21
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects
22
<PAGE>
the CORE Funds' investment process. This investment process and the
proprietary models used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary multifactor models
(each a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. In the case of a U.S. equity security
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a rating is assigned based upon the Research
Department's evaluation. In the discretion of the Investment Adviser, ratings
may also be assigned to U.S. equity securities based on research ratings
obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
23
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
24
<PAGE>
CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective: The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives And Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Investment Adviser emphasizes a company's
growth prospects in analyzing equity securities to be purchased by the Fund.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Fund's investments are selected using both a
variety of quantitative
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techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfolio
comprised of companies with small market capitalizations, strong expected
earnings growth and momentum, and better valuation and risk characteristics
than the Russell 2000 Index. The Fund may invest only in fixed income
securities that are considered cash equivalents.
The Investment Adviser believes that the companies in which the Fund may
invest offer greater opportunity for growth of capital than larger, more
mature, better known companies. Investments in small market capitalization
issuers involve special risks. See "Description of Securities" and "Risk
Factors." If the issuer of a portfolio security held by the Fund is no longer
included in the Russell 2000 Index, the Fund may, but is not required to, sell
the security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are principally
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
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CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the capitalization of an issuer increases above $10 billion
after purchase of such issuer's securities, the Fund may, but is not required
to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors." Up to 35% of the
Fund's total assets may be invested in fixed income securities.
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SMALL CAP VALUE FUND (FORMERLY THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
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Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
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<PAGE>
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or 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 convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S. and comply with U.S. accounting standards).
Investments in foreign securities may offer potential benefits that are not
available from investments exclusively in equity securities of domestic
issuers quoted in U.S. dollars. Foreign countries may have economic policies
or business cycles different from those of the U.S. and markets for foreign
securities do not necessarily move in a manner parallel to U.S. markets.
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Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs"), and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund
will avoid currency risks during the settlement period for purchases and
sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets
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Equity and Asia Growth Funds may have currency exposure independent of their
securities positions, the value of the assets of a Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. A Fund
may, to the extent it invests in foreign securities, purchase or sell forward
foreign currency exchange contracts for hedging purposes and to seek to
protect against anticipated changes in future foreign currency exchange rates.
In addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian
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countries, the Investment Advisers do not currently anticipate that a
significant portion of Emerging Markets Equity or Asia Growth Fund's currency
exposure will be covered by such instruments. For a discussion of such
instruments and the risks associated with their use, see "Investment Objective
and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers. A sovereign
debtor's willingness or ability to repay principal and pay interest in a
timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's
policy toward international lenders and the political constraints to which a
sovereign debtor may be subject.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial
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investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets in debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%, 10%, 35%, 35%, 35%, and 35%, respectively, of their total
assets in debt securities which are unrated or rated in the lowest rating
categories by Standard & Poor's or Moody's (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Mid Cap Equity Fund may invest up to 10% of its total
assets in below investment grade debt securities rated B or higher by Standard
& Poor's or B or higher by Moody's. Fixed income securities rated BBB or Baa
34
<PAGE>
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. Fixed income securities
rated BB or Ba or below (or comparable unrated securities) are commonly
referred to as "junk bonds" and are considered predominantly speculative and
may be questionable as to principal and interest payments. In some cases, such
bonds may be highly speculative, have poor prospects for reaching investment
grade standing and be in default. As a result, investment in such bonds will
entail greater speculative risks than those associated with investment in
investment grade bonds. Also, to the extent that the rating assigned to a
security in a Fund's portfolio is downgraded by a rating organization, the
market price and liquidity of such security may be adversely affected. See
Appendix A to the Additional Statement for a description of the corporate bond
ratings assigned by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or
35
<PAGE>
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of options transactions, however, the writing
of an option on a foreign currency will constitute only a partial hedge, up to
the amount of the premium received. If an option that a Fund has written is
exercised, the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of
an option on foreign currency may constitute an effective hedge against
exchange rate fluctuations; however, in the event of exchange rate movements
adverse to a Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. In addition to purchasing put and call
options for hedging purposes, the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may
purchase call or put options on currency to seek to increase total return when
the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
36
<PAGE>
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter options, and certain
restricted securities, unless it is determined, based upon the continuing
review of the trading markets for a specific restricted security, that such
restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and delegated to the Investment Advisers the daily function of
determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Trustees have reviewed
and approved certain counterparties whom they believe to be
37
<PAGE>
creditworthy and have authorized the Funds to enter into repurchase agreements
with such counterparties. In addition, each Fund, together with other
registered investment companies having management agreements with an
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. If an
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund. A Fund may experience a loss or delay in the recovery of its securities
if the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
MORTGAGE DOLLAR ROLLS
The Balanced 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 substantially similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Fund loses the right to receive principal
and interest paid on the securities sold. However, the Fund 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 or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for 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. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. 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.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may no
longer be used to defer the recognition of gain for tax purposes with respect
to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Market Equity Fund may only
hold up to 35% of their respective total assets) in U.S.
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<PAGE>
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies, (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, Emerging Markets Equity and Asia
Growth Funds may each invest without limit in the securities of issuers in
Emerging Countries. The CORE International Equity Fund may invest up to 25%,
the Balanced, Growth and Income, Mid Cap Equity and Small Cap Value Funds may
each invest up to 15% and the Capital Growth Fund may invest up to 10% of its
total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement volume
limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign
39
<PAGE>
persons or limit investment by foreign persons to only a specified percentage
of an issuer's outstanding securities or a specific class of securities which
may have less advantageous terms (including price) than securities of the
issuer available for purchase by nationals. In addition, certain countries may
restrict or prohibit investment opportunities in issuers or industries deemed
important to national interests. Such restrictions may affect the market
price, liquidity and rights of securities that may be purchased by a Fund. The
repatriation of both investment income and capital from certain Emerging
Countries is subject to restrictions such as the need for governmental
consents. Due to restrictions on direct investment in equity securities in
certain Asian countries, such as Taiwan, it is anticipated that a Fund may
invest in such countries only through other investment funds in such
countries. See "Other Investment Companies" in the Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging Countries are authoritarian in nature or have been installed
or removed as a result of military coups, while governments in other Emerging
Countries have periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and ethnic, religious and
racial disaffection, among other factors, have also led to social unrest,
violence and/or labor unrest in some Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the risk of loss
due to expropriation, nationalization, confiscation of assets and property or
the imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such Emerging Countries.
Economies in Emerging Countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
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<PAGE>
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's (other than the CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity and Emerging Markets Equity Funds will generally not
exceed 70%, 70%, 70% and 100%, respectively. The portfolio turnover rate is
calculated by dividing the lesser of the dollar amount of sales or purchases
of portfolio securities by the average monthly value of a Fund's portfolio
securities, excluding securities having a maturity at the date of purchase of
one year or less. Notwithstanding the foregoing, the Investment Adviser may,
from time to time, make short-term investments when it believes such
investments are in the best interest of a Fund.
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<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the Balanced, Growth and Income, CORE
Large Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap
Equity and Small Cap Value Funds. Goldman Sachs registered as an investment
adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New
York, New York 10004, a Delaware limited partnership which is an affiliate of
Goldman Sachs, serves as the investment adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Funds Management, L.P. registered as an
investment adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of June 23, 1997,
GSAM, GSFM and GSAMI, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $120 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will have access to
the research of, and proprietary technical models developed by, Goldman Sachs
and may apply quantitative and qualitative analysis in determining the
appropriate allocations among the categories of issuers and types of
securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
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<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- -----------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1992. Prior to 1992, he
Mid Cap Equity 1997 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- -----------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1993. Prior to 1993, she
Mid Cap Equity 1996 was an equity analyst at
Delphi Management.
- -----------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisor at Fidelity
Investments.
- -----------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1990.
Fixed Income
Department
- -----------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- -----------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- -----------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- -----------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- -----------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- -----------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- -----------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income 1993 Investment Adviser in
Balanced (Equity) 1994 1993. Prior to 1993, he
Mid Cap Equity 1995 was a principal of
Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
- -----------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S.Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
- -----------------------------------------------------------------------------------------
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- -----------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- -----------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- -----------------------------------------------------------------------------------------------
Matthew B. McLennan Assistant Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- -----------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- -----------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- -----------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- -----------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- -----------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- -----------------------------------------------------------------------------------------------
Danny Truell Portfolio Manager-- Since Mr. Truell joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for six
years.
- -----------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed at Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
44
<PAGE>
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% N/A
CORE Small Cap Equity........................ 0.85% N/A
CORE International Equity.................... 0.85% N/A
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% N/A
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- --------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of the International Equity Fund) and administration agreements. For
the fiscal year ended January 31, 1997, the annual rate expressed is the
combined advisory and administration fees paid (after voluntary fee
limitations). The difference, if any, between the stated fees and the actual
fees paid by the Funds reflects that the applicable Investment Adviser did not
charge the full amount of the fees to which it would have been entitled. The
Investment Advisers may discontinue or modify such voluntary limitations in
the future at their discretion, although they have no current intention to do
so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses and, transfer agency fees in
the case of each Fund other than Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity and Mid Cap Equity Funds) to the extent
such expenses exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%,
0.16% and 0.24% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
45
<PAGE>
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers and other persons for performing
administrative services to their customers. These services include maintaining
account records, processing orders to purchase, redeem and exchange Fund
shares and responding to certain customer inquiries. In addition, these
services may also include responding to certain inquiries from and providing
written materials to depository institutions about a Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required
to conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from each Fund (other than the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity and Mid Cap Equity Funds), with respect
to Class A, Class B and Class C shares of $12,000 per year plus $7.50 per
account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Goldman Sachs is entitled to receive a fee from the
Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity and Mid Cap Equity Funds, with respect to Class
46
<PAGE>
A, Class B and Class C shares, equal to its proportionate share of the total
transfer agency fees borne by the Fund. Such fees are equal to the fixed
charges set forth above applicable to Class A, Class B and Class C shares plus
0.04% of the average daily net assets of the Institutional and Service classes
of the Fund. Shareholders with inquiries regarding any Fund should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which class of shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A shares.
CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares of a
Fund, no sales charge will be imposed at the time of purchase, but you will
incur a deferred sales charge equal to 1.00% if you redeem your shares within
18 months of purchase. Class A shares are subject to distribution fees of
0.25% (which currently are being waived in the case of Balanced, CORE Large
Cap Growth, Capital Growth and Small Cap Value Funds, limited to 0.21% for the
CORE U.S. Equity, International Equity and Asia Growth Funds, limited to 0.05%
for the CORE Small Cap Equity Fund and limited to 0.04% for the Growth and
Income Fund) and authorized dealer service fees of 0.25%, per annum,
respectively, of each Fund's average daily net assets attributable to Class A
shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of 0.75% and 0.25%, per annum,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans." Class B shares
will automatically convert to Class A shares, based on their relative net
asset values, eight years after the initial purchase. Your entire investment
in Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer
47
<PAGE>
service fees of 0.75% and 0.25%, per annum, respectively, of each Fund's
average daily net assets attributable to Class C shares. See "Distribution and
Authorized Dealer Service Plans." Class C shares have no conversion feature,
and accordingly, an investor that purchases Class C shares will be subject to
the distribution fees imposed on Class C shares for an indefinite period,
subject to annual approval by the Fund's Board of Trustees and certain
regulatory limitations. Your entire investment in Class C shares is available
to work for you from the time you make your initial investment, but the
distribution fee paid by Class C shares will cause your Class C shares to have
a higher expense ratio and to pay lower dividends, to the extent dividends are
paid, than Class A shares (or Class B shares after conversion to Class A
shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C shares. There is a maximum
purchase limitation of $250,000 and $1,000,000 in the aggregate on purchases
of Class B shares and Class C shares, respectively. Although Class C shares
are subject to a CDSC for only twelve months and at a lower rate than Class B
shares, Class C shares do not have the conversion feature applicable to Class
B shares, making them subject to higher distribution fees for an indefinite
period. Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. Currently, net asset value is determined
as of the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. New York time).
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial investment minimum of $200 applies to purchases in
connection with 403(b) plans. For purchases through the Automatic Investment
Plan, the minimum initial investment is $50. The minimum subsequent investment
is $50. These requirements may be waived at the discretion of the Trust's
officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Equity Funds--(Name of Fund and Class of
shares) and sent to 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 must be received within three
Business Days after receipt of the purchase order. An investor's Authorized
Dealer is responsible for forwarding payment promptly to the Fund.
48
<PAGE>
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
OFFERING PRICE--CLASS A SHARES
The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (j) below. Purchases by such plans will be made at net asset value
with no initial sales charge, but if all of the shares held are redeemed
within 18 months after the end of the calendar month in which such
purchase was made, a contingent deferred sales charge (CDSC), as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
49
<PAGE>
Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made,
excluding any period of time in which the shares were exchanged into and
remained invested in an ILA Portfolio (the contingent deferred sales charge
period), a CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
shares. Upon redemption of shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the shares
actually redeemed. In determining whether a CDSC applies to a redemption, the
calculation will be determined in a manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
made from any Class A shares in your account that are not subject to the CDSC.
The CDSC is waived on redemptions in certain circumstances. See "Waiver or
Reduction of Contingent Deferred Sales Charges" below.
Class A shares of the Funds 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 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; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third party
administrator that in the aggregate satisfies (1) or (3) above;
(i) shareholders whose purchase is attributable to redemption proceeds
(subject to appropriate documentation) from a registered open-end management
investment company not distributed or managed by Goldman Sachs or its
affiliates, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Funds and the shareholder either (1) paid an initial
sales charge or (2) was at some time subject to a deferred sales charge with
respect to the redemption proceeds; (j) "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; (k)
registered investment advisers investing for accounts for which they receive
asset-based fees; (l) accounts over which GSAM or its advisory affiliates have
investment discretion; and (m) shareholders receiving distributions from a
qualified retirement plan invested in the Goldman Sachs Funds and reinvesting
such proceeds in a Goldman Sachs IRA. Purchasers must certify eligibility for
an exemption on the Account Application and notify Goldman Sachs if the
shareholder is no longer eligible for an exemption. Exemptions will be granted
subject to confirmation of a purchaser's entitlement. Investors purchasing
shares of the Funds at net asset value without payment of any initial sales
charge may be charged a fee if they effect transactions in shares through a
broker or agent. In addition, under certain circumstances, dividends and
distributions from any of the Goldman Sachs Funds may be reinvested in shares
of each Fund at net asset value, as described under "Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program."
50
<PAGE>
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the charge will
be assessed on the amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period. As a result, a redeeming shareholder will
pay the lowest possible CDSC.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Fund will convert into Class A shares
of such Fund based
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<PAGE>
on the date of the initial purchase. Class B shares acquired through
reinvestment of distributions will convert into Class A shares based on the
date of the initial purchase of the shares on which the distribution was paid.
The conversion of Class B shares to Class A shares will not occur at any time
the Funds are advised that such conversions may constitute taxable events for
federal tax purposes, which the Funds believe is unlikely. If conversions do
not occur as a result of possible taxability, Class B shares would continue to
be subject to higher expenses than Class A shares for an indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
shares, the Funds will first redeem shares held for longer than 12 months, and
then shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C shares,
including the payment of compensation to Authorized Dealers. A commission
equal to 1.00% of the amount invested is paid to Authorized Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B shares of a Fund may reinvest
at net asset value any portion or all of his redemption proceeds (plus that
amount necessary to acquire a fractional share to round off his purchase to
the nearest full share) in Class A shares of the same Fund or any other
Goldman Sachs Fund. A shareholder who redeems Class C Shares of a Fund may
reinvest at net asset value any portion or all of his redemption proceeds
(plus that amount necessary to acquire a fractional share to round off his
purchase to the nearest full share) in Class C Shares of the same Fund or any
other Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed shares. If you redeemed Class B
shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A shares at net asset value as described above,
but the amount of the CDSC paid upon redemption will not be credited to your
account. Shares are sold to a reinvesting shareholder at the net asset value
next determined following timely receipt and acceptance by Goldman Sachs or an
Authorized Dealer of a written purchase order indicating that the shares are
eligible for reinvestment at net asset value.
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<PAGE>
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
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 may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
section 72 of the Code) of a participant or beneficiary in a Plan; (c)
hardship withdrawals by a participant or beneficiary in a Plan; (d) satisfying
the minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t) of the
Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in section 72 of the Code) of a
shareholder if the redemption is made within one year of such event; (h)
excess contributions being returned to a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C shares and 10% of the value of your Class A shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
A shareholder may also elect to exchange automatically a specified dollar
amount of shares of a Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund or ILA Portfolio.
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<PAGE>
Shares acquired through cross-reinvestment of dividends or the automatic
exchange program will be purchased at net asset value and will not be subject
to any initial or contingent deferred sales charge as a result of the cross-
reinvestment or exchange, but shares subject to a CDSC acquired under the
automatic exchange program may be subject to a CDSC at the time of redemption
from the fund into which the exchange is made determined on the basis of the
date and value of the investor's initial purchase of the fund from which the
exchange (or any prior exchange) is made. Automatic exchanges are made monthly
on the fifteenth day of each month or the first Business Day thereafter. The
minimum dollar amount for automatic exchanges must be at least $50 per month.
Cross-reinvestments and automatic exchanges are subject to the following
conditions: (i) the value of the shareholder's account(s) in the fund which is
paying the dividend or from which the automatic exchange is being made must
equal or exceed $5,000 and (ii) the value of the account in the acquired fund
must equal or exceed the acquired fund's minimum initial investment
requirement or the shareholder must elect to continue cross-reinvestment or
automatic exchanges until the value of acquired fund shares in the
shareholder's account equals or exceeds the acquired fund's minimum initial
investment requirement. A Fund shareholder may elect cross-reinvestment into
an identical account or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established,
appropriate signatures have been obtained and the minimum initial investment
requirement has been satisfied. A Fund shareholder should obtain and read the
prospectus of the fund into which dividends are invested or automatic
exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these 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.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial sales charge or CDSC at the time of exchange for shares of the
same class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for shares of the same class (or an
equivalent class) of the original Fund at the next determined net asset value
without the imposition of an initial or contingent deferred 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
the applicable sales charge. Shares of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Funds without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has
54
<PAGE>
owned shares will be measured from the date the shareholder acquired the
original shares subject to a CDSC and will not be affected by any subsequent
exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Equity
Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711 or, unless the investor has specifically declined telephone exchange
privileges on the Account Application or elected in writing not to utilize
telephone exchanges, by a telephone request to the Transfer Agent at 800-526-
7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "How
to Sell Shares of the Funds."
Under the telephone exchange privilege, shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.
Eligible investors may exchange Class A shares for Institutional shares of
the same Fund. For further information, contact Goldman Sachs at the number
set forth on the back of the Prospectus.
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.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized by
the Trust to accept purchase, exchange and redemption orders on the Trust's
behalf. In these cases, a Fund will be deemed to have received an order that
is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a Business Day, and the order will be priced at a Fund's net
asset value per share next determined after such acceptance. Otherwise, a Fund
or Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
55
<PAGE>
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Funds, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A, Class B or Class C
shares (such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
a Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Funds, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed .50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN--CLASS A SHARES
The Trust, on behalf of each Fund's Class A shares, has adopted Distribution
Plans pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "Act") (the "Class A Distribution Plan"). Under the Class A
Distribution Plan, Goldman Sachs is entitled to a quarterly fee from each Fund
for distribution services equal, on an annual basis, to 0.25% of a Fund's
average daily net assets attributable to Class A shares of such Fund.
Currently, Goldman Sachs has voluntarily agreed to waive the entire amount of
such fee for the Balanced, CORE Large Cap Growth, Capital Growth and Small Cap
Value Funds; to limit the amount of such fee to 0.21% of average daily net
assets attributable to Class A shares of CORE U.S. Equity, International
Equity and Asia Growth Funds; to limit the amount of such fee to 0.05% of
average daily net assets attributable to Class A shares of CORE Small Cap
Equity Fund; and to limit the amount of such fee to 0.04% of average daily net
assets attributable to Class A shares of the Growth and Income Fund. Goldman
Sachs has no current intention of modifying or discontinuing such waiver, but
may do so in the future at its discretion. The average rate for the fiscal
year ended January 31, 1997 paid by the Balanced, Growth and Income, CORE U.S.
Equity, Capital Growth, Small Cap Value, International Equity and Asia Growth
Funds to Goldman Sachs was 0.00%, 0.04%, 0.21%, 0.00%, 0.00%, 0.21% and 0.21%,
respectively, with respect to each Fund's Class A shares.
56
<PAGE>
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A shares of the Funds. The types of expenses for which Goldman Sachs may
be compensated for distribution services under the Class A Distribution Plan
include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and 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. If the fee received by Goldman Sachs pursuant
to the Class A Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Class A Distribution Plan will
be reviewed and is subject to approval annually by the Trustees. The aggregate
compensation that may be received under the Class A Distribution Plan for
distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.
DISTRIBUTION PLAN--CLASS B AND CLASS C SHARES
The Trust, on behalf of each Fund's Class B and Class C shares, has adopted
a Distribution Plan pursuant to Rule 12b-1 under the Act (each a "Distribution
Plan"). Goldman Sachs is entitled to a quarterly fee from each Fund under its
Class B or Class C Distribution Plan for distribution services equal, on an
annual basis, to 0.75% of its average daily net assets attributable to Class B
or Class C shares. For the fiscal year ended January 31, 1997, the Funds then
offering Class B shares paid distribution fees with respect to their Class B
shares at the foregoing rate.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class B and Class C shares of the Funds. The types of expenses for which
Goldman Sachs may be compensated for distribution services under the Class B
and Class C Distribution Plans include compensation paid to and expenses
incurred by Authorized Dealers, Goldman Sachs and their respective officers,
employees and sales representatives, commissions paid to Authorized Dealers,
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 B
and Class C shares. If the fee received by Goldman Sachs pursuant to a
Distribution Plan exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements. The Distribution Plans will be reviewed and are
subject to approval annually by the Trustees. The aggregate compensation that
may be received under each Distribution Plan for distribution services may not
exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year. Goldman Sachs pays the
distribution fee on a quarterly basis.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on
57
<PAGE>
behalf of the Funds. The Service Plans will be reviewed and are subject to
approval annually by the Trustees. For the fiscal year ended January 31, 1997,
each Fund then offering Class A or Class B shares paid Authorized Dealer
service fees at the foregoing rate for each Fund's Class A and Class B shares.
In connection with the sale of Class C shares, Goldman Sachs begins paying
the 0.25% ongoing service fee to Authorized Dealers after the shares have been
held for one year. Goldman Sachs pays the service fee on a quarterly basis.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will be mailed by check to a shareholder within three (3)
Business Days of receipt of a properly executed request. If shares to be
redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
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<PAGE>
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B or Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See
Additional Statement for more information about the Systematic Withdrawal
Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the Fund.
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The election to reinvest dividends and distributions paid by a Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-
term and short-term capital gains, reduced by available capital losses, at
least annually. From time to time, a portion of any Fund's dividends may
constitute a return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio
securities. Therefore, subsequent distributions on such shares from such
income or realized appreciation may be taxable to the investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), 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. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Total return calculations for
Class A shares reflect the effect of paying the maximum initial sales charge.
Investment at a lower sales charge would result in higher performance figures.
Total return calculations for Class B and Class C shares reflect deduction of
the applicable CDSC imposed upon redemption of Class B and Class C shares held
for the applicable period. Each Fund may also from time to time advertise
total return on a
60
<PAGE>
cumulative, average, year-by-year or other basis for various specified periods
by means of quotations, charts, graphs or schedules. In addition, each Fund
may furnish total return calculations based on investments at various sales
charge levels or at net asset value. Any performance data which is based on a
Fund's net asset value per share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance data
is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rate is being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
shares will be affected by the payment of a sales charge, distribution fees
and other class specific expenses. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
61
<PAGE>
As of July 24, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 95.80% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to continue to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds are not generally expected to qualify, in the hands of
corporate shareholders, for the corporate dividends-received deduction, but a
portion of each other Fund's dividends may generally so qualify. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
62
<PAGE>
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.
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 their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other 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 Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property 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. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
63
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A shares of
a Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem 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.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MA 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
GOLDMAN
SACHS
EQ PROABC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OAKMARK UNITS
GOLDMAN SACHS SHORT DURATION
TAX-FREE FUND
-----------
SUPPLEMENT DATED AUGUST 15, 1997
TO PROSPECTUS DATED MAY 1, 1997
The following replaces the Financial Highlights in the accompanying
prospectus:
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a unit (of the Class specified) of the
Fund outstanding during the period ended April 30, 1997 is unaudited. The
remaining data has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders of the Fund for
the year ended October 31, 1996 (the "Annual Report"). This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report also contains performance information and is available upon request and
without charge by calling the telephone number or writing to one of the
addresses on the back cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(H)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30,
1997-Institu-
tional Shares. $ 9.96 $0.2097(a) $(0.0200)(a) -- $0.1897
1997-Administra-
tion Shares... 9.96 0.1976(a) (0.0200)(a) -- 0.1776
1997-Service
Shares........ 9.97 0.1852(a) (0.0300)(a) -- 0.1552
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares. 9.94 0.4192(a) 0.0200 (a) -- 0.4392
1996-Administra-
tion Shares... 9.94 0.3944(a) 0.0200 (a) -- 0.4144
1996-Service
Shares........ 9.95 0.3697(a) 0.0200 (a) -- 0.3897
1995-Institu-
tional Shares. 9.79 0.4235(a) 0.1500 (a) -- 0.5735
1995-Administra-
tion Shares... 9.79 0.3989(a) 0.1500 (a) -- 0.5489
1995-Service
Shares........ 9.79 0.3744(a) 0.1600 (a) -- 0.5344
1994-Institu-
tional Shares. 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administra-
tion Shares... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
INVESTMENT FUTURES INVESTMENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
---------- ------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30,
1997-Institu-
tional Shares. $(0.2097) -- -- -- -- $(0.2097)
1997-Administra-
tion Shares... (0.1976) -- -- -- -- (0.1976)
1997-Service
Shares........ (0.1852) -- -- -- -- (0.1852)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares. (0.4192) -- -- -- -- (0.4192)
1996-Administra-
tion Shares... (0.3944) -- -- -- -- (0.3944)
1996-Service
Shares........ (0.3697) -- -- -- -- (0.3697)
1995-Institu-
tional Shares. (0.4235) -- -- -- -- (0.4235)
1995-Administra-
tion Shares... (0.3989) -- -- -- -- (0.3989)
1995-Service
Shares........ (0.3744) -- -- -- -- (0.3744)
1994-Institu-
tional Shares. (0.3787) (0.0825) -- -- -- (0.4612)
1994-Administra-
tion Shares... (0.3537) (0.0825) -- -- -- (0.4362)
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF RATIO OF
NET NET NET NET RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME NET ASSETS TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO AT END OF AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(G) ASSETS NET ASSETS RATE(C) (IN 000s) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------
FOR THE SIX MONTHS ENDED APRIL 30,
1997-Institu-
tional Shares. $(0.0200) $9.94 1.91%(d) 0.45% 4.24%(b) 99.59% $37,159 1.05%(b) 3.64%
1997-Administra-
tion Shares... (0.0200) 9.94 1.79(d) 0.70(b) 4.03(b) 99.59 113 1.30(b) 3.43(b)
1997-Service
Shares........ (0.0300) 9.94 1.56(d) 0.95(b) 3.77(b) 99.59 1,045 1.55(b) 3.17(b)
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares. 0.0300 9.96 4.50 0.45 4.21 231.65 34,814 1.01% 3.65%
1996-Administra-
tion Shares... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares........ 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares. 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares........ 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares. (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
</TABLE>
<PAGE>
===============================================================================
FINANCIAL HIGHLIGHTS (Continued)
===============================================================================
<TABLE>
<CAPTION>
Income (loss) from investment operations/(h)/
--------------------------------------------------
Net realized Net
and realized
unrealized and
gain (loss) unrealized Total
on gain (loss) income
Net asset investment, on foreign (loss)
value at Net option and currency from
beginning Investment futures related investment
of period income transactions transactions operations
--------- ---------- ------------ ------------ ----------
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended October 31, (Continued)
1994-Service
Shares(f)....... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000 -- 0.6834
1993-Administra-
tion Shares(f) 10.16 0.1555 0.0720 -- 0.2275
For the Period October 1992(e) through October 31,
1992-Institu-
tional
Shares(f)....... 10.00 0.0341(a) (0.0700) -- (0.0359)
</TABLE>
===============================================================================
FINANCIAL HIGHLIGHTS (Continued)
===============================================================================
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------------------------------------
In excess
From net of net
realized realized
gain on gain on
investment, In excess investment, From Total
From net option and of net option and paid distributions
investment futures investment futures in to
income transactions income transactions capital shareholders
---------- ------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND (Continued)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, (Continued)
1994-Service
Shares(f)....... (0.0475) -- (0.0475)
1993-Institu-
tional
Shares.......... (0.3834) -- -- -- -- (0.3834)
1993-
Administra-
tion Shares(f) (0.1555) -- -- -- -- (0.1555)
For the Period October 1992(e) through October 31,
1992-Institu-
tional
Shares(f)....... (0.0341) -- -- -- -- (0.0341)
</TABLE>
<PAGE>
===============================================================================
FINANCIAL HIGHLIGHTS (Continued)
===============================================================================
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees or expense
limitations
----------------------
Ratio of
Ratio of net Ratio of
Net Net net investment Ratio of net
increase asset expenses income Net expenses investment
(decrease) value to (loss) to assets to income
in net at end average average Portfolio at end of average (loss) to
asset of Total net net turnover period net average
value period return/(g)/ assets assets rate/(c)/ (in 000s) assets net assets
---------- ------ --------- -------- ---------- ---------- --------- -------- ----------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, (Continued)
1994-Service
Shares(f)....... (0.0700) 9.79 (0.32)(d) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional
Shares.......... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-
Administra-
tion Shares(f) 0.0720 10.23 2.28(d) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
For the Period October 1992(e) through October 31,
1992-Institu-
tional
Shares (f)...... (0.0700) 9.93 (0.34)(d) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
</TABLE>
- ---------------------
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Includes the effect of mortgage dollar roll transactions.
(d) Not annualized.
(e) Commencement of operations.
(f) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994 respectively.
(g) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. For Class A shares only total return would be reduced if a sales
charge were taken into account.
(h) Includes the balancing effect of calculating per share amounts.
<PAGE>
The following paragraph is added under the section entitled "Miscellaneous
Techniques:"
In addition, the Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. The Fund may not make
additional investments if borrowings (excluding covered mortgage dollar
rolls) exceed 5% of its total assets. For more information, see the
Additional Statement.
The following supplements the information provided under the section
entitled "Additional Information:"
The New York Stock Exchange is closed on the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The following supplements the information provided under the subsection
"Purchase by Federal Funds Wire or ACH Transfer:"
If a purchase order is received with a specified settlement date by
Oakmark by 3:00 p.m. Chicago time and payment is made by wire transfer or
ACH transfer, units will be issued and dividends will begin to accrue on
the purchased units on the later of (i) the Business Day after receipt by
Oakmark of a purchase order or (ii) the day of receipt of a federal funds
wire or an ACH transfer by Oakmark. For purchases without a specified
settlement date, units will be issued and dividends declared with respect
to such units will begin to accrue on the Business Day after payment is
received.
The following supplements the information provided under the subsection
"Purchase by Check or Federal Reserve Draft:"
If a purchase order is received with a specified settlement date by
Oakmark by 3:00 p.m. Chicago time and payment is made by check or Federal
Reserve draft, units will be issued and dividends will begin to accrue on
the purchased units on the Business Day after the date payment is
received. For purchases without a specified settlement date, units will be
issued and dividends declared with respect to such units will begin to
accrue on the Business Day after payment is received.
