<PAGE>
As filed with the Securities and Exchange Commission on February 25, 1997.
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 30 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 ( X )
Amendment No. 32 ( X )
(Check appropriate box or boxes)
----------
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-993-4400
------------
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Pamela J. Wilson, Esq.
85 Broad Street - 12th Floor Hale and Dorr
New York, New York 10004 60 State Street
Boston, MA 02109
(Name and address of agent for service)
It is proposed that this filing will become effective (check
appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
(X) on February 28, 1997 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date)pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
------------
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2. On December 20, 1996, Registrant
filed a Rule 24f-2 notice for its fiscal year ended October 31, 1996.
- ------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS TRUST
Institutional Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
1. Cover Page Cover Page
2. Synopsis Fund Highlights
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securi-
ties; Risk Factors; Investment
Techniques; Investment Re-
strictions; Portfolio Turn-
over; Reports to Shareholders;
Shares of the Trust; Addition-
al Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of
Other Securities the Trust; Taxation; Addi-
tional Information
7. Purchase of Securities Purchase of Institutional
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Institutional
Repurchase Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
<PAGE>
PART B CAPTION
- ------ -------
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
<PAGE>
GOLDMAN SACHS TRUST
Administration Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
1. Cover Page Cover Page
2. Synopsis Fund Highlights
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securities;
Risk Factors; Investment Tech-
niques; Investment Restrictions;
Portfolio Turnover; Reports to
Shareholders; Shares of the
Trust; Additional Information
5. Management of the Management
Fund
6. Capital Stock and Dividends; Shares of the
Other Securities Trust; Taxation; Additional
Information
7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
<PAGE>
Part B Caption
______ _______
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poliand
Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
<PAGE>
GOLDMAN SACHS TRUST
Service Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
1. Cover Page Cover Page
2. Synopsis Fund Highlights
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securi-
ties; Risk Factors; Investment
Techniques; Investment
Restrictions; Portfolio Turn-
over; Reports to Shareholders;
Shares of the Trust; Addi-
tional Information
5. Management of the Management
Fund
6. Capital Stock and Dividends; Shares of the
Other Securities Trust; Taxation; Additional
Information
7. Purchase of Securities Purchase of Service
Being Offered Shares; Net Asset Value;
Additional Information
8. Redemption or Redemption of Service
Repurchase Shares; Additional Information
9. Pending Legal Not Applicable
Proceedings
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
<PAGE>
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
<PAGE>
GOLDMAN SACHS TRUST
Class A and Class B Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
1. Cover Page Cover Page
2. Synopsis Fund Highlights
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securi-
ties; Risk Factors; Investment
Techniques; Investment Re-
strictions; Portfolio Turn-
over; Reports to Shareholders;
Shares of the Trust; Addition-
al Information
5. Management of the Management
Fund
6. Capital Stock and Dividends; Shares of the
Other Securities Trust; Taxation; Additional
Information
7. Purchase of Securities Purchase of Service Shares;
Being Offered Net Asset Value; Additional
Information
8. Redemption or Redemption of Service Shares;
Repurchase Additional Information
9. Pending Legal Not Applicable
Proceedings
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
<PAGE>
PART B CAPTION
______ _______
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective and Poli-
and Policies cies; Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value
and Pricing of
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
GOLDMAN SACHS TRUST
GS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
CLASS A SHARES
CLASS B SHARES
----------------
SUPPLEMENT DATED FEBRUARY 28, 1997 TO PROSPECTUS DATED MARCH 1, 1996
GS 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 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
income tax, consistent with preservation of capital. The fund invests
primarily in municipal 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.
This Prospectus Supplement and the accompanying 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 February 28, 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, 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 the accompanying Prospectus.
The following replaces the Fees and Expenses Table and Financial Highlights
and supplements the information under the sections entitled "Management" and
"How to Invest" in the accompanying Prospectus:
1
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
ADJUSTABLE
RATE GOVERNMENT MUNICIPAL GLOBAL
GOVERNMENT INCOME INCOME INCOME
FUND FUND FUND FUND
---------- ------------------ ------------------ ------------------
CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
---------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases.. 1.5%/1/ 4.5%/1/ none 4.5%/1/ none 4.5%/1/ none
Maximum Sales Charge
Imposed on Reinvested
Dividends............. none none none none none none none
Maximum Deferred Sales
Charge................ none/1/ none/1/ 5.0% none/1/ 5.0% none/1/ 5.0%
Redemption Fees/2/..... none none none none none none none
Exchange Fees/2/....... none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of av-
erage daily net as-
sets)
Management Fees
(including, after
applicable
limitations, advisory
and administration
fees)................. 0.40% 0.25%/4/ 0.25%/4/ 0.55% 0.55% 0.59%/6/ 0.59%/6/
Distribution (Rule 12b-
1) Fees (after
applicable
limitations).......... 0.00%/3/ 0.00%/4/ 0.75% 0.00%/5/ 0.75% 0.21%/6/ 0.75%
Other Expenses:
Authorized Dealer
Service Fees......... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)......... 0.05%/3/ 0.00%/4/ 0.00%/4/ 0.05%/5/ 0.05%/5/ 0.11%/6/ 0.11%/6/
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee
and expense
limitations)......... 0.70%/3/ 0.50%/4/ 1.25%/4/ 0.85%/5/ 1.60%/5/ 1.16%/6/ 1.70%/6/
==== ==== ==== ==== ==== ==== ====
</TABLE>
2
<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............................... $22 $37 $ 53 $101
Government Income Fund.........................
Class A Shares............................... 50 60 72 105
Class B Shares
--Assuming complete redemption at end of
period..................................... 63 70 89 126
--Assuming no redemption.................... 13 40 69 126
Municipal Income Fund
Class A Shares............................... 53 71 90 145
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 66 80 107 164
--Assuming no redemption.................... 16 50 87 164
Global Income Fund
Class A Shares............................... 56 80 106 180
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 84 112 178
--Assuming no redemption.................... 17 54 92 178
</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.
- --------
/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 or more. See "How to Invest--Offering Price".
/2/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Portfolios or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege".
/3/ Based upon estimated amounts for the current fiscal year. Goldman Sachs
voluntarily has agreed to waive the entire distribution fee attributable to
Class A shares of the Fund. The Investment Adviser has also voluntarily
agreed to reduce or limit certain "Other Expenses" of Adjustable Rate
Government Fund (excluding advisory, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. Goldman Sachs
and
3
<PAGE>
the Investment Adviser have no current intention of modifying or
discontinuing any of such limitations but may do so in the future at their
discretion. Without such limitations, Adjustable Rate Government Fund's
"Distribution Fees", "Other Expenses" and "Total Operating Expenses" would
be 0.25%, 0.36% and 1.01%, respectively. Annual operating expenses incurred
by the Class A shares of the Fund during the fiscal year ended October 31,
1996 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Distribution Fees", "Other Expenses"
and "Total Operating Expenses" of 0.40%, 0.00%, 0.30% and 0.70%,
respectively.
/4/ Based upon estimated amounts for the current fiscal year, "Management Fees"
paid by the Government Income Fund include advisory and administration fees
of 0.25% and 0.00%, respectively. The Investment Adviser has voluntarily
agreed to limit its advisory and administration fees to such amounts.
Without such limitations, advisory and administration fees would be 0.50%
and 0.15%, respectively. Goldman Sachs voluntarily has agreed to waive the
entire distribution fee attributable to Class A shares of the Fund. The
Investment Adviser has also voluntarily agreed to reduce or limit all "Other
Expenses" of Government Income Fund (excluding advisory, administration,
distribution and authorized dealer service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses). Goldman Sachs and the Investment Adviser have no current
intention of modifying or discontinuing any of such limitations but may do
so in the future at their discretion. Without such limitations, Government
Income Fund's "Management Fees", "Distribution Fees", "Other Expenses" and
"Total Operating Expenses" would be 0.65%, 0.25%, 0.99% and 1.89%,
respectively, in the case of Class A shares, and 0.65%, 0.75%, 0.99% and
2.39%, respectively, in the case of Class B shares. Annual operating
expenses incurred by the Fund during the fiscal year ended October 31, 1996
(expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Distribution Fees", "Other Expenses"
and "Total Operating Expenses" of 0.25%, 0.00%, 0.25% and 0.50%,
respectively in the case of Class A shares, and 0.25%, 0.75%, 0.25% and
1.25%, respectively, in the case of Class B shares.
/5/ Based upon estimated amounts for the current fiscal year, "Management Fees"
paid by Municipal Income Fund include advisory and administration fees of
0.40% and 0.15%, respectively. Goldman Sachs voluntarily has agreed to waive
the entire distribution fee attributable to Class A shares of the Fund. The
Investment Adviser has also voluntarily agreed to reduce or limit certain
"Other Expenses" of Municipal Income Fund (excluding advisory,
administration, distribution and authorized dealer service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.05% of the
Fund's average daily net assets. Goldman Sachs and the Investment Adviser
have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, "Distribution Fees", "Other Expenses" and "Total Operating
Expenses" would be 0.25%, 0.75% and 1.55%, respectively, in the case of
Class A shares, and 0.75%, 0.75% and 2.05%, respectively, in the case of
Class B shares. Annual operating expenses incurred by the Fund during the
fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees",
"Distribution Fees", "Other Expenses" and "Total Operating Expenses" of
0.55%, 0.00%, 0.30% and 0.85%, respectively in the case of Class A shares,
and 0.55%, 0.75%, 0.30% and 1.60%, respectively, in the case of Class B
shares.
/6/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15%
4
<PAGE>
respectively. The Investment Advisers have voluntarily agreed to limit their
advisory and subadvisory fees to such amounts. Without such limitations,
advisory and subadvisory fees would be 0.25% and 0.50%, respectively. Goldman
Sachs voluntarily has agreed to limit its distribution fee attributable to
Class A shares of the Fund to 0.21%. The Investment Advisers have also
voluntarily agreed to reduce or limit certain "Other Expenses" of the Global
Income Fund (excluding transfer agency fees (estimated to be 0.05% of average
daily net assets), advisory, subadvisory, administration, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed 0.06% of the Fund's average daily net assets. Goldman
Sachs and the Investment Advisers have no current intention of modifying or
discontinuing any of such limitations but may do so in the future at their
discretion. Without such limitations, Global Income Fund's "Management Fees",
"Distribution Fees", "Other Expenses" and "Total Operating Expenses" would be
0.90%, 0.25%, 0.49% and 1.64%, respectively, in the case of Class A shares,
and 0.90%, 0.75%, 0.49% and 2.14%, respectively, in the case of Class B
shares. Annual operating expenses incurred by the Fund during the fiscal year
ended October 31, 1996 (expressed as a percentage of average daily net assets
after fee adjustments) were "Management Fees", "Distribution Fees", "Other
Expenses" and "Total Operating Expenses" of 0.59%, 0.21%, 0.36% and 1.16%,
respectively, in the case of Class A shares, and 0.59%, 0.75%, 0.36% and
1.70%, respectively, in the case of Class B shares.
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 shares). The Adjustable Rate
Government Fund and Global Income Fund, but not the other Funds, also offer
Institutional Shares and Service Shares and the Adjustable Rate Government
Fund, but not the other Funds, also offers Administration Shares,
Institutional, Administration and Service Shares are subject to different fees
and expenses (which affects performance), have different minimum investment
requirements and are entitled to different services than Class A shares and
Class B shares. Information regarding Institutional, Administration and
Service Shares may be obtained from your sales representative or from Goldman
Sachs by calling the number on the back cover 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 National
Association of Securities Dealers, Inc.'s rules regarding investment
companies.
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 fees and expenses included in the table and the
hypothetical example above are based on estimated fees and expenses for the
current fiscal year and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers, Subadviser and
Administrator".
5
<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 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
------------------------------------------------
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
- ----------------------------------------------------------------------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares... $9.77 $0.5759(j) $0.0772(j) -- $0.6531
1996-Administra-
tion Shares..... 9.77 0.5489(j) 0.0797(j) -- 0.6286
1996-Class A
Shares.......... 9.77 0.5481(j) 0.0806(j) -- 0.6287
1995-Institu-
tional Shares... 9.74 0.5630(j) 0.0717(j) -- 0.6347
1995-Administra-
tion Shares..... 9.74 0.5366(j) 0.0737(j) -- 0.6103
1995-Class A
Shares(i)....... 9.79 0.2721(j) (0.0090)(j) -- 0.2631
1994-Institu-
tional Shares... 10.00 0.4341(j) (0.2455)(j) -- 0.1886
1994-Administra-
tion Shares..... 10.00 0.4211(j) (0.2572)(j) -- 0.1639
1993-Institu-
tional Shares... 10.04 0.4397 (0.0376)(h) -- 0.4021
1993-Administra-
tion Shares(i).. 10.02 0.2146 (0.0173)(h) -- 0.1973
1992-Institu-
tional Shares... 10.03 0.5599 (0.0029)(h) -- 0.5570
FOR THE PERIOD JULY 17, 1991(D) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares... 10.00 0.1531 0.0322(h) -- 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
- -------------------------------------------------------------------------------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares... $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares..... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares.......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares... (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares..... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(i)....... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares... (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares..... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares... (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion Shares(i).. (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares... (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(D) THROUGH OCTOBER 31,
- ----------------------------
1991-Institu-
tional 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(B) NET ASSETS ASSETS RATE(H) (IN 000S) NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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(i)....... (0.0200) 9.77 2.74(g) 0.69(e) 5.87(e) 24.12 15,203 1.01(e) 5.55(e)
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(i).. (0.0200) 10.00 2.01(g) 0.70(e) 3.81(e) 103.74 5,326 0.73(e) 3.78(e)
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(D) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares... 0.0300 10.03 2.14(g) 0.20(e) 7.31(e) 145.67(e) 239,642 1.02(e) 6.49(e)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A)
-------------------------------------------
NET
REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
NET ON GAIN (LOSS) TOTAL
ASSET INVESTMENT, ON FOREIGN INCOME
VALUE AT NET OPTION CURRENCY (LOSS)
BEGINNING INVEST- AND RELATED FROM
OF MENT FUTURES TRANS- INVESTMENT
PERIOD INCOME TRANSACTIONS ACTIONS OPERATIONS
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.47 $0.92 $(0.11) -- $ 0.81
1996-Class B
shares(c)....... 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(D) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 14.32 0.56 0.58 -- 1.14
<CAPTION>
GLOBAL INCOME FUND
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.45 $0.71 $ 0.62 $0.18 $ 1.51
1996-Class B
shares(c)....... 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(f)....... 14.09 0.22 0.34 0.06 0.62
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23
FOR THE PERIOD AUGUST 2, 1991(D)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 IN GAIN ON
FROM INVESTMENT, EXCESS INVESTMENT, TOTAL
NET OPTION OF NET OPTION FROM DISTRI-
INVEST- AND INVEST- AND PAID BUTIONS
MENT FUTURES MENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $(0.92) -- -- -- -- $(0.92)
1996-Class B
shares(c)....... (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(D) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... (0.56) -- -- -- -- (0.56)
<CAPTION>
GLOBAL INCOME FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $(1.43) -- -- -- -- $(1.43)
1996-Class B
shares(c)....... (0.36) -- -- -- -- (0.36)
1996-
Institutional
shares.......... (1.50) -- -- -- -- (1.50)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94)
1995-
Institutional
shares(f)....... (0.26) -- -- -- -- (0.26)
1994-Class A
shares.......... (0.22) (0.16) -- -- (0.61) (0.99)
1993-Class A
shares.......... (0.85) (0.27) -- -- -- (1.12)
1992-Class A
shares.......... (1.14) -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(D)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
INVEST- NET
NET MENT NET INVEST-
INCREASE NET RATIO OF INCOME ASSETS MENT
(DECREASE) ASSET NET TO AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES AVERAGE PORTFOLIO OF EXPENSES TO
ASSET END OF TOTAL TO AVERAGE NET TURNOVER PERIOD TO AVERAGE AVERAGE
VALUE PERIOD RETURN(B) NET ASSETS ASSETS RATE(H) (IN 000S) NET ASSETS NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
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(c)....... 0.26 14.37 4.85(g) 1.25(e) 5.65(e) 485.09 234 2.39(e) 4.51(e)
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(D) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 0.58 14.90 8.03(g) 0.00(e) 4.87(e) 725.41(g) 12,860 4.00(e) 0.87(e)
<CAPTION>
GLOBAL INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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(c)....... 0.50 14.53 6.24(g) 1.70(e) 5.16(e) 232.15 256 2.14(e) 4.72(e)
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(f)....... 0.36 14.45 4.42(g) 0.65(e) 6.01(e) 265.86 31,619 1.08(e) 5.58(e)
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(D)THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Class A
shares.......... 0.05 14.60 2.00 0.38(g) 1.72(g) 34.22(g) 388,744 0.44(g) 1.66(g)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(A)
-------------------------------------------
NET
REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
NET ON GAIN (LOSS) TOTAL
ASSET INVESTMENT, ON FOREIGN INCOME
VALUE AT NET OPTION CURRENCY (LOSS)
BEGINNING INVEST- AND RELATED FROM
OF MENT FUTURES TRANS- INVESTMENT
PERIOD INCOME TRANSACTIONS ACTIONS OPERATIONS
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $14.17 $0.65 $ 0.20 -- $ 0.85
1996-Class B
shares(c)....... 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(D)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 IN GAIN ON
FROM INVESTMENT, EXCESS INVESTMENT, TOTAL
NET OPTION OF NET OPTION FROM DISTRI-
INVEST- AND INVEST- AND PAID BUTIONS
MENT FUTURES MENT FUTURES IN TO
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1996-Class A
shares.......... $(0.65) -- -- -- -- $(0.65)
1996-Class B
shares(c)....... (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(D)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
NET RATIO OF
INVEST- NET
NET MENT NET INVEST-
INCREASE NET RATIO OF INCOME ASSETS MENT
(DECREASE) ASSET NET TO AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES AVERAGE PORTFOLIO OF EXPENSES TO
ASSET END OF TOTAL TO AVERAGE NET TURNOVER PERIOD TO AVERAGE AVERAGE
VALUE PERIOD RETURN(B) NET ASSETS ASSETS RATE(H) (IN 000S) NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------
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(c)....... 0.34 14.37 4.40(g) 1.60(e) 3.55(e) 344.13 255 2.05(e) 3.10(e)
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(D)THROUGH OCTOBER 31,
- --------------------------------------------------
1993-Class A
shares.......... 0.32 14.64 3.73(g) 0.00(e) 5.15(e) 99.99(g) 30,166 2.42(e) 2.73(e)
</TABLE>
- ----
(a)Includes the balancing effect of calculating per share amounts.
(b)Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment at
the net asset value at the end of period and no sales charge. Total return
would be reduced if a sales charge for Class A shares or a contingent
deferred sales charge for Class B shares were taken into account.
(c)Class B shares commenced operations on May 1, 1996.
(d)Commencement of operations.
(e)Annualized.
(f)Institutional shares commenced operations on June 1, 1995.
(g)Not annualized.
(h)Includes the effect of mortgage dollar roll transactions for the GS
Adjustable Rate Government and the Government Income Funds.
(i)Administration and Class A share activity commenced operations on April 15,
1993 and May 15, 1995, respectively.
(j)Calculated based on average shares outstanding methodology.
8
<PAGE>
The following is added under the caption "Management--Investment Advisors,
Subadviser and Administrator".
For the fiscal year ended October 31, 1996, GS Adjustable Rate Government
Fund, Goldman Sachs Government Income Fund, Goldman Sachs Municipal Income
Fund and Goldman Sachs Global Income Fund, paid advisory (including
subadvisory in the case of Global Income Fund) fees at the rate of 0.40%,
0.25%, 0.40% and 0.44%, respectively, of average daily net assets. For the
fiscal year ended October 31, 1996, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, and Goldman Sachs Global Income Fund,
paid administration fees at the rate of 0.00%, 0.15% and 0.15%,
respectively, of average daily net assets.
MUNICIPAL INCOME FUND. The Fund's 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.
Under "Factors to Consider in Choosing Class A or Class B Shares" on page 30
the following is added as the last sentence in the paragraph:
There is a maximum purchase limitation of $250,000 in the aggregate on
each purchase of Class B shares.
Under "Offering Price--Class A Shares" on page 32 the following is added to
the second footnote:
Goldman Sachs may also pay, with respect to all or a portion of the
assets, a commission in accordance with the foregoing schedule to
Authorized Dealers who initiate or are responsible for purchases of $1
million or more by plans or "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
in the Prospectus, 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.
The following supplements the information appearing under the sections
"Offering Price--Class A Shares" and "Offering Price--Class B Shares" on
pages 32 and 34, respectively:
The entire amount of the sales charge attributable to Class A shares will
be reallowed to Authorized Dealers and an additional commission equal to
0.50% of the amount invested in Class B shares will be paid to Authorized
Dealers during the period January 1, 1997 through April 15, 1997 if such
shares are purchased through any individual Retirement Account (IRA),
including self-directed IRAs.
9
<PAGE>
The first full paragraph on page 33 is revised as follows:
(f) banks, trust companies or other types of depository institutions
investing for accounts for which they do not have investment discretion;
(h) pension and profit sharing plans, pension funds and other company-
sponsored benefit plans that (i) buy shares costing $500,000 or more, or
(ii) have at the time of purchase, 100 or more eligible participants, or
(iii) certify that they project to have annual plan purchases of $200,000
or more, or (iv) are provided administrative services by a third party
administrator that in the aggregate satisfies (i) or (iii) above;
(k) registered investment advisers investing for accounts for which they
receive asset-based fees;
and (m) shareholders receiving distributions from a qualified retirement
plan invested in the Goldman Sachs Portfolios and reinvesting such proceeds
in a Goldman Sachs IRA.
Under "Waiver or Reduction of Contingent Deferred Sales Charge" on page 35
current language is revised as follows:
The CDSC on Class B 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 Portfolios
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 and Class B 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% of the value of
your Class B shares and 10% of the value of your Class A shares.
The following is added under the caption "Distribution and Authorized Dealer
Service Plans".
Under the Class A Distribution Plan, Goldman Sachs is entitled to a
quarterly fee from each Fund for distribution services equal, on annual
basis, to 0.25% of a Fund's average daily net assets attributable to Class
A shares of such Fund. For the period ended October 31, 1996, Goldman Sachs
has voluntarily agreed to waive the entire amount of its quarterly fee
under the Class A Distribution Plan for the Adjustable Rate Government,
Government Income and Municipal Income Funds and to limit the amount of
such fee to 0.21% of average daily net assets attributable to Class A
shares of the Global Income Fund.
10
<PAGE>
Under the Class B Distribution Plan, Goldman Sachs is entitled to a
quarterly fee from the Government Income, Municipal Income and Global
Income Funds for distribution services equal, on an annual basis, to 0.75%
of a Fund's average daily net assets attributable to Class B shares of such
Fund. For the period ended October 31, 1996, each Fund paid Goldman Sachs a
fee at the foregoing rate.
Each Fund pays a fee under its Class A or Class B Authorized Dealer
Service Plan equal on an annual basis to 0.25% of its average daily net
assets attributable to Class A or Class B shares. For the period ended
October 31, 1996, each Fund paid Authorized Dealer Service Fees at the
foregoing rate for each Fund's Class A and Class B shares.
The following is added under the caption "Shares of the Trust".
At a shareholders meeting called for April 1, 1997, shareholders of each
Fund as of January 31, 1997 will consider a proposal to reorganize the
Funds into series of a Delaware business trust. The above description
regarding shares of the Funds applies equally to shares of a Delaware
business trust except that, under Delaware law, shareholders of a Delaware
business trust are not personally liable as partners for the obligations of
the Delaware business trust.
11
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
March 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE GOLDMAN SACHS TRUST
---- CLASS A AND B SHARES
<S> <C> <C>
Fund Highlights........................ 1 GS ADJUSTABLE RATE GOVERNMENT FUND
Fees and Expenses...................... 5
Financial Highlights................... 8 Seeks a high level of current income,
Investment Objectives and Policies..... 10 consistent with low volatility of prin-
Description of Securities.............. 13 cipal. The Fund invests primarily in ad-
Risk Factors........................... 19 justable rate mortgage pass-through se-
Investment Techniques.................. 21 curities and other mortgage securities
Investment Restrictions................ 24 with periodic interest rate resets,
Portfolio Turnover..................... 25 which are issued or guaranteed by the
Management............................. 25 U.S. Government, its agencies, instru-
Reports to Shareholders................ 29 mentalities or sponsored enterprises.
How to Invest.......................... 30
Shareholder Services Available to GOLDMAN SACHS GOVERNMENT INCOME FUND
Shareholders.......................... 35
Distribution and Authorized Dealer Seeks a high level of current income,
Service Plans......................... 38 consistent with safety of principal. The
How to Sell Shares of the Funds........ 39 Fund invests primarily in securities,
Dividends.............................. 41 including mortgage-backed securities,
Net Asset Value........................ 42 issued or guaranteed by the U.S. Govern-
Performance Information................ 42 ment, its agencies, instrumentalities or
Shares of the Trust.................... 43 sponsored enterprises.
Taxation............................... 44
Additional Information................. 45 GOLDMAN SACHS MUNICIPAL INCOME FUND
Appendix............................... 46
Account Application 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 GLOBAL INCOME FUND
Seeks a high total return, emphasizing
current income and, to a lesser extent,
providing opportunities for capital ap-
preciation. The Fund invests primarily
in a portfolio of high quality fixed in-
come securities of U.S. and foreign is-
suers and foreign currencies.
</TABLE>
----------
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.
(continued on next page)
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.
<PAGE>
(cover continued)
THE GLOBAL INCOME FUND INVESTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN
CURRENCIES THAT ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING
IN DOLLAR-DENOMINATED FIXED INCOME SECURITIES. THE GLOBAL INCOME FUND IS
INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH ITS
INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF
SECURITIES".
THE ADJUSTABLE RATE GOVERNMENT AND GOVERNMENT INCOME FUNDS' NET ASSET VALUE
AND YIELD ARE NOT GUARANTEED BY THE U.S. GOVERNMENT OR BY 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 Fund. Goldman Sachs Asset Management
("GSAM"), New York, New York, a separate operating division of Goldman Sachs,
serves as investment adviser and administrator to the Government Income,
Municipal Income and Global Income Funds. Goldman Sachs Asset Management
International ("GSAMI"), London, England, an affiliate of Goldman Sachs,
serves as subadviser to the Global Income Fund. GSAM, GSFM and GSAMI are 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 March 1, 1996,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission, is incorporated herein by reference in its entirety, and may be
obtained without charge from Goldman Sachs by calling the telephone number, or
writing to one of the addresses, listed on the back cover of this Prospectus.
<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?
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 objective.
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>
ADJUSTABLE RATE GOVERNMENT MUNICIPAL INCOME GLOBAL INCOME
GOVERNMENT FUND INCOME FUND FUND FUND
----------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT OBJECTIVES A high level of A high level of A high total
current income, current income, A high level of return,
consistent with consistent with current income emphasizing
low volatility of safety of that is exempt current income
principal. principal. from regular and, to a lesser
federal income extent,
tax, consistent providing
with opportunities
preservation of for capital
capital. appreciation.
-------------------------------------------------------------------------------------------------
DURATION Target = 6-month Target = Lehman Target = Lehman Target = J.P.
to Brothers Mutual Brothers 15-year Morgan Global
1-year U.S. Fund Municipal Bond Government Bond
Treasury Security Government/Mortgage Index plus or Index (hedged)
Index plus or minus minus 1 year plus or minus
1 year 2.5 years
Maximum = 2 years Maximum = 6 years Maximum = 12 Maximum = 7.5
years years
-------------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 5-year bond 15-year bond 6-year bond
RATE SENSITIVITY
-------------------------------------------------------------------------------------------------
INVESTMENT SECTOR At least 65% of At least 65% of At least 80% of Securities of
assets in assets in U.S. net assets in U.S. and foreign
securities issued Government Municipal governments and
or guaranteed by Securities, Securities. corporations.
the U.S. including mortgage-
Government, its backed U.S.
agencies, Government
instrumentalities Securities.
or sponsored
enterprises
("U.S. Government
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE GOVERNMENT MUNICIPAL INCOME GLOBAL INCOME
GOVERNMENT FUND INCOME FUND FUND FUND
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CREDIT QUALITY U.S. Government U.S. Government Minimum = Minimum = AA/Aa
Securities Securities and BBB/Baa Average or A if
non-U.S. = AA/Aa sovereign issuer
Government At least 50% =
Securities rated AAA/Aaa
AAA/Aaa
------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed rate Non-government U.S. Government Mortgage and
mortgage pass- mortgage pass- Securities and asset backed
through through repurchase securities,
securities and securities, agreements foreign
repurchase asset-backed collateralized currencies and
agreements securities, by such repurchase
collateralized corporate fixed securities. agreements
by U.S. income collateralized
Government securities and by U.S.
Securities. repurchase Government
agreements Securities or
collateralized certain foreign
by U.S. government
Government securities.
Securities.
------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- Lehman Brothers Lehman Brothers
year U.S. Mutual Fund 15- year JP Morgan Global
Treasury Government/ Municipal Bond Government Bond
security Mortgage Index Index Index (hedged)
</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, with
respect to the Global Income Fund, foreign exchange conditions, so that an
investment in any of the Funds may be worth more or less when redeemed than
when purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
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.
2
<PAGE>
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.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investment in
domestic securities. The risks of foreign investments and currencies include
changes in relative currency exchange rates, political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. In addition, the securities markets of foreign
countries are generally less liquid and subject to greater price volatility.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures, and swap transactions,
will subject a Fund to greater risk than funds that do not employ such
techniques.
Non-Diversification. 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 Fund. Goldman Sachs Asset Management serves
as Investment Adviser and administrator to the Global Income, Government
Income and Municipal Income Funds. Goldman Sachs Asset Management
International serves as subadviser to the Global Income Fund. As of January
31, 1996, the Investment Advisers, together with their affiliates, acted as
investment adviser, administrator or distributor for assets in excess of $57
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.............................. $1,500 $50
Tax-Sheltered Retirement Plans................. $ 250 $50
Automatic Investment Plan...................... $ 50 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 30.
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
3
<PAGE>
service firms that have sales agreements with Goldman Sachs ("Authorized
Dealers"). See "How to Invest" on page 30.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds (other than Adjustable Rate Government Fund which does not offer
Class B shares) offer two classes of shares through this Prospectus which
may be purchased at the next determined net asset value ("NAV") plus a sales
charge which, depending on the class of shares you choose for investment,
may be imposed either at the time of purchase (Class A shares) or on a
contingent deferred basis at the time of redemption (Class B shares). Except
with respect to the Adjustable Rate Government Fund, 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>
ADJUSTABLE RATE MAXIMUM FRONT MAXIMUM CONTINGENT
GOVERNMENT FUND END SALES CHARGE DEFERRED SALES CHARGE
--------------- ---------------- ---------------------
<S> <C> <C>
Class A................... 1.5% N/A
<CAPTION>
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
GLOBAL INCOME FUND
----------------------
<S> <C> <C>
Class A................... 4.5% (See above)
Class B................... N/A 5% declining to 0% after six years
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B shares will exceed the initial sales charge and distribution fees
attributable to Class A shares. See "How to Invest--Alternative Purchase
Arrangements" on page 30.
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 PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government................... Daily Monthly Annually
Government Income............................ Daily Monthly Annually
Municipal Income............................. Daily Monthly Annually
Global Income................................ Monthly 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 cash, shares of
the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Portfolios") or ILA Service Units of the Prime Obligations
Portfolio or the Tax-Exempt Diversified Portfolio of Goldman Sachs Money
Market Trust, if you hold Class A Shares of a Fund, or ILA Class B Units of
the Prime Obligations Portfolio, if you hold Class B shares of a Fund (the
"ILA Portfolios"). For further information concerning dividends, see
"Dividends".
4
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
ADJUSTABLE RATE GOVERNMENT MUNICIPAL GLOBAL
GOVERNMENT INCOME INCOME INCOME
FUND FUND FUND FUND
--------------- ------------------ ------------------ ------------------
CLASS A CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
--------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases. 1.5%/1/ 4.5%/1/ none 4.5%/1/ none 4.5%/1/ none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none none none
Maximum Deferred Sales
Charge............... none/1/ none/1/ 5.0% none/1/ 5.0% none/1/ 5.0%
Redemption Fees/2/.... none none none none none none none
Exchange Fees/2/...... none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)
Management Fees
(including, after
applicable
limitations, advisory
and administration
fees)................ 0.40% 0.25%/4/ 0.25%/4/ 0.55% 0.55% 0.59%/6/ 0.59%/6/
Distribution (Rule
12b-1) Fees
(after applicable
limitations)......... 0.00%/3/ 0.00%/4/ 0.75% 0.00%/5/ 0.75% 0.21%/6/ 0.75%
Other Expenses:
Authorized Dealer
Service Fees........ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)........ 0.05%/3/ 0.00%/4/ 0.00%/4/ 0.05%/5/ 0.05%/5/ 0.11%/6/ 0.11%/6/
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)......... 0.70%/3/ 0.50%/4/ 1.25%/4/ 0.85%/5/ 1.60%/5/ 1.16%/6/ 1.70%/6/
==== ==== ==== ==== ==== ==== ====
</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>
Adjustable Rate Government Fund
Class A Shares.............................. $22 $37 $53 $101
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
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
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Global Income Fund
Class A Shares............................... $56 $80 $106 $180
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 84 112 192
--Assuming no redemption.................... 17 54 92 192
</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.
- --------
/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 or more. See "How to Invest--Offering Price".
/2/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Portfolios or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege".
/3/ Based upon estimated amounts for the current fiscal year. Goldman Sachs
voluntarily has agreed to waive the entire distribution fee attributable to
Class A shares of the Fund. The Investment Adviser has also voluntarily
agreed to reduce or limit certain "Other Expenses" of Adjustable Rate
Government Fund (excluding advisory, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. Goldman Sachs
and the Investment Adviser have no current intention of modifying or
discontinuing any of such limitations but may do so in the future at their
discretion. Without such limitations, Adjustable Rate Government Fund's
"Distribution Fees", "Other Expenses" and "Total Operating Expenses" would
be 0.25%, 0.11% and 1.01%, respectively. Annual operating expenses incurred
by the Class A shares of the Fund during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Distribution Fees", "Other Expenses"
and "Total Operating Expenses" of 0.40%, 0.00%, 0.05% and 0.69%,
respectively.
/4/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Government Income Fund include advisory and administration fees of
0.25% and 0.00%, respectively. The Investment Adviser has voluntarily agreed
to limit its advisory and administration fees to such amounts. Without such
limitations, advisory and administration fees would be 0.50% and 0.15%,
respectively. Goldman Sachs voluntarily has agreed to waive the entire
distribution fee attributable to Class A shares of the Fund. The Investment
Adviser has also voluntarily agreed to reduce or limit all "Other Expenses"
of Government Income Fund (excluding advisory, administration, distribution
and authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses). Goldman Sachs
and the Investment Adviser have no current intention of modifying or
discontinuing any of such limitations but may do so in the future at their
discretion. Without such limitations, Government Income Fund's "Management
Fees", "Distribution Fees", "Other Expenses" and "Total Operating Expenses"
would be 0.65%, 0.25%, 1.54% and 2.44%, respectively, in the case of Class A
shares, and 0.65%, 0.75%, 1.54% and 2.94%, respectively, in the case of
Class B shares. Annual operating expenses incurred by the Class A shares of
the Fund during the fiscal year ended October 31, 1995 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees", "Distribution Fees", "Other Expenses" and "Total
Operating Expenses" of 0.22%, 0.13%, 0.12% and 0.47%, respectively.
/5/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Municipal Income Fund include advisory and administration fees of
0.40% and 0.15%, respectively. Goldman Sachs voluntarily has agreed to waive
the entire distribution fee attributable to Class A shares of the Fund. The
Investment Adviser has also voluntarily agreed to reduce or limit certain
"Other Expenses" of Municipal Income Fund (excluding advisory,
administration, distribution and authorized dealer service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.05% of the
Fund's average daily net assets. Goldman Sachs and the Investment Adviser
have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, "Distribution Fees", "Other Expenses" and "Total Operating
Expenses" would be 0.25%, 0.75% and 1.55%, respectively, in the case of
Class A shares, and 0.75%, 0.75% and 2.05%, respectively, in the case of
Class B shares. Annual operating expenses incurred by the Class A shares of
the Fund during the fiscal year ended October 31, 1995 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees", "Distribution Fees", "Other Expenses" and "Total
Operating Expenses" of 0.46%, 0.14%, 0.16%, and 0.76%, respectively.
6
<PAGE>
/6/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15% respectively. The Investment Advisers have
voluntarily agreed to limit their advisory and subadvisory fees to such
amounts. Without such limitations, advisory and subadvisory fees would be
0.25% and 0.50%, respectively. Goldman Sachs voluntarily has agreed to limit
its distribution fee attributable to Class A shares of the Fund to 0.21%.
The Investment Advisers have also voluntarily agreed to reduce or limit
certain "Other Expenses" of the Global Income Fund (excluding transfer
agency fees (estimated to be 0.05% of average daily net assets), advisory,
subadvisory, administration, distribution and authorized dealer service
fees, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.06% of
the Fund's average daily net assets. Goldman Sachs and the Investment
Advisers have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, Global Income Fund's "Management Fees", "Distribution Fees",
"Other Expenses" and "Total Operating Expenses" would be 0.90%, 0.25%, 0.49%
and 1.64%, respectively, in the case of Class A shares, and 0.90%, 0.75% ,
0.49% and 2.14%, respectively, in the case of Class B shares. Annual
operating expenses incurred by the Class A shares of the Fund during the
fiscal year ended October 31, 1995 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees",
"Distribution Fees", "Other Expenses" and "Total Operating Expenses" of
0.82%, 0.20%, 0.27%, and 1.29%, respectively.
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 shares). The Adjustable Rate
Government Fund and Global Income Fund, but not the other Funds, also offer
Institutional Shares and Service Shares and the Adjustable Rate Government
Fund, but not the other Funds, also offers Administration Shares.
Institutional, Administration and Service Shares are subject to different fees
and expenses (which affects performance), have different minimum investment
requirements and are entitled to different services than Class A shares and
Class B shares. Information regarding Institutional, Administration and
Service Shares may be obtained from your sales representative or from Goldman
Sachs by calling the number on the back cover 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 National
Association of Securities Dealers, Inc.'s rules regarding investment
companies.
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 fees and expenses included in the table and the
hypothetical example above are based on estimated fees and expenses for the
current fiscal year and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers, Subadviser and
Administrator".
7
<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 October 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $9.74 $0.5630(j) $0.0717 (j) $-- $0.6347(j)
1995--
Administration
Shares.......... 9.74 0.5366(j) 0.0737 (j) -- 0.6103(j)
1995--Class
A Shares(h)..... 9.79 0.2721(j) (0.0090)(j) -- 0.2631(j)
1994--Institutional
Shares.......... 10.00 0.4341(j) (0.2455)(j) -- 0.1886(j)
1994--
Administration
Shares.......... 10.00 0.4211(j) (0.2572)(j) -- 0.1639(j)
1993--Institutional
Shares.......... 10.04 0.4397 (0.0376)(a) -- 0.4021
1993--
Administration
Shares(i)....... 10.02 0.2146 (0.0173)(a) -- 0.1973
1992--Institutional
Shares.......... 10.03 0.5599 (0.0029)(a) -- 0.5570
FOR THE PERIOD JULY 17, 1991(e) THROUGH OCTOBER 31,
1991--Institutional
Shares.......... 10.00 0.1531 0.0322(a) -- 0.1853
GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ 13.47 0.94 1.00 (a) -- 1.94
1994............ 14.90 0.85 (1.28)(a) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(E) THROUGH OCTOBER 31,
1993............ 14.32 0.56 0.58(a) -- 1.14
<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
---------- ------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $(0.5759) $ -- $(0.0287) $ -- $-- $(0.6046)
1995--
Administration
Shares.......... (0.5528) -- (0.0275) -- -- (0.5803)
1995--Class
A Shares(h)..... (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(i)....... (0.2146) -- (0.0027) -- -- (0.2173)
1992--Institutional
Shares.......... (0.5470) -- -- -- -- (0.5470)
- -----------------------------------------------------------------------------------------
FOR THE PERIOD JULY 17, 1991(e) THROUGH OCTOBER 31,
1991--Institutional
Shares.......... (0.1553) -- -- -- -- (0.1553)
GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ (0.94) -- -- -- -- (0.94)
1994............ (0.85) (0.12) (0.02) (0.01) -- (1.00)
- -----------------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 10, 1993(e) THROUGH OCTOBER 31,
1993............ (0.56) -- -- -- -- (0.56)
<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(B) NET ASSETS NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- ------- ---------- ---------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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(h)..... (0.0200) 9.77 2.74 0.69(c) 5.87(c) 24.12 15,203 1.01(c) 5.55(c)
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(i)....... (0.0200) 10.00 2.01(g) 0.70(c) 3.81(c) 103.74 5,326 0.73(c) 3.78(c)
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(e) THROUGH OCTOBER 31,
1991--Institutional
Shares.......... 0.0300 10.03 2.14(g) 0.20(c) 7.31(c) 145.67(c) 239,642 1.02(c) 6.49(c)
GOVERNMENT INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994............ (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(e) THROUGH OCTOBER 31,
1993............ 0.58 14.90 8.03 0.00(c) 4.87(c) 725.41 12,860 4.00(c) 0.87(c)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS DISTRIBUTIONS TO SHAREHOLDE
----------------------------------------------------- -----------------------------------------------
NET REALIZED NET REALIZED FROM NET IN EXCESS OF
AND UNREALIZED AND UNREALIZED TOTAL REALIZED NET REALIZED
GAIN (LOSS) ON GAIN (LOSS) ON INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT,
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS(a) TRANSACTIONS(a) OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS
--------- ---------- --------------- --------------- ---------- ---------- ------------ ---------- ------------
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class
A shares........ $13.43 $0.89 $0.92 $0.15 $1.96 $(0.94) $ -- $-- $--
1995--Institutional
shares(f)....... 14.09 0.22 0.34 0.06 0.62 (0.26) -- -- --
1994--Class
A shares........ 15.07 0.84 (1.37) (0.12) (0.65) (0.22) (0.16) -- --
1993--Class
A shares........ 14.69 0.85 1.07 (0.42) 1.50 (0.85) (0.27) -- --
1992--Class
A shares........ 14.60 1.14 0.45 (0.36) 1.23 (1.14) -- -- --
FOR THE PERIOD AUGUST 2, 1991(e) THROUGH OCTOBER 31,
1991--Class
A shares........ 14.55 0.25 0.23 (0.19) 0.29 (0.24) -- -- --
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ 13.08 0.67 1.09 -- 1.76 (0.67) -- -- --
1994............ 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05) -- --
FOR THE PERIOD JULY 20, 1993(e) THROUGH OCTOBER 31,
1993............ 14.32 0.22 0.32 -- 0.54 (0.22) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
DISTRIBUTIONS TO SHAREHOLDE EXPENSE LIMITATIONS
----------------------------------------------- -------------------
RATIO OF
NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS
FROM TOTAL (DECREASE) NET ASSET NET INCOME AT END RATIO OF
PAID DISTRIBUTION IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES
IN TO ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE
CAPITAL SHAREHOLDERS VALUE PERIOD return(b) net assets net assets rate (in 000's) net assets
------- ------------ ----- ------ --------- ---------- ---------- ---- ---------- ----------
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class
A shares........ $ -- $(0.94) $1.02 $14.45 15.08% 1.29% 6.23% 265.86% $245,835 1.58%
1995--Institutional
shares(f)....... -- (0.26) 0.36 14.45 4.42 0.65(c) 6.01(c) 265.86 31,619 1.08(c)
1994--Class
A shares........ (0.61) (0.99) (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53
1993--Class
A shares........ -- (1.12) 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55
1992--Class
A shares........ -- (1.14) 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62
FOR THE PERIOD AUGUST 2, 1991(e) THROUGH OCTOBER 31,
1991--Class
A shares........ -- (0.24) 0.05 14.60 2.00 0.38(g) 1.72(g) 34.22 388,744 0.44(g)
MUNICIPAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ -- (0.67) 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49
1994............ -- (0.78) (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55
FOR THE PERIOD JULY 20, 1993(e) THROUGH OCTOBER 31,
1993............ -- (0.22) 0.32 14.64 3.73 0.00(c) 5.15(c) 99.99 30,166 2.42(c)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-------------------
RATIO OF
NET
INVESTMENT
INCOME
(LOSS)
TO AVERAGE
NET ASSETS
----------
GLOBAL INCOME FUND
- --------------------------------------
<S> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class
A shares........ 5.94%
1995--Institutional
shares(f)....... 5.58(c)
1994--Class
A shares........ 5.48
1993--Class
A shares........ 5.53
1992--Class
A shares........ 7.60
FOR THE PERIOD AUGUST 2, 1991(e) THROUGH OCTOBER 31,
1991--Class
A shares........ 1.66(g)
MUNICIPAL INCOME FUND
- --------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1995............ 4.20
1994............ 4.18
FOR THE PERIOD JULY 20, 1993(E) THROUGH OCTOBER 31,
1993............ 2.73(c)
- ---------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. For the Retail classes total return would be reduced if a
sales charge were taken into account.
(c) Annualized.
(d) Includes effect of mortgage dollar roll transactions.
(e) Commencement of operations.
(f) Institutional shares commenced operations on August 1, 1995.
(g) Not annualized.
(h) Class A shares commenced operations on May 15, 1995.
(i) Administration share activity commenced operations on April 15, 1993.
(j) Calculated based on the average shares outstanding methodology.
9
<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, 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 the
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 6-month to 1-year
U.S. Treasury security. In addition, under normal interest rate conditions,
the Fund's maximum duration will not exceed 2 years. The approximate interest
rate sensitivity of the Fund is comparable to a 9-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.
10
<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, mortgage dollar rolls, repurchase agreements and
other investment practices described under "Investment Techniques".
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 1 year (currently 4.3
years). In addition, under normal interest rate conditions, the Fund's maximum
duration will not exceed 6 years. The approximate interest rate sensitivity of
the Fund is comparable to a 5-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 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, 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 15-
year Municipal Bond Index, plus or minus 1 year (currently 9.0 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 12 years. The approximate interest rate sensitivity of the
Fund is comparable to a 15-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, 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
11
<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). The Fund may invest up to 100% of its net assets
in private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax and may increase liability for the
corporate environmental 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 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, 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. Shareholders may be subject to
state, local or foreign taxes on such income received from the Fund. See
"Description of Securities".
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 (currently 5.0 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 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 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 for the purpose of hedging its
portfolio.
12
<PAGE>
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 net 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 currency transactions both to
seek to enhance returns for a given level of risk and to seek to hedge its
exposure to foreign currencies. While the Fund will have both long and short
currency positions, its net long and short foreign currency exposure will not
exceed the value of the Fund's total assets. 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, 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 any other foreign country.
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
13
<PAGE>
("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.
CORPORATE DEBT OBLIGATIONS
The Government Income and Global Income 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.
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 the 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.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Government Income and Global Income 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
14
<PAGE>
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 and
Global Income 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, Government Income, and Global
Income 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,
Government Income and Global Income 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.
Although the market for SMBS is increasingly liquid, certain SMBS may not be
readily marketable and will be considered illiquid for purposes of a Fund's
limitation on investments in illiquid securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
ASSET-BACKED SECURITIES
The Government Income and Global Income Funds may invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets
15
<PAGE>
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.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Municipal Income Fund invests
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 Municipal Income Fund's 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
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
the 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 the
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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 the 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. The Fund will take the time remaining until the
next scheduled auction date into account for purposes of determining the
securities' duration.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will invest in fixed income
securities of foreign issuers denominated in either U.S. dollars or a foreign
currency. This 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 U.S. dollar-denominated securities of
domestic issuers. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate 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 exchange rate for the currency in
which the Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, the Fund may
have to sell portfolio securities to obtain sufficient cash to pay such
dividends. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, making it
more difficult to conduct such transactions.
The Global Income Fund may invest in an issuer domiciled in one country yet
issuing the security in the currency of another country. The Fund may also
invest in debt securities denominated in the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts in the currencies of
certain of the twelve member states of the European Community. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community from time to time to reflect changes in
relative values of the underlying currencies. In addition, the Fund may invest
in securities denominated in other currency "baskets".
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to 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. Most 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
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possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding taxes on dividend or interest payments, limitations
on the removal of funds or other assets of the Fund, political or social
instability or diplomatic developments which could affect investments in those
countries.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Global Income
Fund may have currency exposure independent of its securities positions, the
value of the assets of the Fund as measured in U.S. dollars will be affected
by changes in foreign currency exchange rates. The Fund may 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. The 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 Fund may also engage in cross-hedging by using forward
contracts in a currency different from that in which the hedged security is
denominated or quoted if the Investment Adviser determines that there is a
pattern of correlation between the two currencies. If the Fund enters into a
forward foreign currency exchange contract to buy foreign currency for any
purpose or sell foreign currency to seek to increase total return, the Fund
will be required to place and maintain cash or liquid, high grade debt
securities in a segregated account with the Fund's custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. The Fund will incur costs in connection with conversions
between various currencies. The Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of the
Investment Adviser, it would be beneficial to convert such currency into U.S.
dollars at a later date, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, the 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 United States or
abroad. To the extent that a substantial portion of the Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments authorized for use by the
Fund offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange.
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 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. The Fund will not enter into forward foreign currency
exchange contracts 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.
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STRUCTURED SECURITIES
The Global Income 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 the Fund's investment. Structured securities
may be positively or negatively indexed, so that appreciation of the Reference
may produce an increase or decrease in the interest rate or value of the
security at maturity. In addition, changes in the interest rates or the value
of the security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST 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. 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
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 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
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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 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 the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.
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
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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, Government 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) securities on a specified future date. During the
roll period, a Fund loses the right to receive principal and interest paid on
the securities sold. However, a Fund may benefit from the interest earned on
the cash proceeds of the securities sold until the settlement date of the
forward purchase. Each Fund will hold and maintain in a segregated account
until the settlement date cash or liquid, high grade debt securities in an
amount equal to the forward purchase price. The benefits derived from the use
of mortgage dollar rolls depend upon the Investment Adviser's ability to
manage mortgage prepayments. There is no assurance that mortgage dollar rolls
can be successfully employed. For financial reporting and tax purposes, each
Fund treats mortgage dollar rolls as two separate transactions; one involving
the purchase of a security and a separate transaction involving a sale. The
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 Global Income Fund may, to the extent it
invests in foreign securities, purchase and sell (write) put and call options
on foreign currencies for the purpose of protecting against declines in the
U.S. dollar value of foreign portfolio securities and against increases in the
U.S. dollar cost of foreign securities to be acquired. In addition, the Fund
may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different
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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 the 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 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
Fund will be traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTACTS 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 Global Income Fund, currency exchange rates, each Fund may
purchase and sell various kinds of futures contracts, and purchase and write
call and put options on any of such futures contracts. Each Fund may also
enter into closing purchase and sale transactions with respect to any such
contracts and options. The futures contracts may be based on various
securities (such as U.S. Government Securities), foreign currencies, in the
case of the Global Income Fund, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or to seek to increase total return
to the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid, high grade debt securities with
a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment 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.
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CURRENCY SWAPS. The Global Income Fund may enter into currency swaps for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by the 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.
The 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 the Global Income Fund would be less favorable
than it would have been if this investment technique were not used. The staff
of the SEC currently take the position that swaps are illiquid and thus
subject to the Fund's limitation on investments in illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swap transactions, 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 the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's transactions in 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 3-
day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until 3 days prior to settlement date, cash
or liquid, high grade debt securities in an amount sufficient to meet the
purchase price. Alternatively, each Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, 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, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for sale under Rule 144A and,
therefore, is liquid. The Board of Trustees has adopted guidelines and
delegated to the Investment Adviser
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the daily function of determining and monitoring the liquidity of restricted
securities. The Board of Trustees, however, retains oversight focusing on
factors such as valuation, liquidity and availability of information and is
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A 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 Global Income Fund 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 of the Trust 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 advisory 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 100% of its total assets in (a) U. S. Government Securities or (b)
repurchase agreements collateralized by U.S. Government Securities. The
Municipal Income Fund may for temporary defensive purposes depart from its
stated investment objective and invest more than 20% of its net assets in
taxable investments which would subject such income to taxation.
MISCELLANEOUS TECHNIQUES
In addition to the techniques described above, each Fund may, with respect
to no more than 5% of its total assets, engage in the following techniques:
(i) portfolio securities lending, (ii) mortgage swaps (other than Municipal
Income Fund) and interest rate swaps, caps, floors and collars, (iii) inverse
floating rate securities, (iv) yield curve options, (v) investments in other
investment companies, (vi) custodial receipts and (vii) with respect to the
Municipal Income Fund, tender option bonds and standby commitments. 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 can not be changed without
approval of a majority of the outstanding shares of that Fund. All investment
objectives and policies not specifically designated as fundamental are non-
fundamental and may be changed without shareholder approval. If there is a
change in a Fund's investment objectives, shareholders should consider whether
the Fund still remains an appropriate investment in light of their then
current financial positions and needs.
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Municipal Income Fund's policy to invest, under normal market conditions, at
least 80% of its 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-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. 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, Government Income and Municipal Income 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. 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 Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Advisers, administrator,
distributor and transfer agent. The officers of the Trust conduct and
supervise each Fund's daily business operations. The Additional Statement
contains information as to the identity of, and other information about, the
Trustees and officers of the Trust.
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<PAGE>
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
INVESTMENT ADVISERS AND SUBADVISER. 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 Fund. 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 administrator and investment adviser to the Global
Income, Government Income and Municipal Income Funds. Goldman Sachs registered
as an investment adviser in 1981. Goldman Sachs Asset Management
International, 140 Fleet Street, London EC4A 2BJ, England, an affiliate of
Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman
Sachs Asset Management International became a member of the Investment
Management Regulatory Organization Limited in 1990 and registered as an
investment adviser in 1991. As of January 31, 1996, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $57 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the Global Income Fund under a
Subadvisory Agreement, the subadviser, subject to the general supervision of
the Board of Trustees, provides day-to-day advice as to the Fund's portfolio
transactions. Goldman Sachs has agreed to permit the Trust to use the name
"Goldman Sachs" or a derivative thereof as part of each Fund's name for as
long as a Fund's Investment Advisory 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.
ADJUSTABLE RATE GOVERNMENT FUND. The Fund's portfolio manager is Jonathan A.
Beinner. Mr. Beinner is a Vice President of Goldman Sachs and joined the
Investment Adviser in 1990 after working in the trading and arbitrage group of
Franklin Savings Association.
GOVERNMENT INCOME FUND. The Fund's 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
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
MUNICIPAL INCOME FUND. The Fund's portfolio manager is Benjamin S. Thompson.
Mr. Thompson specializes in municipal securities, where his responsibilities
include developing investment strategy and structuring portfolios. Mr.
Thompson worked in the institutional sales and marketing group at 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.
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. Prior to his
26
<PAGE>
employment at Invesco, Mr. Fitzgerald spent three years with Foreign and
Colonial Management Limited in London managing fixed income and derivative
funds, and, prior to that, in the treasury department of NRMA Insurance
Limited in Sydney. 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.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to an Investment Advisory Agreement, GSFM is entitled to a fee from
the Adjustable Rate Government Fund, computed daily and payable monthly, at
the annual rate of 0.40% of average daily net assets. As compensation for its
services rendered and assumption of certain expenses pursuant to separate
Investment Advisory Agreements, GSAM is entitled to a fee from the Global
Income, Government Income and Municipal Income Funds, computed daily and
payable monthly, at the annual rates of 0.25%, 0.50% and 0.40%, respectively,
of average daily net assets; however, GSAM is currently only imposing its
advisory fee with respect to the Global Income and Government Income Funds at
the annual rates of 0.12% and 0.25%, respectively, of average daily net
assets. As compensation for its services rendered and assumption of certain
expenses pursuant to a Subadvisory Agreement, GSAMI is entitled to a fee from
the Global Income Fund, computed daily and payable monthly, at the annual rate
of 0.50% of average daily net assets; however, GSAMI is currently only
imposing its subadvisory fee with respect to the Global Income Fund at the
annual rate of 0.32% of average daily net assets. The Investment Advisers may
discontinue or modify such limitations in the future at their discretion,
although the Investment Advisers have no current intention to do so. For the
fiscal year ended October 31, 1995, the Adjustable Rate Government Fund paid
fees at the foregoing rate. At various times during the fiscal year ended
October 31, 1995, GSAM waived part of its investment advisory fee for the
Government Income and Municipal Income Funds and GSAM and GSAMI waived part of
their investment advisory and subadvisory fees, respectively, for the Global
Income Fund. The average rate for the period paid by the Government Income and
Municipal Income Funds to GSAM was 0.22% and 0.31%, respectively, and the
average rate for the period paid by the Global Income Fund to GSAM and GSAMI
was 0.22% and 0.45%, respectively. Without giving effect to fee limitations,
the aggregate management fees paid by the Global Income Fund are higher than
the fees paid by most funds but the Investment Adviser and subadviser believe
such fees are comparable to management fees paid by funds with similar
investment strategies.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it by a Fund (to the extent of its fees) by the amount (if any) that the
Fund's expenses would exceed the applicable expense limitations imposed by
state securities administrators. See "Management-Expenses" in the Additional
Statement. In addition, the Investment Advisers to the Adjustable Rate
Government, Government Income, Municipal Income and Global Income Funds have
voluntarily agreed to reduce or limit certain "Other Expenses" of such Funds
(excluding advisory, subadvisory, administration, distribution and authorized
dealer service fees, taxes, interest
27
<PAGE>
and brokerage fees and litigation, indemnification and other extraordinary
expenses and, in the case of the Global Income Fund, transfer agency fees) to
the extent such expenses exceed 0.05%, 0.00%, 0.05% and 0.06% 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.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with each Fund (other than Adjustable Rate Government Fund), GSAM provides
personnel for supervisory, administrative, and clerical functions; oversees
the performance of administrative and professional services to each Fund by
others; provides office facilities; and prepares, but does not pay for,
reports to shareholders, the SEC and other regulatory authorities. As
compensation for the services rendered to the Funds, GSAM is entitled to a fee
from the Global Income, Government Income and Municipal Income Funds, computed
daily and payable monthly, at an annual rate equal to 0.15% of each such
Fund's average daily net assets; however, GSAM is currently not imposing its
administration fee with respect to the Government Income Fund. For the fiscal
year ended October 31, 1995, GSAM waived its administration fee for the
Government Income Fund. GSAM may discontinue or modify such limitation in the
future at its discretion, although it has no current intention to do so. For
the period ended October 31, 1995, the Municipal Income and Global Income
Funds paid GSAM a fee for administration services at the foregoing rate. GSAM
has agreed to reduce its fees payable by a Fund (to the extent of its fees) by
the amount (if any) that a Fund's expenses exceed the applicable expense
limitations imposed by state securities administrators. See "Management--
Expenses" in the Additional Statement.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers 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. The amount of such compensation may
be up to 0.1125% annually of the average daily net assets of Adjustable Rate
Government Fund, 0.125% annually of the average daily net assets of the
Government Income Fund, 0.10% annually of the average daily net assets of the
Municipal Income Fund and 0.1875% annually of the average daily net assets of
the Global Income Fund attributable to shares held by customers of such
Authorized Dealers. In addition, Goldman Sachs may from time to time, at its
own expense, provide compensation to certain Authorized Dealers who perform
administrative services with respect to depository institutions whose
customers purchase shares of a Fund. These services include responding to
certain inquiries from and providing written materials to depository
institutions about a Fund; furnishing advice about and assisting depository
institutions in obtaining from state regulatory agencies any rulings,
exemptions or other authorizations that may be required to conduct a mutual
fund sales program; acting as liaison between depository institutions and
national regulatory organizations; assisting with the preparation of sales
material; and providing general assistance and advice in establishing and
maintaining mutual fund sales programs on the premises of depository
institutions. The amount of such compensation may be up to 0.08% annually of
the average net assets of a Fund's shares attributable to purchases through,
and held by the customers of, such depository institutions. Such compensation
does not represent an additional expense to a Fund or its shareholders, since
it will be paid from the assets of Goldman Sachs or its affiliates.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and
28
<PAGE>
advise accounts and funds which have investment objectives similar to those of
the Funds and/or which engage in and compete for transactions in the same
types of securities, currencies and instruments as the Funds. Goldman Sachs
and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and in general it is not anticipated
that the Investment Advisers will have access to proprietary information for
the purpose of managing a Fund. The results of a Fund's investment activities,
therefore, may differ from those of Goldman Sachs and its affiliates and it is
possible that a Fund could sustain losses during periods in which Goldman
Sachs and its affiliates and other accounts and Funds achieve significant
profits on their trading for proprietary or other accounts. From time to time,
a Fund's activities may be limited because of regulatory restrictions
applicable to Goldman Sachs and its affiliates, and/or their internal policies
designed to comply with such restrictions. See "Management--Activities of
Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs"
in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of each Fund's shares. Shares may also be sold by
Authorized Dealers. Authorized Dealers include investment dealers that are
members of the NASD and certain other financial service firms. To become an
Authorized Dealer, a dealer or financial service firm must enter into a sales
agreement with Goldman Sachs. The minimum investment requirements, services,
programs and purchase and redemption options for shares purchased through a
particular Authorized Dealer may be different from those available to
investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from each Fund (other than Adjustable Rate Government Fund), with respect
to Class A shares and Class B 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 agents). Goldman
Sachs is entitled to receive a fee from the Adjustable Rate Government Fund,
with respect to Class A 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 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.
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<PAGE>
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this prospectus Class A and Class B
shares (except that the Adjustable Rate Government Fund does not currently
offer Class B 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 initially 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. 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 up to 0.25% (which
currently is being waived in the case of Adjustable Rate Government, Municipal
Income and Government Income Funds and limited to 0.21% for the Global Income
Fund) and authorized dealer service fees of up to 0.25%, 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 up to 0.75% and 0.25%,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans". 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 B shares will automatically convert to Class
A shares, based on their relative net asset values, eight years after the
initial purchase.
FACTORS TO CONSIDER IN CHOOSING CLASS A OR CLASS B SHARES. The decision as
to which class to purchase depends on the amount you invest, the intended
length of the investment and your personal situation. For 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, you might consider purchasing
Class B shares.
HOW TO BUY SHARES OF THE FUNDS -- CLASS A AND CLASS B 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. If, by the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. New York time), a purchase
order is received by a Fund, Goldman Sachs or an Authorized Dealer, the price
per share will be based on the net asset value computed on the day the
purchase order is received. If a purchase order for shares of the Adjustable
Rate Government Fund is received 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
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<PAGE>
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. Dividends with
respect to the Government Income and Municipal Income Funds declared with
respect to such shares will begin to accrue on the Business Day after receipt
of payment. Shares of the Global Income Fund will begin to be eligible for
dividends paid on or after the day the shares are purchased.
The minimum initial investment in each Fund is $1,500. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans. For purchases through the Automatic Investment Plan, the
minimum investment is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of shares by check (except that a check drawn on a
foreign bank will not be accepted), Federal Reserve draft, Federal Funds wire,
ACH transfer or bank wire. Purchases of shares by check or Federal Reserve
draft should be made payable as follows: (i) to an investor's Authorized
Dealer, if purchased through such Authorized Dealer, or (ii) to Goldman Sachs
Trust -- (Name of Fund and Class of shares) and sent to NFDS, 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 Fund may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
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<PAGE>
OFFERING PRICE -- CLASS A SHARES
The offering price of Class A shares of each Fund (other than 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:
<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>
- --------
* 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.
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 (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. 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.
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:
<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>
The entire amount of the sales charge will be reallowed to Authorized
Dealers on sales of Class A shares of each Fund (other than the Municipal
Income Fund) during the period January 2, 1996 through April 15, 1996 if
shares of a Fund are purchased through any Individual Retirement Account
(IRA), including self-directed IRAs.
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<PAGE>
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, provided they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; (g) any
state, county or city, or any instrumentality, department, authority or agency
thereof, which is prohibited by applicable investment laws from paying a sales
charge or commission in connection with the purchase of shares of a Fund; (h)
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans having either 200 eligible employees or at least $1,000,000
under management with GSAM and its affiliates; (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 who have entered
into an agreement with GSAM specifying aggregate minimums and certain
operating policies and standards; and (l) accounts over which GSAM or its
advisory affiliates have investment discretion. 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 Portfolios may be
reinvested in shares of each Fund at net asset value, as described under
"Cross-Reinvestment of Dividends and Distributions and Automatic Exchange
Program".
REINVESTMENT OF REDEMPTION PROCEEDS -- CLASS A SHARES
A shareholder who redeems Class A 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 a Fund or of any other Goldman Sachs
Portfolio. Shareholders should obtain and read the applicable prospectuses of
such other funds and consider their objectives, policies and applicable fees
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 paid a CDSC upon a redemption
and reinvest in Class A shares subject to the conditions set forth above, your
account will be credited with the amount of the CDSC attributable to such
shares previously charged, and the reinvested shares will continue to be
subject to a CDSC. The holding period of the Class A shares acquired through
reinvestment for purposes of computing the CDSC payable upon a subsequent
redemption, will include the holding period of the redeemed shares. 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.
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<PAGE>
A reinvesting shareholder may realize a gain or loss for federal tax
purposes as a result of such redemption. If the redemption occurs within
ninety (90) days after the original purchase of the Class A shares, any sales
charge paid on the original purchase cannot be taken into account by a
shareholder reinvesting at net asset value pursuant to the reinvestment
privilege for purposes of determining gain or loss realized on the redemption,
but instead will be added to the tax basis of the Class A shares received in
the reinvestment. To the extent that any loss is realized and shares of the
same Fund are purchased within thirty (30) days before or after the
redemption, some or all of the loss may not be allowed as a deduction
depending upon the number of shares purchased. Shareholders should consult
their own tax advisers concerning the tax consequences of a reinvestment. Upon
receipt of a written request, the reinvestment privilege may be exercised once
annually by a shareholder, except that there is no such time limit as to the
availability of this privilege in connection with transactions the sole
purpose of which is to reinvest the proceeds at net asset value in a tax-
sheltered retirement plan.
RIGHT OF ACCUMULATION -- 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 ($500,000 or more in the case of
Adjustable Rate Government Fund). Class A shares of the Goldman Sachs
Portfolios may be combined under the Right of Accumulation. See Additional
Statement for more information about the Right of Accumulation.
STATEMENT OF INTENTION -- CLASS A SHARES
Purchases of $100,000 ($500,000 in the case of the Adjustable Rate
Government Fund) or more made over a 13-month period are eligible for reduced
sales charges. Class A shares of the Goldman Sachs Portfolios 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 Government Income, Municipal
Income and Global Income 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.
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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 eight-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 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 is
subject to the continuing availability of a ruling from the Internal Revenue
Service, for which the Funds will apply, or an opinion of counsel that such
conversions will not constitute taxable events for Federal tax purposes. There
can be no assurance that such ruling or opinion will be available. The
conversion of Class B shares to Class A shares will not occur if such ruling
or opinion is not available and, therefore, Class B shares would continue to
be subject to higher expenses than Class A shares for an indeterminate period.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE. The CDSC on Class B
shares and Class A shares that are subject to a CDSC may be waived or reduced
if the redemption results from 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. In addition, Class B 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% of the value of your
Class B shares.
SHAREHOLDER 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 Portfolio or ILA Portfolio. See "Fund
Highlights". Shareholders 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 Portfolio 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 investors 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 $10,000 and (ii) the value of the account in the acquired fund
must equal or exceed the acquired fund's minimum initial investment
requirement or the shareholder must elect to continue cross- reinvestment or
automatic exchanges until the value of acquired fund shares in the
shareholder's account equals or exceeds the acquired fund's minimum initial
investment requirement. A Fund shareholder may elect cross-reinvestment into
an identical account or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established,
appropriate signatures have been obtained and the minimum initial investment
requirement has been satisfied. A Fund shareholder should obtain and read the
prospectus of the Fund into which dividends are invested or automatic
exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds (other than the Municipal Income Fund) offer their shares for
purchase by retirement plans, including IRA Plans for individuals and their
non-employed spouses and defined contribution plans such as 401(k) Salary
Reduction Plans. Detailed information concerning these plans and copies of the
plans may be obtained from the Transfer Agent. This information should be read
carefully, and consultation with an attorney or tax adviser may be advisable.
The information sets forth the service fee charged for retirement plans and
describes the federal income tax consequences of establishing a plan. Under
all plans, dividends and distributions will be automatically reinvested in
additional shares of the same class of the Fund or, if so directed by the
shareholder, in cash or in shares of the same or an equivalent class of any
other Goldman Sachs Portfolio or ILA Portfolio.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial or contingent deferred sales charge at the time of exchange for
shares of the same class or an equivalent class of any other Fund, Goldman
Sachs Portfolio or ILA Portfolio. A shareholder needs to obtain and read the
prospectus of the fund into which the exchange is made. The shares or units of
these other funds acquired by an exchange may later be exchanged for shares of
the same (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 a sales charge. Shares or units of these other funds purchased
through dividends and/or capital
36
<PAGE>
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 had 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 Trust,
Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-6711
or, if previously elected in the Fund's Account Application, by telephone at
800-526-7384 (8:00 a.m. to 3:00 p.m. Chicago time). Certain procedures are
employed to prevent unauthorized or fraudulent exchange requests as set forth
under "How to Sell Shares of the Funds". Under the telephone exchange
privilege, shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "How to Sell Shares of the Funds". In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a sale of the shares surrendered in the exchange, on
which an investor may realize a gain or loss, followed by a purchase of shares
or units received in the exchange. If such sale occurs within ninety (90) days
after the purchase of such shares, to the extent an initial sales charge that
would otherwise apply to the shares or units received in the exchange is not
imposed, the sales charge paid on such purchase of Class A shares cannot be
taken into account by the exchanging shareholder for purposes of determining
gain or loss realized on such sale for federal income tax purposes, but
instead will be added to the tax basis of the shares or units received in the
exchange. Shareholders should consult their own tax advisers concerning the
tax consequences of an exchange.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
If shares of a Fund are held in a "street name" account or were purchased
through an Authorized Dealer, shareholders should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give
instructions concerning the account or to obtain information about the
account. Authorized Dealers who receive a portion of the sales charge
applicable to the purchase of Class A or Class B shares, will not be permitted
to impose any other fees on the shareholders in connection with the purchase
of such shares.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). The Funds or Goldman
Sachs may reject or restrict purchases or exchanges of shares by a particular
purchaser or group, for example, when a pattern of frequent purchases and
sales of shares of a Fund is evident, or if the
37
<PAGE>
purchase and sale or exchange orders are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of a Fund. Goldman Sachs
reserves the right to limit the participation in the Fund of its partners and
employees.
In addition to concessions allowed to Authorized Dealers, Goldman Sachs may,
from time to time, assist Authorized Dealers by, among other things, providing
sales literature to and holding informational programs for the benefit of
Authorized Dealers' registered representatives. Authorized Dealers may limit
the participation of registered representatives in such informational programs
by means of sales incentive programs which may require the sale of minimum
dollar amounts of shares of the Goldman Sachs Portfolios. Goldman Sachs may
also provide additional promotional incentives to Authorized Dealers in
connection with sales of shares of the Goldman Sachs Portfolios. These
incentives may include payment for travel expenses, including lodging,
incurred in connection with trips taken by qualified registered
representatives and members of their families within or without the United
States. Incentive payments will be provided for out of the sales charge and
distribution fees or out of Goldman Sachs' other resources. Other than sales
charges and distribution fees, a Fund and its shareholders do not bear
distribution expenses. An Authorized Dealer receiving such incentives may be
deemed to be an underwriter under the 1933 Act. In some instances, such
incentives may be made available only to certain Authorized Dealers whose
representatives have sold or are expected to sell significant amounts of
shares.
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,
Government Income and Municipal Income Funds and to limit the amount of such
fee to 0.21% of average daily net assets attributable to Class A shares of the
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, 1995, the Global Income Fund paid Goldman Sachs a
fee at the rate of 0.25% 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 theClass 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 Board of Trustees of
the Trust. 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 Rules of Fair Practice.
38
<PAGE>
DISTRIBUTION PLAN -- CLASS B SHARES
The Trust, on behalf of each Fund's Class B shares (other than the
Adjustable Rate Government Fund which does not offer Class B shares), has
adopted a Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class B
Distribution Plan"). Under the Class B Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.75% of a Fund's average daily net assets attributable to
Class B shares of such Fund.
Goldman Sachs may use the distribution fee for its expenses of distributing
of Class B shares of the Funds. The types of expenses for which Goldman Sachs
may be compensated for distribution services under the Class B Distribution
Plan 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 shares. If the fee
received by Goldman Sachs pursuant to the Class B Distribution Plan exceeds
its expenses, Goldman Sachs may realize a profit from these arrangements. The
Class B Distribution Plan will be reviewed and is subject to approval annually
by the Board of Trustees of the Trust. The aggregate compensation that may be
received under the Class B Distribution Plan for distribution services may not
exceed the limitations imposed by the NASD's Rules of Fair Practice.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A and Class B shares has adopted
non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. Each Fund pays a fee
under its Class A or Class B Service Plan equal on an annual basis to 0.25% of
its average daily net assets attributable to Class A or Class B 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 Board of Trustees. For the period ended October 31,
1995, each Fund paid Authorized Dealer Service Fees at the foregoing rate for
each Funds' Class A shares.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable contingent deferred sales
charge. See "Net Asset Value". Redemption proceeds will be mailed by check to
a shareholder within three (3) Business Days of receipt of a properly executed
request. If shares to be redeemed were recently purchased by check, a Fund may
delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such shares.
This may take up to fifteen (15) days. Redemption requests may be made by
writing to or calling the Transfer Agent at the address or telephone number
set forth on the back cover page of this Prospectus or an Authorized Dealer.
39
<PAGE>
A shareholder may request redemptions by telephone if the optional telephone
redemption privilege is elected on the Account Application. It may be
difficult to implement redemptions by telephone in times of drastic economic
or market changes. In an effort to prevent unauthorized or fraudulent
redemption and exchange requests by telephone, Goldman Sachs and NFDS each
employ reasonable procedures specified by the Trust to confirm that such
instructions are genuine. Consequently, proceeds of telephone redemption
requests will be sent only to the shareholder's address of record or
authorized bank account designated in the Account Application and exchanges of
shares will be made only to an identical account. Telephone requests will also
be recorded. The Trust may implement other procedures from time to time. If
reasonable procedures are not implemented, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. In all other cases,
neither a Fund, the Trust nor Goldman Sachs will be responsible for the
authenticity of instructions received by telephone. Proceeds of telephone
redemptions will be mailed to the shareholder's address of record or wired to
the authorized bank account indicated on the Account Application, unless the
shareholder provides written instructions (accompanied by a signature
guarantee) indicating another address. Shares of the Adjustable Rate
Government Fund, Government Income Fund and Municipal 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.
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<PAGE>
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 sale for tax
purposes. 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 or Class B 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 and Class B shares. The CDSC applicable to Class B
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 and capital gains distribution, if any, declared by a Fund on
its outstanding shares will, at the election of each shareholder, be paid (i)
in cash, (ii) in additional shares of the same class of the Fund or (iii) in
shares of the same or an equivalent class of any of the Goldman Sachs
Portfolios or units of the ILA Portfolios (the Prime Obligations Portfolio
only for Class B) as described under "Cross-Reinvestment of Dividends and
Distributions and Automatic Exchange Program". This election should initially
be made on a shareholder's Account Application and may be changed upon written
notice to Goldman Sachs at any time prior to the record date for a particular
dividend or distribution. If no election is made, all dividends and capital
gains distributions will be reinvested in the Fund. Capital gains
distributions will be reinvested or paid in cash, in accordance with the
shareholder's prior election, on the payment date.
The election to reinvest dividends and distributions paid by the Fund in
additional shares or units of the Fund or any other Goldman Sachs Portfolio or
ILA Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Portfolio
or an ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. In the case
of Global Income Fund, 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 monthly
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 Adjustable Rate
Government, Government Income and Municipal Income Funds 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 Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions (or portions
thereof) of taxable income or realized appreciation on such shares may be
taxable to the investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the cost of such shares
and the distributions (or portions thereof) represent a return of a portion of
the purchase price.
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<PAGE>
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 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 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 Trust's Board of 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 Municipal Income Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. 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 shares
reflect deduction of the applicable CDSC imposed upon redemption of Class B
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
performance rankings and indices.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Municipal Income Fund's tax-free yield. Tax equivalent
yield is calculated by dividing the Municipal Income Fund's tax-exempt yield
by one minus a stated federal and/or state tax rate.
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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. The investment performance of the Class A and Class B shares will
be affected by the payment of a sales charge and distribution fees. See
"Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under
the laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest,
$.001 par value per share. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trustees of the Trust
have authority to create and classify shares of beneficial interest in
separate series, without further action by shareholders. Additional series may
be added in the future. The Trustees have authorization to classify or
reclassify any series or portfolio of shares into one or more classes. The
Adjustable Rate Government Fund offers Institutional Shares, Administration
Shares, Service Shares and Class A shares. The Government Income and Municipal
Income Funds offer Class A and Class B shares. The Global Income Fund offers
Institutional Shares, Service Shares, Class A shares and Class B shares.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of independent accountants. Shareholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding shares
and the Trustees must promptly call a meeting for such purpose when requested
to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Trust. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. The Board of Trustees, however,
will call a special meeting for the purpose of electing Trustees if, at any
time, less than a majority of Trustees holding office at the time were elected
by shareholders.
43
<PAGE>
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
Under Massachusetts law, there exists a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Trust Agreement
contains provisions intended to limit such liability and to provide
indemnification out of Trust property of any shareholder charged or held
personally liable for obligations or liabilities of the Trust solely by reason
of being or having been a shareholder of the Trust and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected
or intends to elect to be treated as a regulated investment company and to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Municipal Income Fund intends to satisfy certain requirements of the
Code so that it may distribute the tax-exempt interest it receives as "exempt-
interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Municipal Income Fund that are attributable to
interest on tax-exempt obligations and that the Fund properly designates as
exempt-interest dividends will be exempt from regular federal income tax,
although all or a portion of such a distribution may be subject to the federal
alternative minimum tax and the entire distribution may be includable in the
tax base for determining taxability of social security or railroad retirement
benefits. Persons who are "substantial users" (or related persons to such
substantial users) of facilities financed by industrial development or certain
private activity bonds should consult their own tax advisers before purchasing
shares of the Municipal Income Fund. Interest on indebtedness incurred or
continued to purchase or carry shares of the Municipal Income Fund is not
deductible to the extent attributable to the Municipal Income Fund's
distributions that are exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain
over net long-term capital loss and original issue discount (except tax-exempt
original issue discount earned by the Municipal Income Fund) 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. 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.
44
<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 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 on which a
shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable distributions, redemptions
and exchanges if they fail to furnish their correct taxpayer identification
number and certain certifications requested 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 Global Income Fund may be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. If more than
50% of the value of its total assets is comprised of stock or securities of
foreign corporations at the end of its taxable year and the Global Income Fund
so elects, shareholders will include in their gross incomes (in addition to
dividends they receive) their pro rata shares of qualified foreign taxes paid
by the Global Income Fund and may be entitled to take federal income tax
credits or deductions with respect to such taxes. If the Fund cannot or does
not so elect, it may deduct 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. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt
municipal obligations issued by or on behalf of the particular state or a
political subdivision thereof, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
45
<PAGE>
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
Adjustable Rate Government Fund) or more of Class A shares of a Fund alone or
in combination with Class A shares of another Fund or another Goldman Sachs
Portfolio 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 apply toward the completion of
this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman, Sachs & Co. that this Statement of Intention is
in effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman, Sachs & Co. any difference between the sales charge on the
amount specified and on the amount actually attained. If the investor does not
within 20 days after written request by Goldman, Sachs & Co. pay such
difference in the sales charge, the Transfer Agent will redeem an appropriate
number of the escrowed shares in order to realize such difference. Shares
remaining after any such redemption will be released by the Transfer Agent.
46
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT APPLICATION
PLEASE PRINT OR TYPE ALL INFORMATION
ANY QUESTIONS? CALL GSAM AT:
1-800-526-7384
SEND TO: THE GOLDMAN SACHS PORTFOLIOS
C/O NFDS
P.O. BOX 419711
KANSAS CITY, MO 64141-6711
I. FUND SELECTION (MINIMUM $1,500 PER FUND)
<TABLE>
<CAPTION>
CLASS A CLASS B
FUND NAME (AND CODE A/B) AMOUNT AMOUNT
- ------------------------ ------- -------
<S> <C> <C>
[_] Asia Growth Fund (880/980) $ $
[_] Balanced Fund (070/970) $ $
[_] Capital Growth Fund (807/907) $ $
[_] Growth & Income Fund (814/914) $ $
[_] International Equity Fund (815/915) $ $
[_] Select Equity Fund (817/917) $ $
[_] Small Cap Equity Fund (819/919) $ $
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
FUND NAME (AND CODE A/B) AMOUNT AMOUNT
------------------------ ------- -------
<S> <C> <C>
[_] Adjustable Rate Government Fund (677) $ N/A
[_] Global Income Fund (818/918) $ $
[_] Government Income Fund (812/912) $ $
[_] Municipal Income Fund (816/916) $ $
[_] ILA-Prime Obligations Portfolio-C
(806/906)* $ $
[_] ILA-Tax-Exempt Diversified Portfolio-C
(820)* $ N/A
[_] Other: $ $
</TABLE>
* Minimum $10,000 or transfer balance of existing fund
A check in the amount of $ is enclosed. By signing this application I
acknowledge that Class B shares and certain purchases of $1 million or more of
Class A shares will be subject to a Contingent Deferred Sales Charge on
Redemption. If not otherwise indicated, purchases will default to Class A
shares.
If your order was placed through a broker, insert the order number here:
and the date of order here:
- ---------------- ------------
If you are exempt from sales charges, check here [_]. By checking this box I
certify that I am exempt from the sales charge in accordance with the terms of
the applicable Fund's prospectus and I agree to notify Goldman, Sachs & Co. at
or prior to purchase if I am no longer eligible for exemption. Reason for
Exemption:
---------------------------------------------------------------
II. ACCOUNT REGISTRATION (CHECK ONE) AND MAILING ADDRESS
[_] INDIVIDUAL
__________________________________ ___________________________
First Middle Last Social Security Number
- --------------------------------------------------------------------------------
[_] MULTIPLE OWNERS
(INCLUDING SPOUSES)
(as Joint Tenants
with Rights of
Survivorship)
__________________________________ ___________________________
First Middle Last Social Security Number
__________________________________ ___________________________
First Middle Last Social Security Number
- --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO MINOR
_________________________________
Name of Custodian
_________________________________ ___________________________
Name of Minor Social Security Number of
Minor
Under the Uniform Gift/Transfer to Minors Act
---------------- ------
State of Minor's Residence Birthdate of Minor
- --------------------------------------------------------------------------------
[_] CORPORATION,
TRUST OR
OTHER ENTITY
_________________________________ ___________________________
Name of Corporation, Trust or Other Federal Tax I.D. Number
Entity
_________________________________ ___________________________
Date of Trust Instrument Name of Trustee (If to be
included in
account registration)
_________________________________
Name of Beneficiary (If to be included
in account registration)
- --------------------------------------------------------------------------------
MAILING
ADDRESS
__________________________________________________________________
Street Address or Post Office Box
__________________________________________________________________
City State Zip Code
___________________________ _______________________
Attention (if applicable) Daytime Telephone Number
<PAGE>
- --------------------------------------------------------------------------------
III. DIVIDEND AND DISTRIBUTION ALTERNATIVES (CHECK ONE)
[_] All dividends and distributions to be reinvested in my account. (This
option will apply if no box is checked.)
[_] All dividends and distributions to be sent by check to me at the address in
"Account Registration."
[_] All dividend distributions to be sent to me by check at the address in
"Account Registration", short-term and long-term capital gains distributions
to be reinvested in my account.
[_] All dividends and distributions to be invested in another Goldman Sachs
Portfolio.
If so, insert name of Fund here:__________________________________________.
Insert name of account registration here:_____ and account number here:____.
[_] All distributions to be sent by check to a special payee (i.e., someone
other than you):
Name: ________________________________________________________________________
Street Address: ______________________________________________________________
City: __________________ State: _____________ Zip Code: ___
[_] All dividends and distributions to be directly deposited to the following
bank account: (ATTACH CHECK MARKED "VOID"):
Bank Name: __________________________________ Account Number: _______________
ABA Routing #: ______________________________
Street Address: _____________________________ Name on Account: ______________
City: __________________ State: _____________ Zip Code: _____________________
IV. RIGHT OF ACCUMULATION (OPTIONAL) CLASS A SHARES ONLY
If you previously purchased Class A shares of the Goldman Sachs Portfolios on
which you paid a sales charge, and when combined with this purchase the total
is $50,000 or more (in the case of equity funds) or $100,000 or more (in the
case of fixed income funds), you may qualify for a reduced sales charge on
this purchase. Purchases by (a) spouses and children, (b) fiduciaries as to a
single trust account, (c) persons affiliated with the same business enterprise
and (d) clients of Goldman Sachs' PCS Division as to affiliated accounts, may
qualify to be aggregated. See the Statement of Additional Information or call
Goldman Sachs for additional details. List below accounts which should be
aggregated for a right of accumulation. Attach an additional page if
necessary.
Name ____________________________ Name ____________________________
Fund ____________________________ Fund ____________________________
Acct No. ________________________ Acct No. ________________________
V. STATEMENT OF INTENTION (OPTIONAL) CLASS A SHARES ONLY
Although not obligated to do so, I intend to invest, over a 13-month period
from this date, in Class A shares of the Fund alone or in combination with
Class A shares of any other fund, on which sales charge was paid, which qualify
for a quantity discount as described in the accompanying Prospectus, in an
amount that will equal or exceed the amount circled below. I agree to the
Statement of Intention and Escrow Agreement in the Appendix to the accompanying
Prospectus and incorporated by reference herein. Circle one:
$50,000 $100,000 $250,000 $500,000 $1,000,000
VI. AUTOMATIC INVESTMENT PLAN (OPTIONAL)
I authorize State Street Bank, the custodian for the Fund(s), to debit the
amount requested below from my bank account for investment in the Fund(s)
beginning in (month) and periodically thereafter. I understand that my
participation in the Automatic Investment Plan is subject to the terms and
conditions of such plan as amended from time to time.
Check One: [_] Monthly [_] Quarterly Check One: [_] 5th of the month
[_] 15th of the month (applicable unless 5th checked)
_________________________________________ $________________________________
Amount of each investment
Name of Fund/Class (minimum $50)
_________________________________________ $________________________________
Amount of each investment
Name of Fund/Class (minimum $50)
X X
_______________________________ ________________________________________
Authorized Signature (as shown on bank Authorized Signature (if joint bank
records) account both sign)
_________________________________________ _________________________________
Bank Name Account Number
_________________________________________
Bank Street Address City State Zip Code
_________________________________________ _________________________________
ABA Routing # Name on Account
<PAGE>
- --------------------------------------------------------------------------------
VII.TELEPHONE EXCHANGE (CHECK IF APPLICABLE)
[_]I authorize Goldman, Sachs & Co. to accept and act upon telephone
instructions from myself or any other person for the exchange of shares of the
Fund(s) into any fund described in the accompanying prospectus. I understand
and agree that neither the Fund(s) nor Goldman, Sachs & Co. will be liable for
any loss, expense, or cost arising out of any telephone request effected
hereunder.
VIII.TELEPHONE REDEMPTIONS (OPTIONAL) (ATTACH VOIDED CHECK)
[_] Goldman, Sachs & Co. is hereby authorized to honor telephone, telegraphic,
or other instructions, without signature guarantee, from any person for the
redemption of shares for the above account, without an obligation on behalf of
Goldman, Sachs & Co., to verify that such person is the shareholder of record
or authorized to give redemption instructions, provided that the proceeds are
transmitted to the following bank account only or are mailed to me at the
address in "Account Registration". Absent its own gross negligence neither the
Fund(s) nor Goldman, Sachs & Co. shall be liable for such redemption or for
payments made to any unauthorized account.
________________________________________________________________________________
Bank Name ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
IX. AUTOMATIC EXCHANGES (OPTIONAL)
The originating Fund's balance must be at least $10,000 and the receiving
Fund's minimum investment must have been met prior to discontinuance.
I hereby authorize automatic exchanges of $ ______ (exact
dollars--$50 minimum):
Exchange from (Name of Fund) ____________________________
to (Name of Fund) _____________________________________
Account Name ____________________________________________
Account No. (if known) __________________________________
Please make exchanges on the 15th of the month (or next
business day) beginning the month of_______ Year________.
X. SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) (ATTACH VOIDED CHECK)
Frequency of withdrawals (check one): [_] Monthly [_] Quarterly Make
payments via (check one): [_] check [_] ACH (Attach voided check.)
Payments made via check are withdrawn from your account on or about the 25th of
the month.
Please withdraw $ from my account on the of each month beginning in
------- -------
* See Prospectus for circumstances in which contingent deferred sales charge is
waived in connection with systematic withdrawal plans.
Complete the following section if withdrawal payments are to be made via ACH.
_______________________________ _______________________________
Bank Name ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
Complete the following section if checks are to be paid to someone other than
registered owner(s).
________________________________________________________________________________
Name of check recipient
________________________________________________________________________________
Street Address City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
XI. CHECKWRITING PRIVILEGE FOR ILA ACCOUNTS (OPTIONAL)
[_]I have invested in the ILA-Prime Obligations Portfolio Service Units and/or
the ILA-Tax-Exempt Diversified Portfolio Service Units and would like an
application for checkwriting sent to me.
XII. SIGNATURE AND CERTIFICATION--ALL REGISTERED OWNERS MUST SIGN
You are required by law to provide the Fund with your correct Social Security
or other Taxpayer Identification Number (TIN). Failure to do so and to complete
this section may subject you to penalties and result in backup withholding of
31% of Fund distributions or other payments. If you have been notified by the
IRS that you are subject to backup withholding because you failed to report all
of your interest and/or dividend income and have not received IRS notice that
such withholding should cease, you must cross out item (2) in this section. If
you do not have but are applying for a TIN, write "Applied For" in the space
provided for your TIN and provide your TIN and required certifications within
60 days. Backup withholding could apply to payments relating to your account
prior to the Fund's receipt of your TIN and required certifications. If you are
an exempt recipient, please furnish your TIN and write "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others. If you are a nonresident alien or foreign
entity, write "NRA" after your signature and provide a completed Form W-8 to
the Fund in order to avoid backup withholding on certain payments. I certify
under penalties of perjury that: (1) The number shown on this form is my
correct TIN (or I am waiting for a number to be issued to me), and (2) I am not
subject to backup withholding because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all interest
or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
By the execution of this Account Application, the undersigned represents and
warrants that it has full right, power and authority to make the investment
applied for pursuant to this Application and is acting for itself or in some
fiduciary capacity in making such investment. THE UNDERSIGNED UNDERSTANDS THAT
NON-MONEY MARKET FUNDS DO NOT MAINTAIN A CONSTANT NET ASSET VALUE AND FURTHER
THAT A CONSTANT NET ASSET VALUE IN MONEY MARKET FUNDS IS NOT GUARANTEED. AS A
RESULT THE UNDERSIGNED MAY EXPERIENCE A LOSS OF PRINCIPAL ON ITS INVESTMENTS.
The undersigned affirms that it has received a current Prospectus for the Funds
and has reviewed the same.
X ___________________________________ X _______________________________
Signature of Owner, Custodian Date Signature of Co-Owner Date
or Officer
FOR DEALER USE ONLY
Investment dealer's signature is required for Systematic Withdrawal Plan
("SWP") or Statement of Intention. If an SWP is being opened, we believe that
the amount to be withdrawn is reasonable in light of the investor's
circumstances and we recommend establishment of the account.
________________________________________________________________________________
Name of Dealer Firm Home Office Location
________________________________________________________________________________
City State
Zip Code
________________________________________________________________________________
Branch Office Location Branch Number/Branch Phone
________________________________________________________________________________
Authorized Signature State
Zip Code
________________________________________________________________________________
Reg. Rep. Name Reg. Rep's Number
<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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
FIP-1AB-GST/100K/0396
- -------------------------------------------------
- -------------------------------------------------
THE GOLDMAN SACHS
FIXED INCOME
PORTFOLIOS
- -------------------------------------------------
PROSPECTUS CLASS A AND CLASS B SHARES
[LOGO] Goldman
Sachs
- -------------------------------------------------
- -------------------------------------------------
<PAGE>
GOLDMAN SACHS TRUST
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
INSTITUTIONAL SHARES
----------------
SUPPLEMENT DATED FEBRUARY 28, 1997 TO
PROSPECTUS DATED MARCH 1, 1996
GS 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.
GS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current
income, may also consider the potential for capital gain. The Fund invests
primarily in securities issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax.
The Fund invests primarily in municipal securities.
GS 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.
This Prospectus Supplement and the accompanying Prospectus provide 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 February 28, 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, 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 the accompanying Prospectus.
The following replaces the Fees and Expenses Table and Financial Highlights
and supplements the information under the sections entitled "What are the
Investment Objectives and Policies of the Funds," "Management" and "Shares of
the Trust" in the accompanying Prospectus:
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT CORE
RATE DURATION DURATION FIXED GLOBAL
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME
FUND FUND FUND FUND FUND
---------- ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of av-
erage daily net as-
sets)
Management Fees (after
fee adjustments)..... 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/ 0.59%/5/
Distribution (Rule
12b-1) Fees.......... none none none none none
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/ 0.06%/5/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES
(after fee and ex-
penses limitations).. 0.45%/1/ 0.45%/2/ 0.45%/3/ 0.45%/4/ 0.65%/5/
==== ==== ==== ==== ====
</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 $14 $25 $57
Short Duration Government....................... $5 $14 $25 $57
Short Duration Tax-Free......................... $5 $14 $25 $57
Core Fixed Income............................... $5 $14 $25 $57
Global Income................................... $7 $21 $36 $81
</TABLE>
- --------
/1/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.11% and 0.51%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1996 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/2/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund. The
Investment Adviser also has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed
<PAGE>
0.05% of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations,
"Management Fees," "Other Expenses" and "Total Operating Expenses"
attributable to Institutional Shares would be 0.50%, 0.21% and 0.71%,
respectively. Annual operating expenses incurred by Institutional Shares of
the Fund during the fiscal year ended October 31, 1996 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees," "Other Expenses" and "Total Operating Expenses" of 0.40%,
0.05% and 0.45%, respectively.
/3/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.61% and 1.01%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1996 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/4/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.43% and 0.83%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1996 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/5/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15% respectively. The Investment Advisers have
voluntarily agreed to limit their advisory and subadvisory fees to such
amounts. Without such limitations, advisory and subadvisory fees would be
0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily
agreed to reduce or limit certain "Other Expenses" of the Global Income Fund
(excluding advisory, subadvisory and administration fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.06% of the Fund's average
daily net assets. Goldman Sachs and the Investment Advisers have no current
intention of modifying or discontinuing any of such limitations but may do
so in the future at their discretion. Without such limitations, Global
Income Fund's "Management Fees," "Other Expenses" and "Total Operating
Expenses" attributable to Institutional Shares would be 0.90%, 0.21% and
1.11%, respectively. Annual operating expenses incurred by Institutional
Shares of the Fund during the fiscal year ended October 31, 1996 (expressed
as a percentage of average daily net assets after fee adjustments) were
"Management Fees," "Other Expenses" and "Total Operating Expenses" of 0.59%,
0.06% and 0.65%, respectively.
The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Administration Shares and Service Shares; Adjustable Rate Government Fund also
offers Administration Shares, Service Shares and Class A Shares; and Global
<PAGE>
Income Fund also offers Service Shares, Class A Shares and Class B Shares. The
other classes of the Funds are subject to different fees and expenses (which
affects performance), have different minimum investment requirements and are
entitled to different services. Information regarding any other class of the
Funds may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor will bear directly
or indirectly. The information on fees and expenses included in the table and
the hypothetical example above are based on estimated fees and expenses for
the current fiscal year and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers, Subadviser and
Administrator."
<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 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
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares... $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administra-
tion 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-Institu-
tional Shares... 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administra-
tion 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-Institu-
tional Shares... 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares..... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares... 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion Shares(e).. 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares... 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional 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
---------- ------------ ---------- ------------ ------- -------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional 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 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(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ---------- -------- ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 OC-
TOBER 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>
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administra-
tion
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-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1988-Institu-
tional 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
---------- ------------ ---------- ------------ -------- -------------
GS SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $(0.6326) -- -- -- -- $(0.6326)
1996-Administra-
tion
Shares(h)...... (0.3940) -- -- -- -- (0.3940)
1996-Service
Shares(i)...... (0.3152) -- -- -- -- (0.3152)
1995-Institu-
tional Shares.. (0.6518) -- -- -- -- (0.6518)
1995-Administra-
tion Shares.... (0.2051) -- -- -- -- (0.2051)
1994-Institu-
tional Shares.. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administra-
tion Shares.... (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institu-
tional Shares.. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administra-
tion
Shares(e)...... (0.2725) -- -- -- -- (0.2725)
1992-Institu-
tional Shares.. (0.6703) -- -- -- -- (0.6703)
1991-Institu-
tional Shares.. (0.8020) -- -- -- -- (0.8020)
1990-Institu-
tional Shares.. (0.8300) -- -- -- -- (0.8300)
1989-Institu-
tional Shares.. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1988-Institu-
tional 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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administra-
tion
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-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
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-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional 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-Institu-
tional 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>
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
------------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- -------------- -------------- ----------
GS SHORT DURATION TAX-FREE FUND
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)...... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion
Shares(j)...... 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1992-Institu-
tional Shares.. 10.00 0.0341 (0.0700)(d) -- (0.0359)
</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
---------- ------------ ---------- ------------ ------- -------------
GS SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)...... (0.0475) -- (0.0475)
1993-Institu-
tional Shares.. (0.3834) -- -- -- -- (0.3834)
1993-Administra-
tion
Shares(j)...... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1992-Institu-
tional Shares.. (0.0341) -- -- -- -- (0.0341)
</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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
7
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- -------------- -------------- ----------
GS CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 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
</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
---------- ------------ ---------- ------------ -------- -------------
GS CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 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)
</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
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
GS CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
<CAPTION>
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
</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)GS 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 not 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 on June 1, 1995 and May 1, 1996,
respectively.
8
<PAGE>
With respect to GS Short Duration Tax-Free Fund:
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. 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.
With respect to GS Core Fixed Income Fund:
Non-dollar securities in which the Fund invests will be rated at least AA
by S&P or Aa by Moody's at the time of investment.
Emerging Markets. The Core Fixed Income Fund may invest up to 10% of its
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 in the attached Prospectus, including the possibility
of nationalization, expropriation and confiscatory taxation, may be
heightened. In addition, unanticipated political and social developments
may affect the value of the 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 the 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 the Fund's
investments in emerging markets.
The following replaces the information provided for Short Duration Tax-Free
Fund under the caption "Management--Investment Advisers, Subadviser and
Administrator:"
The Fund's 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 Goldman Sachs's Municipal Finance Department.
The following is added under the caption "Management--Investment Advisers,
Subadviser and Administrator:"
For the fiscal year ended October 31, 1996, GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund,
GS Core Fixed Income Fund and Goldman Sachs Global Income Fund, paid
advisory fees at the rate of .40%, .40%, .40%, .40% and .44%, respectively,
of average daily net assets and Goldman Sachs Global Income Fund paid
administration fees at the rate of .15% of average daily net assets.
The following is added under the caption "Shares of the Trust:"
At a shareholders meeting called for April 1, 1997, shareholders of each
Fund as of January 31, 1997 will consider a proposal to reorganize the
Funds into series of a Delaware business trust. The above description
regarding shares of the Funds applies equally to shares of a Delaware
business trust except that, under Delaware law, shareholders of a Delaware
business trust are not personally liable as partners for the obligations of
a Delaware business trust.
<PAGE>
As of January 31, 1997, the shareholder listed below owned of record 25% or
more of the outstanding Institutional Shares of Short Duration Government
Fund:
State Street Bank and Trust Company 32.50%
P.O. Box 1992
Boston, MA 02105
As of January 31, 1997, the shareholders listed below owned of record 25% or
more of the outstanding Institutional Shares of Core Fixed Income Fund:
Vinson and Elkins Lawyers 51%
Retirement Plan
Texas Commerce Bk
PO Box 2568
Houston, TX 77252
St. Barnabas 31%
One New York Plaza
42nd Floor
New York, NY 10004
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
March 1, 1996
GOLDMAN SACHS TRUST
INSTITUTIONAL SHARES
TABLE OF CONTENTS GS ADJUSTABLE RATE GOVERNMENT FUND
Seeks a high level of current income,
consistent with low volatility of prin-
PAGE cipal. The Fund invests primarily in ad-
---- justable rate mortgage pass-through se-
curities and other mortgage securities
Fund Highlights............... 1 with periodic interest rate resets,
Fees and Expenses............. 5 which are issued or guaranteed by the
Financial Highlights.......... 7 U.S. Government, its agencies, instru-
Investment Objectives and mentalities or sponsored enterprises.
Policies.................... 11
Description of Securities..... 15 GS SHORT DURATION GOVERNMENT FUND
Risk Factors.................. 22
Investment Techniques......... 23 Seeks a high level of current income and
Investment Restrictions....... 27 secondarily, in seeking current income,
Portfolio Turnover............ 27 may also consider the potential for cap-
Management.................... 28 ital gain. The Fund invests primarily in
Dividends..................... 31 securities issued or guaranteed by the
Net Asset Value............... 32 U.S. Government, its agencies, instru-
Performance Information....... 32 mentalities or sponsored enterprises.
Shares of the Trust........... 33
Taxation...................... 34 GS SHORT DURATION TAX-FREE FUND
Additional Information........ 36
Reports to Shareholders....... 37 Seeks a high level of current income,
Purchase of Institutional consistent with relatively low volatil-
Shares...................... 37 ity of principal, that is exempt from
Exchange Privilege............ 39 regular federal income tax. The Fund in-
Redemption of Institutional vests primarily in municipal securities.
Shares...................... 40
Appendix...................... A-1 GS CORE FIXED INCOME FUND
Account Application
Seeks a total return consisting of capi-
tal 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 guaran-
teed by the U.S. Government, its agen-
cies, instrumentalities or sponsored en-
terprises, corporate securities, mort-
gage-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 ap-
preciation. The Fund invests primarily
in a portfolio of high quality fixed in-
come securities of U.S. and foreign is-
suers and foreign currencies.
(continued on next page)
----------
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<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?
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 objective.
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>
ADJUSTABLE RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
--------------- -------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OBJECTIVES A high level A high level A high level of Total return A high total
of current of current current income, consisting of return, emphasizing
income, income, and consistent with capital current income and,
consistent secondarily, low volatility appreciation to a lesser extent,
with low in seeking of principal, and income that providing
volatility of current that is exempt exceeds the opportunities for
principal. income, may from regular total return of capital
also consider federal income the Lehman appreciation.
the potential tax. Brothers
for capital Aggregate Bond
gain. Index.
------------------------------------------------------------------------------------------------------------
DURATION Target = 6- Target = 2- Target = Lehman Target = Lehman Target = J.P.
month to 1- year U.S. Brothers 3-year Brothers Morgan Global
year U.S. Treasury Municipal Bond Aggregate Bond Government Bond
Treasury Security plus Index plus or Index plus or Index (hedged) plus
Security or minus .5 minus .5 years minus 1year or minus 2.5 years
years
Maximum = 2 Maximum = 3 Maximum = 4 Maximum = 6
years years years years Maximum = 7.5 years
------------------------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 2-year bond 3-year bond 5-year bond 6-year bond
RATE SENSITIVITY
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
1
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
----------------- -------------- -------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT SECTOR At least 65% of At least 65% At least 80% At least 65% of Securities of
total assets in of total of net assets assets in fixed U.S. and
securities issued assets in U.S. in Municipal income securities, foreign
or guaranteed by Government Securities. including U.S. governments and
the U.S. Securities and Government corporations.
Government, its repurchase Securities,
agencies, agreements corporate,
instrumentalities collateralized mortgage-backed
or sponsored by such and asset-backed
enterprises securities. securities.
("U.S. Government
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
---------------------------------------------------------------------------------------------------------
CREDIT QUALITY U.S. Government U.S. Minimum = A Minimum = BBB/Baa Minimum = AA/Aa
Securities Government Minimum for or A if
Securities foreign sovereign
securities = AA/Aa issuer
At least 50% =
AAA/Aaa
---------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed rate Mortgage pass- U.S. Foreign fixed Mortgage and
mortgage pass- through Government income, municipal asset- backed
through securities and Securities and and convertible securities,
securities and other repurchase securities, foreign
repurchase securities agreements foreign currencies currencies and
agreements representing collateralized and repurchase repurchase
collateralized by an interest in by such agreements agreements
U.S. Government or securities. collateralized by collateralized
Securities. collateralized U.S. Government by U.S.
by mortgage Securities. Government
loans. Securities or
certain foreign
government
securities.
---------------------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S. Lehman Lehman Brothers JP Morgan
year U.S. Treasury Brothers 3- Aggregate Bond Global
Treasury security security Year Municipal Index Government Bond
Bond Index Index (hedged)
</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 to the Core Fixed Income and Global Income Funds, foreign
exchange conditions, so that an investment in any of the Funds may be worth
more or less when redeemed than when purchased. None of the Funds should be
relied upon as a complete investment program. There can be no assurance that
a Fund's investment 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.
2
<PAGE>
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.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investment in
domestic securities. The risks of foreign investments and currencies include
changes in relative currency exchange rates, political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. In addition, the securities markets of foreign
countries are generally less liquid and subject to greater price volatility.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures, and swap transactions,
will subject a Fund to greater risk than funds that do not employ such
techniques.
Non-Diversification. 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 acts as administrator to the Global Income Fund and
serves as the Investment Adviser to the Short Duration Tax-Free, Core Fixed
Income and Global Income Funds. Goldman Sachs Asset Management International
serves as subadviser to the Global Income Fund. As of January 31, 1996, the
Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $57 billion.
3
<PAGE>
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 Global
Income Fund) 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 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
Core Fixed Income........................... Daily Monthly Annually
Global Income............................... Monthly 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 cash, shares of
the same class of other mutual funds sponsored by Goldman Sachs or the
corresponding class of any portfolio of Goldman Sachs Money Market Trust.
For further information concerning dividends, see "Dividends".
4
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
SHORT SHORT
ADJUSTABLE RATE DURATION DURATION CORE FIXED GLOBAL
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME
FUND FUND FUND FUND FUND
--------------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)
Management Fees (after
fee adjustments)..... 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/ 0.59%/5/
Distribution (Rule
12b-1) Fees.......... none none none none none
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/ 0.06%/5/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES
(AFTER FEE AND
EXPENSE
LIMITATIONS)......... 0.45%/1/ 0.45%/2/ 0.45%/3/ 0.45%/4/ 0.65%/5/
==== ==== ==== ==== ====
</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 $14 $25 $57
Short Duration Government....................... $ 5 $14 $25 $57
Short Duration Tax-Free......................... $ 5 $14 $25 $57
Core Fixed Income............................... $ 5 $14 $25 $57
Global Income................................... $ 7 $21 $36 $81
</TABLE>
- --------
/1/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.13% and 0.53%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.06% and 0.46%, respectively.
/2/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund. The
Investment Adviser also has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The
5
<PAGE>
Investment Adviser has no current intention of modifying or discontinuing
any of such limitations but may do so in the future at its discretion.
Without such limitations, "Management Fees", "Other Expenses" and "Total
Operating Expenses" attributable to Institutional Shares would be 0.50%,
0.22% and 0.72%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/3/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.37% and 0.77%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/4/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets. The Investment Adviser has no current intention of
modifying or discontinuing any of such limitations but may do so in the
future at its discretion. Without such limitations, "Other Expenses" and
"Total Operating Expenses" attributable to Institutional Shares would be
0.56% and 0.96%, respectively. Annual operating expenses incurred by
Institutional Shares of the Fund during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.45%, respectively.
/5/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15% respectively. The Investment Advisers have
voluntarily agreed to limit their advisory and subadvisory fees to such
amounts. Without such limitations, advisory and subadvisory fees would be
0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily
agreed to reduce or limit certain "Other Expenses" of the Global Income Fund
(excluding advisory, subadvisory and administration fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.06% of the Fund's average
daily net assets. Goldman Sachs and the Investment Advisers have no current
intention of modifying or discontinuing any of such limitations but may do
so in the future at their discretion. Without such limitations, Global
Income Fund's "Management Fees", "Other Expenses" and "Total Operating
Expenses" attributable to Institutional Shares would be 0.90%, 0.14% and
1.04%, respectively. Annual operating expenses incurred by Institutional
Shares of the Fund during the fiscal year ended October 31, 1995 (expressed
as a percentage of average daily net assets after fee adjustments) were
"Management Fees", "Other Expenses" and "Total Operating Expenses" of 0.55%,
0.10% and 0.65%, respectively.
The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Administration Shares and Service Shares; Adjustable Rate Government Fund also
offers Administration Shares, Service Shares and Class A Shares; and Global
Income Fund also offers Service Shares, Class A Shares and Class B Shares. The
other classes of the Funds are subject to different fees and expenses (which
affects performance), have different minimum investment requirements and are
entitled to different services. Information regarding any other class of the
Funds may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor will bear directly
or indirectly. The information on fees and expenses included in the table and
the hypothetical example above are based on estimated fees and expenses for
the current fiscal year and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management --Investment Advisers, Subadviser and
Administrator".
6
<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 October 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $ 9.74 $0.5630(c) $0.0717 (c) -- $0.6347(c)
1995--Administration
Shares.......... 9.74 0.5366(c) 0.0737 (c) -- 0.6103(c)
1995--Class A
Shares (d)...... 9.79 0.2721(c) (0.0090)(c) -- 0.2631(c)
1994--Institutional
Shares.......... 10.00 0.4341(c) (0.2455)(c) -- 0.1886(c)
1994--Administration
Shares.......... 10.00 0.4211(c) (0.2572)(c) -- 0.1639(c)
1993--Institutional
Shares.......... 10.04 0.4397 (0.0376)(a) -- 0.4021
1993--Administration
Shares(f)....... 10.02 0.2146 (0.0173)(a) -- 0.1973
1992--Institutional
Shares.......... 10.03 0.5599 (0.0029)(a) -- 0.5570
FOR THE PERIOD JULY 17, 1991(g) THROUGH OCTOBER 31,
1991--Institutional
Shares.......... 10.00 0.1531 0.0322 (a) -- 0.1853
<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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $(0.5759) $-- $(0.0287) $-- $-- $(0.6046)
1995--Administration
Shares.......... (0.5528) -- (0.0275) -- -- (0.5803)
1995--Class A
Shares (d)...... (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(f)....... (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)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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 (d)...... (0.0200) 9.77 2.74 0.69(e) 5.87(e) 24.12 15,203 1.01(e) 5.55(e)
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(f)....... (0.0200) 10.00 2.01(k) 0.70(e) 3.81(e) 103.74 5,326 0.73(e) 3.78(e)
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(k) 0.20(e) 7.31(e) 145.67(e) 239,642 1.02(e) 6.49(e)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--
Institutional
Shares.......... $ 9.64 $0.6652(c) $ 0.1666 (c) $-- $0.8318(c)
1995--Administration
Shares.......... 9.64 0.2384(c) (0.0433)(c) -- 0.1951(c)
1994--
Institutional
Shares.......... 10.14 0.5628(c) (0.4592)(c) -- 0.1036(c)
1994--Administration
Shares.......... 10.14 0.5329(c) (0.4539)(c) -- 0.0790(c)
1993--
Institutional
Shares.......... 10.16 0.5627 (0.0135)(a) -- 0.5492
1993--Administration
Shares(f)....... 10.23 0.2725 (0.0900)(a) -- 0.1825
1992--
Institutional
Shares.......... 10.22 0.6703 (0.0600)(a) -- 0.6103
1991--
Institutional
Shares.......... 10.00 0.8020 0.2200 (a) -- 1.0220
1990--
Institutional
Shares.......... 10.07 0.8300 (0.0700)(a) -- 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(a) -- 0.2800
<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 YEARS ENDED OCTOBER 31,
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(f)....... (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)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITAITONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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(e) 7.91(e) 292.56 -- 0.90(e) 7.71(e)
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(f)....... (0.0900) 10.14 1.74 0.70(e) 4.84(e) 411.66 16,490 0.80(e) 4.74(e)
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 0.55(e) 8.55(e) 167.00(e) 39,052 1.42(e) 7.68(e)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $ 9.79 $0.4235(c) $0.1500 (c) $-- $0.5735 (c)
1995--Administration
Shares.......... 9.79 0.3989(c) 0.1500 (c) -- 0.5489 (c)
1995--Service
Shares.......... 9.79 0.3744(c) 0.1600 (c) -- 0.5344 (c)
1994--Institutional
Shares.......... 10.23 0.3787(c) (0.3575)(c) -- 0.0212 (c)
1994--Administration
Shares.......... 10.23 0.3537(c) (0.3575)(c) -- (0.0038)(c)
1994--Service
Shares(i)....... 9.86 0.0475(c) (0.0700)(c) -- (0.0225)(c)
1993--Institutional
Shares.......... 9.93 0.3834 0.3000 (a) -- 0.6834
1993--Administration
Shares(i)....... 10.16 0.1555 0.0720 (a) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... 10.00 0.0341 (0.0700)(a) -- (0.0359)
<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 YEARS ENDED OCTOBER 31,
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(i)....... (0.0475) -- -- -- -- (0.0475)
1993--Institutional
Shares.......... (0.3834) -- -- -- -- (0.3834)
1993--Administration
Shares(i)....... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... (0.0341) -- -- -- -- (0.0341)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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(i)....... (0.0700) 9.79 (0.32)(k) 0.95(e) 4.30(e) 354.00 44 1.11(e) 4.14(e)
1993--Institutional
Shares.......... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993--Administration
Shares(i)....... 0.0720 10.23 2.28 (k) 0.70(e) 3.32(e) 404.60 911 1.07(e) 2.95(e)
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... (0.0700) 9.93 (0.34)(k) 0.05(e) 4.58(e) 31.19(k) 14,601 2.68(e) 1.95(e)
</TABLE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEAR ENDED OCTOBER 31,
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)
<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 YEAR ENDED OCTOBER 31,
1995--Institutional
Shares.......... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(g) THROUGH OCTOBER 31,
1994--Institutional
Shares.......... (0.4648) -- -- -- -- (0.4648)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1995--Institutional
Shares.......... 0.7600 10.00 15.72 0.45 6.56 383.26(j) 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(e) 6.48(e) 288.25(j) 24,508 1.46(e) 5.47(e)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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
--------- ---------- ------------ ------------ ----------
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $13.43 $0.89 $0.92 $0.15 $1.96
1995--Institutional
shares (l)...... 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>
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
---------- ------------ ---------- ------------ ------- -------------
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $(0.94) $-- $-- $-- $-- $(0.94)
1995--Institutional
shares (l)...... (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>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $1.02 $14.45 15.08% 1.29% 6.23% 265.86% $245,835 1.58% 5.94%
1995--Institutional
shares (l)...... 0.36 14.45 4.42 0.65(e) 6.01(e) 265.86 31,619 1.08(e) 5.58(e)
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(k) 1.72(k) 34.22 388,744 0.44(k) 1.66(k)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period. For Class
A shares only, total return would be reduced if a sales charge were taken
into account.
(c) Calculated based on the average shares outstanding methodology.
(d) Class A shares commenced operations on May 15, 1995.
(e) Annualized.
(f) Administration share activity commenced on April 15, 1993.
(g) Commencement of operations.
(h) Short Duration Government Administration shares were redeemed in full on
February 23, 1995. Amount shown represents net asset value on February 23,
1995.
(i) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(j) Includes the effect of mortgage dollar roll transactions.
(k) Not annualized.
(l) Institutional shares commenced operations on August 1, 1995.
10
<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, 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 the
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 6-month to 1-year
U.S. Treasury security. In addition, under normal interest rate conditions,
the Fund's maximum duration will not exceed 2 years. The approximate interest
rate sensitivity of the Fund is comparable to a 9-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.
11
<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, 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 gain.
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 (currently 1.8 years). In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed 3
years. The approximate interest rate sensitivity of the Fund is comparable to
a 2-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, 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 3-
year Municipal Bond Index, plus or minus .5 years (currently 2.8 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 4 years. The approximate interest rate sensitivity of the Fund
is comparable to a 3-year bond.
12
<PAGE>
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 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 and may increase liability
for the corporate environmental 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 A by S&P or Moody's. 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,
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. Shareholders may be subject to
state, local or foreign taxes on such income received from the Fund. See
"Description of Securities".
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 1 year (currently, 4.7 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 6 years. The approximate interest rate sensitivity of the Fund
is comparable to a 5-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. 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.
13
<PAGE>
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 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 currency
transactions to seek to hedge its exposure to foreign currencies. 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, 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 (currently 5.0 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 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 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 enhance returns and for the purpose of hedging its portfolio.
14
<PAGE>
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 net 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 currency transactions both to
seek to enhance returns for a given level of risk and to seek to hedge its
exposure to foreign currencies. While the Fund will have both long and short
currency positions, its net long and short foreign currency exposure will not
exceed the value of the Fund's total assets. 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, mortgage dollar rolls, repurchase
agreements and other investment practices desired 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
any other foreign country.
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
15
<PAGE>
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.
CORPORATE DEBT OBLIGATIONS
The Core Fixed Income and Global Income 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 Fund may invest in convertible securities, which may
include corporate notes or preferred stock but are ordinarily long-term debt
obligations of an issuer convertible at a stated exchange rate into common
stock of the issuer. As with all debt securities, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the
price of the convertible security tends to reflect the value of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which the Core Fixed Income Fund invests will be
subject to the same rating criteria as its other investments in fixed income
securities.
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 the 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
16
<PAGE>
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, Core Fixed Income and
Global Income 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 Core Fixed Income and
Global Income 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, Core
Fixed Income and Global Income 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, Core Fixed Income and Global Income 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. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of a Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage loans are generally higher than prevailing market yields on
other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
ASSET-BACKED SECURITIES
The Core Fixed Income and Global Income Funds may 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.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income Fund, 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 Fund's
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
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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 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 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.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Core Fixed Income and Global Income Funds may invest
in fixed income securities of foreign issuers denominated in any currency.
However, the Core Fixed Income Fund will limit its investments in non-U.S.
dollar-denominated fixed income securities to 25% of its total assets. This
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 U.S. dollar-denominated securities of
domestic issuers. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate 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 exchange rate for the currency in
which a Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, the Fund may
have to sell portfolio securities to obtain sufficient cash to pay such
dividends. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such
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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 and Global Income 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. Most 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 taxes on dividend or interest payments, 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 CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income and Global Income Funds will usually involve currencies of
foreign countries, and because the Global Income Fund may have currency
exposure independent of its securities positions, the value of the assets of a
Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may 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. The Global
Income 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 Global Income Fund may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or the Global Income Fund enters into a forward foreign currency
exchange contract to sell foreign currency to seek to increase total return,
the Fund will be required to place and maintain cash or liquid, high grade
debt securities in a segregated account with the Fund's custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. A Fund will incur costs in connection with conversions
between various currencies. The Global Income 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 United
States 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 authorized for use by the
Funds 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 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.
STRUCTURED SECURITIES
The Core Fixed Income and Global Income 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 the
Fund's investment. Structured securities may be positively or negatively
indexed, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In
addition, changes in the interest rates or the value of the security at
maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of fixed income securities. Structured securities may also be
more volatile, less liquid and more difficult to accurately price than less
complex securities.
ZERO COUPON, DEFERRED INTEREST 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. 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
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 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 the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.
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, 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) securities on a
specified future date. During the roll period, a Fund loses the right to
receive principal and interest paid on the securities sold. However, a Fund
may benefit from the interest earned on the cash proceeds of the securities
sold until the settlement date of the forward purchase. Each Fund will hold
and maintain in a segregated account until the settlement date cash or liquid,
high grade debt securities in an amount equal to the forward purchase price.
The benefits derived from the use of mortgage dollar rolls depend upon the
Investment Adviser's ability to manage mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed. For
financial reporting and tax purposes, each Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The 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
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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 and Global Income 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 Global Income Fund may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency,
if there is a pattern of correlation between the two currencies. As with other
kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. 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
Global Income Fund may purchase call or put options on currency to seek to
increase total return when the Investment Adviser anticipates that the
currency will appreciate or depreciate in value, but the securities quoted or
denominated in that currency do not present attractive investment
opportunities and are not held in the 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 a
Fund will be traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTACTS 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 (but only for hedging purposes) and Global
Income Funds, currency exchange rates, each Fund may purchase and sell various
kinds of futures contracts, and purchase and write call and put options on any
of such futures contracts. Each Fund may also enter into closing purchase and
sale transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income and
Global Income 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 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
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to segregate and maintain cash or liquid, high grade debt securities with a
value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment 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 and Global Income Funds may enter into
currency swaps for hedging purposes and the Global Income Fund may also enter
into currency swaps 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 take 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, swap transactions, 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 the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's transactions in certain derivative
transactions may be limited by the requirements of the Internal Revenue Code
(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
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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 3-day settlement. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until 3 days prior to settlement date, cash or liquid, high grade
debt securities in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
LLIQUID 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, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for sale under Rule 144A and,
therefore, is liquid. The Board of Trustees has adopted guidelines and
delegated to the Investment Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board of Trustees,
however, retains oversight focusing on factors such as valuation, liquidity
and availability of information and is ultimately responsible for each
determination. Investing in restricted securities eligible for resale pursuant
to Rule 144A 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 Global Income Fund 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 of the Trust 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 advisory 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 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 Fund may for temporary defensive purposes depart from its
stated investment objective and invest more than 20% of its net assets in
taxable investments which would subject such income to taxation.
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MISCELLANEOUS TECHNIQUES
In addition to the techniques described above, each Fund may, with respect
to no more than 5% of its total assets, engage in the following techniques:
(i) portfolio securities lending, (ii) mortgage swaps (other than Short
Duration Tax-Free Fund) and interest rate swaps, caps, floors and collars,
(iii) inverse floating rate securities, (iv) yield curve options, (v)
investments in other investment companies, (vi) custodial receipts, (vii) with
respect to the Short Duration Tax-Free Fund, tender option bonds and standby
commitments and (viii) with respect to the Core Fixed Income Fund, investments
in securities of issuers in countries with emerging markets and economies. 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 can not be changed without
approval of a majority of the outstanding shares of that Fund. All investment
objectives and policies not specifically designated as fundamental are non-
fundamental and may be changed without shareholder approval. If there is a
change in a Fund's investment objectives, shareholders should consider whether
the Fund still remains an appropriate investment in light of their then
current financial positions and needs.
The Short Duration Tax-Free Fund's policy to invest, under normal market
conditions, at least 80% of its 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-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. 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 and Core Fixed Income 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. 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
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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 Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Advisers, administrator,
distributor and transfer agent. The officers of the Trust conduct and
supervise each Fund's daily business operations. The Additional Statement
contains information as to the identity of, and other information about, the
Trustees and officers of the Trust.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
INVESTMENT ADVISERS AND SUBADVISER. Goldman Sachs Funds Management, L.P.,
One New York Plaza, New York, New York 10004, a Delaware limited partnership
which is an affiliate of Goldman Sachs, serves as the investment adviser to
the Short Duration Government and Adjustable Rate 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 and Core Fixed Income Funds and
investment adviser and administrator to the Global Income Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 140 Fleet Street, London EC4A 2BJ, England, an affiliate of
Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman
Sachs Asset Management International became a member of the Investment
Management Regulatory Organization Limited in 1990 and registered as an
investment adviser in 1991. As of January 31, 1996, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $57 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the Global Income Fund under a
Subadvisory Agreement, the subadviser, subject to the general supervision of
the Board of Trustees, provides day-to-day advice as to the Fund's portfolio
transactions. Goldman Sachs has agreed to permit the Trust to use the name
"Goldman Sachs" or a derivative thereof as part of each Fund's name for as
long as a Fund's Investment Advisory 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.
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 joined the Investment Adviser in 1990 after working in the
trading and arbitrage group of Franklin Savings Association.
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CORE FIXED INCOME FUND. The Fund's 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
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
SHORT DURATION TAX-FREE FUND. The Fund's portfolio manager is Benjamin S.
Thompson. Mr. Thompson specializes in municipal securities, where his
responsibilities include developing investment strategy and structuring
portfolios. Mr. Thompson worked in the institutional sales and marketing group
at 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.
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. Prior to his employment at Invesco, Mr. Fitzgerald
spent three years with Foreign and Colonial Management Limited in London
managing fixed income and derivative funds, and, prior to that, in the
treasury department of NRMA Insurance Limited in Sydney. 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.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Investment Advisory Agreements, GSFM is entitled to a fee
from the Short Duration Government and Adjustable Rate Government Funds,
computed daily and payable monthly, at the annual rates of 0.50% and 0.40%,
respectively, of average daily net assets; however, GSFM is currently only
imposing its advisory fee with respect to the Short Duration Government Fund
at the annual rate of 0.40% of average daily net assets. As compensation for
its services rendered and assumption of certain expenses pursuant to separate
Investment Advisory Agreements, GSAM is entitled to a fee from the Short
Duration Tax-Free, Core Fixed Income and Global Income Funds, computed daily
and payable monthly, at the annual rates of 0.40%, 0.40% and 0.25%,
respectively, of average daily net assets; however, GSAM is currently only
imposing its advisory fee with respect to the Global Income Fund at the annual
rate of 0.12% of average daily net assets. As compensation for its services
rendered and assumption of certain expenses pursuant to a Subadvisory
Agreement, GSAMI is entitled to a fee from the Global Income Fund, computed
daily and payable monthly at the annual rate of 0.50% of average daily net
assets; however, GSAMI is currently only imposing its subadvisory fee with
respect to the Global Income Fund at the annual rate of 0.32% of average daily
net assets. The Investment Advisers may discontinue or modify such limitations
in the future at their discretion, although the Investment Advisers have no
current intention to
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do so. For the fiscal year ended October 31, 1995, the Short Duration
Government, Adjustable Rate Government, Short Duration Tax-Free and Core Fixed
Income Funds paid fees at the foregoing rates. At various times during the
fiscal year ended October 31, 1995, GSAM and GSAMI waived part of their
investment advisory and subadvisory fees, respectively, for the Global Income
Fund. The average rate for the period paid by the Global Income Fund to GSAM
and GSAMI was 0.22% and 0.45%, respectively. Without giving effect to fee
limitations, the aggregate management fees paid by the Global Income Fund are
higher than the fees paid by most funds but the Investment Adviser and
subadviser believe such fees are comparable to management fees paid by funds
with similar investment strategies.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it by a Fund (to the extent of its fees) by the amount (if any) that the
Fund's expenses would exceed the applicable expense limitations imposed by
state securities administrators. See "Management -- Expenses" in the
Additional Statement. In addition, the Investment Advisers to the Short
Duration Government, Adjustable Rate Government, Short Duration Tax-Free, Core
Fixed Income and Global Income Funds have voluntarily agreed to reduce or
limit certain "Other Expenses" of such Funds (excluding any applicable fees
payable by the Fund classes to service organizations, administration, advisory
and subadvisory fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses to the extent such expenses
exceed 0.05%, 0.05%, 0.05%, 0.05% and 0.06% 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.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with the Global Income Fund, GSAM provides personnel for supervisory,
administrative, and clerical functions; oversees the performance of
administrative and professional services to the Global Income Fund by others;
provides office facilities; and prepares, but does not pay for, reports to
shareholders, the SEC and other regulatory authorities. As compensation for
the services rendered to the Global Income Fund, GSAM is entitled to a fee,
computed daily and payable monthly, at an annual rate equal to 0.15% of such
Fund's average daily net assets. For the period ended October 31, 1995, the
Global Income Fund paid GSAM a fee for administration services at the
foregoing rate. GSAM has agreed to reduce its fees payable by the Fund (to the
extent of its fees) by the amount (if any) that the Fund's expenses exceed the
applicable expense limitations imposed by state securities administrators. See
"Management -- Expenses" in the Additional Statement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts and Funds achieve significant profits on their trading for
proprietary or other accounts. From time to time, a Fund's activities may be
limited
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because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management -- Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois 60606 also serves as each Fund's transfer agent (the
"Transfer Agent") and as such performs various shareholder servicing
functions. Shareholders with inquiries regarding any Fund should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus. Goldman Sachs is not entitled
to receive a fee from the Global Income Fund for transfer agency services.
Goldman Sachs is entitled to receive a fee from the Short Duration Government,
Short Duration Tax-Free and Core Fixed Income Funds equal to 0.04% of the
average daily net assets of each Fund. Goldman Sachs is entitled to receive a
fee from the Adjustable Rate Government Fund 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 agents)
applicable to Class A shares plus 0.04% of the average daily net assets of the
other classes of the Adjustable Rate Government Fund.
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 Fund's net investment income. From
time to time a portion of such dividends may constitute a return of capital.
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
the Fund's net asset value as of 3:00 p.m. Chicago time. On days on which net
asset value is not calculated, such determination is made as of 3:00 p.m.
Chicago time.
Payment of dividends (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 the Fund at the net asset value on such day, unless cash
distributions are elected, in which case, cash payment will be made on the
first Business Day of the succeeding month. 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
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date for a particular dividend or distribution. If cash dividends are elected
with respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long term capital gains
component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of 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 (or portions
thereof) of taxable income or realized appreciation on such shares may be
taxable to the investor even if the net asset value of the shares is, as a
result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) 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 Trust's Board of 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 Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition to the above, each Fund
may from time to time advertise its performance relative to certain
performance rankings and indices.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of
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net investment income for these purposes may differ from the net investment
income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free Fund's tax-free yield. Tax
equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's
tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under
the laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest,
$.001 par value per share. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trustees of the Trust
have authority to create and classify shares of beneficial interest in
separate series, without further action by shareholders. Additional series may
be added in the future. The Trustees have authorization to classify or
reclassify any series or portfolio of shares into one or more classes. The
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
each offer Institutional Shares, Administration Shares and Service Shares. The
Adjustable Rate Government Fund offers Institutional Shares, Administration
Shares, Service Shares and Class A shares. The Global Income Fund offers
Institutional Shares, Service Shares, Class A shares and Class B shares.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.
As of November 30, 1995, 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 & Trust Company--
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Goldman Sachs Employee Trust--One Enterprise Drive, No. Quincy, MA 02171
(30.64%) and Short Duration Tax-Free Fund--MGIC, Attn: James McGinnis, P.O.
Box 297, Milwaukee, WI 53201 (27.16%).
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of independent accountants. Shareholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding shares
and the Trustees must promptly call a meeting for such purpose when requested
to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Trust. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. The Board of Trustees, however,
will call a special meeting for the purpose of electing Trustees if, at any
time, less than a majority of Trustees holding office at the time were elected
by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
Under Massachusetts law, there exists a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Trust Agreement
contains provisions intended to limit such liability and to provide
indemnification out of Trust property of any shareholder charged or held
personally liable for obligations or liabilities of the Trust solely by reason
of being or having been a shareholder of the Trust and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected
or intends to elect to be treated as a regulated investment company and to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of
the Code so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Short Duration Tax-Free Fund that are
attributable to interest on tax-exempt obligations and that the Fund properly
designates as exempt-interest dividends will be exempt from regular federal
income tax, although all or a portion of such a distribution may be subject to
the federal alternative minimum tax and the entire distribution may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Persons who are "substantial users" (or related
persons to such substantial users) of facilities financed by industrial
development or certain private activity bonds should consult
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their own tax advisers before purchasing shares of the Short Duration Tax-Free
Fund. Interest on indebtedness incurred or continued to purchase or carry
shares of the Short Duration Tax-Free Fund is not deductible to the extent
attributable to the Short Duration Tax-Free Fund's distributions that are
exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain
over net long-term capital loss and original issue discount (except tax-exempt
original issue discount earned by the Short Duration Tax-Free Fund) 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. 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 on which a
shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable distributions, redemptions
and exchanges if they fail to furnish their correct taxpayer identification
number and certain certifications required by the Internal Revenue Services or
if they are otherwise subject to backup withholding. Individuals, corporations
and other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding at
the rate of 30% (or a lower rate provided by an applicable tax treaty) on
amounts treated as ordinary dividends from the Funds.
The Core Fixed Income and Global Income Funds may be subject to foreign
withholding or other foreign taxes on income or gain from certain foreign
securities. If more than 50% of the value of its total assets is comprised of
stock or securities of foreign corporations at the end of its taxable year and
the Fund so elects, shareholders will include in their gross incomes (in
addition to dividends they receive) their pro rata shares of qualified foreign
taxes paid by the Fund and may be entitled to take federal income tax credits
or deductions with respect to such taxes. It is not expected that the Core
Fixed Income Fund will qualify to make this election. If either 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. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt
municipal obligations issued by or on behalf of the particular state or a
political subdivision thereof, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
35
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
36
<PAGE>
REPORTS TO SHAREHOLDERS
Institutional Shareholders will receive an annual report containing audited
financial statements and a semi-annual report. Each Institutional Shareholder
will also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual monthly statement (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.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased 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 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 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 APPLICABLE TO EACH FUND OTHER THAN 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 receipt by Northern on the next Business Day. Purchases may
also be made by check (except that a check drawn on a foreign bank will not be
accepted) or Federal Reserve draft payable to "Goldman Sachs Trust--Name of
Fund" and should be directed to Goldman Sachs Trust--Name of Fund, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.
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
37
<PAGE>
for this purpose and the corresponding class of any portfolio of Goldman Sachs
Money Market Trust. The minimum investment requirement may be waived for
current and former officers, partners, directors or employees of Goldman Sachs
or any of its affiliates or for other investors at the discretion of the
Trust's officers. No minimum amount is required for subsequent investments.
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 a check drawn on a foreign bank will not be accepted) or Federal Reserve
draft made payable to "Goldman Sachs Trust--Goldman Sachs Global Income Fund"
and should be directed to "Goldman Sachs Trust--Goldman Sachs Global Income
Fund" c/o National Financial Data Services, Inc., P.O. Box 419711, Kansas
City, MO 64141-6711.
The minimum initial investment is $1,000,000 in Institutional Shares of the
Global Income Fund alone or in combination with other assets under the
management of GSAM and its affiliates. Institutional Shares of Global Income
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 who have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards;
and (i) 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 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 Northern.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a check or Federal Reserve
draft is received by Goldman Sachs by 3:00 p.m. Chicago time, shares will
be issued and dividends will begin to accrue on the purchased shares on the
Business Day after the date 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.
38
<PAGE>
The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $100 ($50 in the
case of Global Income Fund) 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.
The Funds and Goldman Sachs each reserves the right to reject or restrict
any specific purchase order (including exchanges) by a particular purchaser
(or group of related purchasers). This may occur, for example, when a
purchaser's 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 the Funds.
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
portfolio of Goldman Sachs Money Market Trust at the net asset value next
determined either by writing to Goldman Sachs, Attention: Goldman Sachs
Trust--Name of Fund, c/o GSAM Shareholders Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares or units and consider its investment objective,
policies and applicable fees before making an exchange. Under the telephone
exchange privilege, Institutional Shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange request is in writing and is
received in accordance with the procedures set forth under "Redemption of
Institutional Shares".
In 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 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 portfolio of Goldman Sachs Money
Market Trust received in the exchange. Shareholders should consult their own
tax advisers concerning the tax consequences of an exchange.
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 such Fund. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be
modified or withdrawn at any time on sixty (60) days' written notice to
Institutional Shareholders and is subject to certain limitations. See
"Purchase of Institutional Shares".
39
<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 inside
front cover page of this Prospectus. An Institutional Shareholder may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form accompanying this Prospectus. It may
be difficult to implement redemptions by telephone in times of drastic
economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the
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. 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
40
<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.
41
<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 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>
THIS ACCOUNT INFORMATION FORM SHOULD BE FORWARDED PROMPTLY TO GOLDMAN, SACHS &
CO.
NO REDEMPTION CAN BE MADE PRIOR TO ITS RECEIPT
GOLDMAN, SACHS & CO.
ACCOUNT INFORMATION FORM
SEND TO: GOLDMAN, SACHS & CO. MASTER NO. _________________
4900 SEARS TOWER FUND USE ONLY
CHICAGO, ILLINOIS 60606
1-800-621-2550
DATE: _______________________
INITIAL INVESTMENT:
( ) GOLDMAN SACHS MONEY MARKET TRUST ( ) GS ADJUSTABLE RATE GOVERNMENT FUND
Fill in Portfolio(s): ( ) GS SHORT DURATION GOVERNMENT FUND
( ) OTHER FUND (Please write name of ( ) GS SHORT DURATION TAX-FREE FUND
Fund in the space provided ( ) GS CORE FIXED INCOME FUND
below): ( ) GOLDMAN SACHS GLOBAL INCOME FUND
-------------------------------
- -------------------------------------------------------------------------------
A. ACCOUNT RECORD
---------------------------------
--------------------------------- TELEPHONE NUMBER
NAME OF ACCOUNT
--------------------------------- U.S. CITIZEN OR
STREET OR P.O. BOX RESIDENT? YES [_] NO [_]
IF NO IS CHECKED, FILL IN
--------------------------------- COUNTRY OF TAX RESIDENCE:
CITY STATE ZIP
-----------------------------
---------------------------------
ATTENTION
- -------------------------------------------------------------------------------
B. DIVIDENDS AND DISTRIBUTIONS--CHECK APPROPRIATE BOX (SEE "DIVIDENDS")
1. DIVIDENDS (INCLUDING NET SHORT TERM [_] CASH [_] UNITS/SHARES
CAPITAL GAINS)--
2. NET LONG-TERM CAPITAL GAINS [_] CASH [_] UNITS/SHARES
DISTRIBUTIONS--
3. DIVIDENDS AND CAPITAL GAINS REINVESTED [_] UNITS/SHARES
IN ANOTHER GOLDMAN SACHS PORTFOLIO ACCOUNT:
(SEE PROSPECTUS REGARDING LIMITATIONS ON THIS PRIVILEGE.)
FUND NAME_________________________ ACCOUNT NUMBER__________________________
(IF NO BOX IS CHECKED, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS WILL BE
REINVESTED.)
- -------------------------------------------------------------------------------
C. SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER
CERTIFICATION
TAXPAYER IDENTIFICATION NUMBER: _____________________________________________
UNDER PENALTIES OF PERJURY, I CERTIFY THAT (1) THE NUMBER SHOWN ON THIS FORM
IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER
TO BE ISSUED TO ME), AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE
I AM EXEMPT FROM BACKUP WITHHOLDING OR I HAVE NOT BEEN NOTIFIED BY THE
INTERNAL REVENUE SERVICE (IRS) THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS
NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. SEE THE
"GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER" ON ACCOUNT
INFORMATION FORM, CONTAINED IN THE APPENDIX TO THE ACCOMPANYING PROSPECTUS.
SIGNATURE DATE NAME (PRINT) AND TITLE (IF ANY)
SIGN
HERE ------------------------------- -------------------------------------
------------------------------- -------------------------------------
- -------------------------------------------------------------------------------
D. OPTIONAL TELEPHONE EXCHANGE (SEE "EXCHANGE PRIVILEGE")
[_] GOLDMAN, SACHS & CO. IS HEREBY AUTHORIZED TO ACCEPT AND ACT UPON
TELEPHONE INSTRUCTIONS FROM THE UNDERSIGNED OR ANY OTHER PERSON FOR THE
EXCHANGE OF SHARES/UNITS OF THE FUND INTO ANY FUND DESCRIBED IN THE
ACCOMPANYING PROSPECTUS. THE UNDERSIGNED UNDERSTANDS AND AGREES THAT NEITHER
THE APPLICABLE FUND NOR GOLDMAN, SACHS & CO. WILL BE LIABLE FOR ANY LOSS,
EXPENSE, OR COST ARISING OUT OF ANY TELEPHONE REQUEST EFFECTED HEREUNDER.
<PAGE>
- -------------------------------------------------------------------------------
E. OPTIONAL REDEMPTION PLANS--CHECK APPROPRIATE BOX (SEE "REDEMPTION OF
UNITS/SHARES")
[_] 1. I AUTHORIZE GOLDMAN, SACHS & CO. TO HONOR TELEPHONE, TELEGRAPHIC, OR
OTHER INSTRUCTIONS WITHOUT SIGNATURE GUARANTEE, FROM ANY PERSON FOR THE
REDEMPTION OF SHARES FOR THE ABOVE ACCOUNT PROVIDED THAT THE PROCEEDS ARE
TRANSMITTED TO THE FOLLOWING BANK ACCOUNT(S) ONLY. I UNDERSTAND ANY CHANGES
TO THE FOLLOWING INFORMATION MUST BE MADE IN WRITING TO GOLDMAN, SACHS &
CO., MUST CONTAIN THE APPROPRIATE NUMBER OF SIGNATURES LISTED BELOW AND ALL
SIGNATURES MUST BE SIGNATURE GUARANTEED. ABSENT ITS OWN GROSS NEGLIGENCE,
NEITHER THE APPLICABLE FUND NOR GOLDMAN, SACHS & CO. SHALL BE LIABLE FOR
SUCH REDEMPTIONS OR FOR PAYMENTS MADE TO ANY UNAUTHORIZED ACCOUNT.
OR
[_] 2. I HAVE FURNISHED GOLDMAN, SACHS & CO. WITH A SIGNATURE GUARANTEE (SEE
SECTION G). I AUTHORIZE GOLDMAN, SACHS & CO. TO HONOR TELEPHONE,
TELEGRAPHIC, OR OTHER INSTRUCTIONS, FROM ANY PERSON FOR THE REDEMPTION OF
SHARES FOR THE ABOVE ACCOUNT PROVIDED THAT THE PROCEEDS ARE TRANSMITTED TO
THE FOLLOWING BANK ACCOUNT(S) ONLY. ANY CHANGES TO THE FOLLOWING INFORMATION
MUST BE MADE IN WRITING TO GOLDMAN, SACHS & CO. (BUT WITHOUT SIGNATURE
GUARANTEE) AND CONTAIN THE APPROPRIATE NUMBER OF SIGNATURES LISTED BELOW.
ABSENT ITS OWN GROSS NEGLIGENCE, NEITHER THE APPLICABLE FUND NOR GOLDMAN,
SACHS & CO. SHALL BE LIABLE FOR SUCH REDEMPTIONS OR FOR PAYMENTS MADE TO ANY
UNAUTHORIZED ACCOUNT.
PLEASE COMPLETE THE FOLLOWING BANK ACCOUNT INFORMATION AND PLACE A LINE
THROUGH THE UNUSED PORTION. ADDITIONAL INSTRUCTIONS MAY BE ADDED ON SEPARATE
PAGES, IF NECESSARY.
- -------------------------------------------------------------------------------
BANK NAME BANK ROUTING NO.
- -------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BANK NAME BANK ROUTING NO.
- -------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BANK NAME BANK ROUTING NO.
- -------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BANK NAME BANK ROUTING NO.
- -------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NO.
NUMBER OF BANK ACCOUNT DESTINATIONS COMPLETED IN SECTION E OF THIS FORM: [_]
- -------------------------------------------------------------------------------
[_] 3. SPECIAL DRAFT (TRANSFER AGENT TO SUPPLY)
[_] 4. BY MAIL
<PAGE>
F. SIGNATURE AUTHORIZATION
BY THE EXECUTION OF THIS ACCOUNT INFORMATION FORM, THE UNDERSIGNED
REPRESENTS AND WARRANTS THAT IT HAS FULL RIGHT, POWER AND AUTHORITY TO MAKE
THE INVESTMENT APPLIED FOR PURSUANT TO THIS APPLICATION AND IS ACTING FOR
ITSELF OR IN SOME FIDUCIARY CAPACITY IN MAKING SUCH INVESTMENT, AND THE
INDIVIDUAL(S) SIGNING ON BEHALF OF THE UNDERSIGNED REPRESENT AND WARRANT
THAT THEY ARE DULY AUTHORIZED TO SIGN THIS APPLICATION AND TO PURCHASE AND
REDEEM UNITS/SHARES ON BEHALF OF THE UNDERSIGNED. THE UNDERSIGNED AFFIRMS
THAT IT HAS RECEIVED A CURRENT FUND PROSPECTUS.
THE UNDERSIGNED UNDERSTANDS THAT A LESSER DEGREE OF FLEXIBILITY CONCERNING
THE PRECISE TIMING OF A REDEMPTION OF ITS INVESTMENT IN THE GS ADJUSTABLE
RATE GOVERNMENT FUND, GS SHORT DURATION GOVERNMENT FUND, GS SHORT DURATION
TAX-FREE FUND, GS CORE FIXED INCOME FUND OR GOLDMAN SACHS GLOBAL INCOME
FUND, AS WELL AS ALL OTHER NON-MONEY MARKET FUNDS, INCREASES THE LIKELIHOOD
THAT THE SHAREHOLDER WILL BE REQUIRED TO REDEEM SHARES UNDER UNFAVORABLE
MARKET CONDITIONS. IF SHARES ARE REDEEMED AT A DISADVANTAGEOUS TIME, THE
VALUE OF THE FUND'S SHARES UPON REDEMPTION MAY BE LESS THAN THE PRICE AT
WHICH THE FUND'S SHARES WERE PURCHASED. SINCE NONE OF THE FUNDS LISTED IN
THIS PARAGRAPH IS A MONEY MARKET FUND OR MAINTAINS A CONSTANT NET ASSET
VALUE PER SHARE, THE UNDERSIGNED MAY EXPERIENCE A LOSS OF PRINCIPAL ON ITS
INVESTMENTS IN ANY SUCH FUND DURING ANY PARTICULAR PERIOD.
SIGNATURE NAME (PRINT) AND TITLE (IF ANY)
--------- -------------------------------
SIGN
HERE --------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
NUMBER OF SIGNATURES REQUIRED TO MAKE CHANGES TO THIS FORM: [_]
- -------------------------------------------------------------------------------
G. SIGNATURE GUARANTEE
AFFIX GUARANTEE STAMP HERE
---------------------------------
SIGNATURE GUARANTEED BY
---------------------------------
AUTHORIZED SIGNATURE
- -------------------------------------------------------------------------------
<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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIP-1IS-GST/10K/0396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GOLDMAN SACHS
FIXED INCOME PORTFOLIOS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
[LOGO] Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS TRUST
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
ADMINISTRATION SHARES
----------------
SUPPLEMENT DATED FEBRUARY 28, 1997 TO PROSPECTUS DATED MARCH 1, 1996
GS 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.
GS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current
income, may also consider the potential for capital gain. The Fund invests
primarily in securities issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax.
The Fund invests primarily in municipal securities.
GS 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.
This Prospectus Supplement and the accompanying Prospectus provide 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 February 28, 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, is
incorporated herein by reference in its entirety, and may be obtained without
charge from institutions ("Service Organizations") that hold, directly or
through an agent, Administration Shares for the benefit of its customers or
Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of the accompanying Prospectus.
The following replaces the Fees and Expenses Table and Financial Highlights
and supplements the information under the sections entitled "What are the
Investment Objectives and Policies of the Funds," "Management," "Shares of the
Trust" and "Administration Plan" in the accompanying Prospectus:
<PAGE>
FEES AND EXPENSES
(ADMINISTRATION SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX- CORE FIXED
FUND FUND FREE FUND INCOME FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EX-
PENSES:
Maximum Sales Charge Imposed
on Purchases................. none none none none
Maximum Sales Charge Imposed
on Reinvested Dividends...... none none none none
Redemption Fees............... none none none none
Exchange Fees................. none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
daily net assets)
Management Fees (after fee ad-
justments)................... 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/
Administration Fees/5/........ 0.25% 0.25% 0.25% 0.25%
Other Expenses (after applica-
ble limitations)............. 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(after fee and expense limi-
tations)..................... 0.70%/1/ 0.70%/2/ 0.70%/3/ 0.70%/4/
==== ==== ==== ====
</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..................... $7 $22 $39 $87
Short Duration Government...................... $7 $22 $39 $87
Short Duration Tax-Free........................ $7 $22 $39 $87
Core Fixed Income.............................. $7 $22 $39 $87
</TABLE>
- --------
/1/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The
Investment Adviser has no current intention of modifying or discontinuing
any of such limitations but may do so in the future at its discretion.
Without such limitations, "Other Expenses" and "Total Operating Expenses"
attributable to Administration Shares would be 0.11% and 0.76%,
respectively. Annual operating expenses incurred by Administration Shares
of the Fund during the fiscal year ended October 31, 1996 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees," "Other Expenses" and "Total Operating Expenses" of
0.40%, 0.05% and 0.70%, respectively.
/2/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund.
The Investment Adviser also has voluntarily agreed to reduce or limit
certain "Other Expenses" of the Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The
Investment Adviser has no current intention of modifying or discontinuing
any of such limitations but may do so
<PAGE>
in the future at its discretion. Without such limitations, "Management
Fees," "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.50%, 0.21% and 0.96%, respectively. Annual
operating expenses incurred by Administration Shares of the Fund during the
fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees," "Other
Expenses" and "Total Operating Expenses" of 0.40%, 0.05% and 0.70%,
respectively.
/3/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.61% and 1.26%, respectively. Annual
operating expenses incurred by Administration Shares of the Fund during the
fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees," "Other
Expenses" and "Total Operating Expenses" of 0.40%, 0.05% and 0.70%,
respectively.
/4/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.43% and 1.08%, respectively. Annual
operating expenses incurred by Administration Shares of the Fund during the
fiscal year ended October 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees," "Other
Expenses" and "Total Operating Expenses" of 0.40%, 0.05% and 0.70%,
respectively.
/5/ Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plans."
The information set forth in the foregoing table and hypothetical example
relates only to Administration Shares of the Funds. Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Institutional Shares and Service Shares; Adjustable Rate Government Fund also
offers Institutional Shares, Service Shares and Class A Shares. The other
classes of the Funds are subject to different fees and expenses (which affects
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the
various costs and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on estimated fees and expenses for the
current fiscal year and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
<PAGE>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended October 31, 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
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares... $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administra-
tion 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-Institu-
tional Shares... 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administra-
tion 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-Institu-
tional Shares... 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares..... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares... 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion Shares(e).. 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares... 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares... 10.00 0.1531 0.0322 (d) -- 0.1853
<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
---------- ------------ ---------- ------------ ------- -------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- -----------------------------
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- --------------------------------------------------
1991-Institu-
tional Shares.. (0.1553) -- -- -- -- (0.1553)
<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(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ---------- -------- ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administra-
tion
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-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1988-Institu-
tional Shares.. 10.00 0.1800 0.1000 (d) -- 0.2800
<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
---------- ------------ ---------- ------------ -------- -------------
GS SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $(0.6326) -- -- -- -- $(0.6326)
1996-Administra-
tion
Shares(h)...... (0.3940) -- -- -- -- (0.3940)
1996-Service
Shares(i)...... (0.3152) -- -- -- -- (0.3152)
1995-Institu-
tional Shares.. (0.6518) -- -- -- -- (0.6518)
1995-Administra-
tion Shares.... (0.2051) -- -- -- -- (0.2051)
1994-Institu-
tional Shares.. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administra-
tion Shares.... (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institu-
tional Shares.. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administra-
tion
Shares(e)...... (0.2725) -- -- -- -- (0.2725)
1992-Institu-
tional Shares.. (0.6703) -- -- -- -- (0.6703)
1991-Institu-
tional Shares.. (0.8020) -- -- -- -- (0.8020)
1990-Institu-
tional Shares.. (0.8300) -- -- -- -- (0.8300)
1989-Institu-
tional Shares.. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1988-Institu-
tional Shares.. (0.1800) -- -- -- -- (0.1800)
<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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administra-
tion
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-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
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-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional 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-Institu-
tional 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>
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares... 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion Shares(j).. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992 THROUGH OCTOBERF 31,
- --------------------------------------------------
1992-Institu-
tional Shares... 10.00 0.0341 (0.0700)(d) -- (0.0359)
<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
---------- ------------ ---------- ------------ ------- -------------
GS SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)...... (0.0475) -- (0.0475)
1993-Institu-
tional Shares.. (0.3834) -- -- -- -- (0.3834)
1993-Administra-
tion
Shares(j)...... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992 THROUGH OCTOBERF 31,
- --------------------------------------------------
1992-Institu-
tional Shares.. (0.0341) -- -- -- -- (0.0341)
<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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 THROUGH OCTOBERF 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)
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- -------------- -------------- ----------
GS CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
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
---------- ------------ ---------- ------------ -------- -------------
GS CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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>
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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(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.
(e)Administration share activity commenced on April 15, 1993.
(f)Not annualized.
(g)Commencement of operations.
(h)GS 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 not 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.
7
<PAGE>
With respect to GS Short Duration Tax-Free Fund:
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. 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.
With respect to GS Core Fixed Income Fund:
Non-dollar securities in which the Fund invests will be rated at least AA
by S&P or Aa by Moody's at the time of investment.
Emerging Markets. The Core Fixed Income Fund may invest up to 10% of its
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 in the attached Prospectus, including the possibility
of nationalization, expropriation and confiscatory taxation, may be
heightened. In addition, unanticipated political and social developments
may affect the value of the 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 the 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 the Fund's
investments in emerging markets.
The following replaces the information provided for Short Duration Tax-Free
Fund under the caption "Management--Investment Advisers:"
The Fund's 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 Goldman Sachs's Municipal Finance Department.
The following is added under the caption "Management--Investment Advisers:"
For the fiscal year ended October 31, 1996, GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund
and GS Core Fixed Income Fund paid advisory fees at the rate of .40%, .40%,
.40% and .40%, respectively, of average daily net assets.
The following is added under the caption "Shares of the Trust:"
At a shareholders meeting called for April 1, 1997, shareholders of each
Fund as of January 31, 1997 will consider a proposal to reorganize the
Funds into series of a Delaware business trust. The above description
regarding shares of the Funds applies equally to shares of a Delaware
business trust except that, under Delaware law, shareholders of a Delaware
business trust are not personally liable as partners for the obligations of
the Delaware business trust.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
March 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE GOLDMAN SACHS TRUST
---- ADMINISTRATION SHARES
<S> <C> <C>
Fund Highlights........................ 1
Fees and Expenses...................... 5 GS ADJUSTABLE RATE GOVERNMENT FUND
Financial Highlights................... 7
Investment Objectives and Policies..... 10
Description of Securities.............. 13 Seeks a high level of current income,
Risk Factors........................... 19 consistent with low volatility of prin-
Investment Techniques.................. 21 cipal. The Fund invests primarily in ad-
Investment Restrictions................ 24 justable rate mortgage pass-through se-
Portfolio Turnover..................... 24 curities and other mortgage securities
Management............................. 25 with periodic interest rate resets,
Dividends.............................. 27 which are issued or guaranteed by the
Net Asset Value........................ 28 U.S. Government, its agencies, instru-
Performance Information................ 28 mentalities or sponsored enterprises.
Shares of the Trust.................... 29
Taxation............................... 30 GS SHORT DURATION GOVERNMENT FUND
Additional Information................. 31
Administration Plan.................... 32 Seeks a high level of current income and
Reports to Shareholders................ 32 secondarily, in seeking current income,
Purchase of Administration Shares...... 33 may also consider the potential for cap-
Exchange Privilege..................... 34 ital gain. The Fund invests primarily in
Redemption of Administration Shares.... 34 securities issued or guaranteed by the
U.S. Government, its agencies, instru-
mentalities or sponsored enterprises.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income,
consistent with relatively low volatil-
ity of principal, that is exempt from
regular federal income tax. The Fund in-
vests primarily in municipal securities.
GS CORE FIXED INCOME FUND
Seeks a total return consisting of capi-
tal 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, mort-
gage-backed securities and asset-backed
securities.
(continued on next page)
----------
</TABLE>
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.
<PAGE>
(cover continued)
THE CORE FIXED INCOME FUND INVESTS IN SECURITIES OF FOREIGN ISSUERS AND
FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH
INVESTING IN DOLLAR-DENOMINATED FIXED INCOME SECURITIES. THIS FUND IS INTENDED
FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH ITS INVESTMENTS AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES".
THE ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS' NET
ASSET VALUE AND YIELD ARE NOT GUARANTEED BY THE U.S. GOVERNMENT OR BY 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 and Core Fixed Income Funds. GSAM and GSFM 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 March 1, 1996,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission, is incorporated herein by reference in its entirety, and may be
obtained without charge from institutions ("Service Organizations") that hold,
directly or through an agent, Administration Shares for the benefit of their
customers or Goldman Sachs by calling the telephone number, or writing to one
of the addresses, listed on the back cover of this Prospectus.
<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?
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 objective.
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>
ADJUSTABLE RATE SHORT DURATION
GOVERNMENT GOVERNMENT SHORT DURATION CORE FIXED
FUND FUND TAX-FREE FUND INCOME FUND
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT A high level of A high level of A high level of Total return
OBJECTIVES current income, current income, current income, consisting of
consistent with and secondarily, consistent with capital
low volatility of in seeking low volatility appreciation and
principal. current income, of principal, income that
may also that is exempt exceeds the
consider the from regular total return of
potential for federal income the Lehman
capital gain. tax. Brothers
Aggregate Bond
Index.
---------------------------------------------------------------------------------------------
DURATION Target = 6-month Target = 2-year Target = Lehman Target = Lehman
to 1-year U.S. Treasury Brothers 3-year Brothers
U.S. Treasury Security Municipal Bond Aggregate Bond
Security plus or minus .5 Index plus or Index plus or
years minus .5 years minus
1 year
Maximum = 2 years Maximum = 3 Maximum = 4 Maximum = 6
years years years
---------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 2-year bond 3-year bond 5-year bond
RATE
SENSITIVITY
---------------------------------------------------------------------------------------------
INVESTMENT SECTOR At least 65% of At least 65% of At least 80% of At least 65% of
total assets in total assets in net assets in assets in fixed
securities issued U.S. Government Municipal income
or guaranteed by Securities and Securities. securities,
the U.S. repurchase including U.S.
Government, its agreements Government
agencies, collateralized Securities,
instrumentalities by such corporate,
or sponsored securities. mortgage-backed
enterprises and asset-backed
("U.S. Government securities.
Securities") that
are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION
GOVERNMENT GOVERNMENT SHORT DURATION CORE FIXED
FUND FUND TAX-FREE FUND INCOME FUND
----------------- ---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
CREDIT QUALITY U.S. Government U.S. Government Minimum = A Minimum = BBB/Baa
Securities Securities
Minimum for
foreign
securities = AA/Aa
--------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed rate Mortgage pass- U.S. Government Foreign fixed
mortgage pass- through securi- Securities and income, municipal
through ties and other repurchase and convertible
securities and securities rep- agreements securities,
repurchase resenting an in- collateralized foreign currencies
agreements terest in or by such and repurchase
collateralized collateralized securities. agreements
by U.S. by mortgage collateralized by
Government loans. U.S. Government
Securities. Securities.
--------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S Lehman Brothers Lehman Brothers
year U.S. Treasury 3-Year Municipal Aggregate Bond
Treasury Security Bond Index Index
Security
- ---------------------------------------------------------------------------------------------
</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, with
respect to the Core Fixed Income Fund, foreign exchange conditions, so that
an investment in any of the Funds may be worth more or less when redeemed
than when purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
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.
2
<PAGE>
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investment in
domestic securities. The risks of foreign investments and currencies include
changes in relative currency exchange rates, political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. In addition, the securities markets of foreign
countries are generally less liquid and subject to greater price volatility.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures, and swap transactions,
will subject a Fund to greater risk than funds that do not employ such
techniques.
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 the Investment Adviser to the Short
Duration Tax-Free and Core Fixed Income Funds. As of January 31, 1996, the
Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $57 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 Administration Shares. A Service Organization may, however,
impose a minimum amount for initial and subsequent investments in
Administration Shares, and may establish other requirements such as a
minimum account balance.
HOW DO I PURCHASE ADMINISTRATION SHARES?
It is expected that all purchasers of Administration Shares of a Fund will
be Service Organizations or their nominees. Customers of Service
Organizations may invest in Administration Shares only through their Service
Organizations. Administration Shares of a Fund are purchased by Service
Organizations through Goldman Sachs at the current net asset value without
any sales load. See "Purchase of Administration Shares".
ADMINISTRATION PLAN. The Trust, on behalf of the Funds, has adopted an
Administration Plan with respect to the Administration Shares which
authorizes a Fund to compensate Service Organizations for providing account
administration services to their customers who are 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 0.25% (on an annualized basis) of
the average daily net assets of the Administration Shares of the Funds
attributable to or held in the name of the Service Organization for its
customers. See "Administration Plan".
3
<PAGE>
HOW DO I SELL MY ADMINISTRATION SHARES?
You may redeem Administration Shares upon request on any Business Day, as
defined under "Additional Information", at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Administration 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
Core Fixed Income ............................. Daily Monthly Annually
</TABLE>
Recordholders of Administration Shares may receive dividends in additional
shares of the same class of the Fund in which you have invested or you may
elect to receive cash, shares of the same class of other mutual funds
sponsored by Goldman Sachs or the corresponding class of any portfolio of
Goldman Sachs Money Market Trust. For further information concerning
dividends, see "Dividends".
4
<PAGE>
FEES AND EXPENSES
(ADMINISTRATION SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX- CORE FIXED
FUND FUND FREE FUND INCOME FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Imposed
on Purchases................. none none none none
Maximum Sales Charge Imposed
on Reinvested Dividends...... none none none none
Redemption Fees............... none none none none
Exchange Fees................. none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average
daily net assets)
Management Fees (after fee
adjustments)................. 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/
Administration Fees/5/........ 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable limitations)...... 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(AFTER FEE AND EXPENSE
LIMITATIONS)................. 0.70%/1/ 0.70%/2/ 0.70%/3/ 0.70%/4/
==== ==== ==== ====
</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...................... $ 7 $22 $39 $87
Short Duration Government....................... $ 7 $22 $39 $87
Short Duration Tax-Free......................... $ 7 $22 $39 $87
Core Fixed Income............................... $ 7 $22 $39 $87
</TABLE>
- --------
/1/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.13% and 0.78%, respectively. Annual
operating expenses incurred by Administration Shares of the Fund during the
fiscal year ended October 31, 1995 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees", "Other
Expenses" and "Total Operating Expenses" of 0.40%, 0.06% and 0.71%,
respectively.
/2/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund. The
Investment Adviser also has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Management Fees", "Other Expenses" and "Total Operating
Expenses" attributable to Administration Shares would be 0.50%, 0.22% and
0.97%, respectively. Annual operating expenses incurred by Administration
Shares of the Fund during the fiscal year ended October 31, 1995 (expressed
as a percentage of average daily net
5
<PAGE>
assets after fee adjustments) were "Management Fees", "Other Expenses" and
"Total Operating Expenses" of 0.40%, 0.05% and 0.70%, respectively.
/3/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.37% and 1.02%, respectively. Annual
operating expenses incurred by Administration Shares of the Fund during the
fiscal year ended October 31, 1995 (expressed as a percentage of average
daily net assets after fee adjustments) were "Management Fees", "Other
Expenses" and "Total Operating Expenses" of 0.40%, 0.05% and 0.70%,
respectively.
/4/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, fees under
administration plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Administration Shares would be 0.56% and 1.21%, respectively. Annual
operating expenses which would have been incurred by Administration Shares
of the Fund had Administration Shares been outstanding, during the fiscal
year ended October 31, 1995 (expressed as a percentage of average daily net
assets after fee adjustments) were "Management Fees", "Other Expenses" and
"Total Operating Expenses" of 0.40%, 0.05% and 0.70%, respectively.
/5/ ServiceOrganizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plans".
The information set forth in the foregoing table and hypothetical example
relates only to Administration Shares of the Funds. Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Institutional Shares and Service Shares; Adjustable Rate Government Fund also
offers Institutional Shares, Service Shares and Class A Shares. The other
classes of the Funds are subject to different fees and expenses (which affects
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor will bear directly
or indirectly. The information on fees and expenses included in the table and
the hypothetical example above are based on estimated fees and expenses for
the current fiscal year and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers".
6
<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 October 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED
OCTOBER 31,
1995--Institutional
Shares.......... $ 9.74 $0.5630(c) $0.0717 (c) $-- $0.6347(c)
1995--Administration
Shares.......... 9.74 0.5366(c) 0.0737 (c) -- 0.6103(c)
1995--Class A
Shares (d)...... 9.79 0.2721(c) (0.0090)(c) -- 0.2631(c)
1994--Institutional
Shares.......... 10.00 0.4341(c) (0.2455)(c) -- 0.1886(c)
1994--Administration
Shares.......... 10.00 0.4211(c) (0.2572)(c) -- 0.1639(c)
1993--Institutional
Shares.......... 10.04 0.4397 (0.0376)(a) -- 0.4021
1993--Administration
Shares(f)....... 10.02 0.2146 (0.0173)(a) -- 0.1973
1992--Institutional
Shares.......... 10.03 0.5599 (0.0029)(a) -- 0.5570
FOR THE PERIOD JULY 17,
1991(g) THROUGH OCTOBER
31,
1991--Institutional
Shares.......... 10.00 0.1531 0.0322 (a) -- 0.1853
<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 YEARS ENDED
OCTOBER 31,
1995--Institutional
Shares.......... $(0.5759) $-- $(0.0287) $-- $-- $(0.6046)
1995--Administration
Shares.......... (0.5528) -- (0.0275) -- -- (0.5803)
1995--Class A
Shares (d)...... (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(f)....... (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)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
----------- ------- ------- ---------- ---------- -------- ----------- ---------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
-------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
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 (d)...... (0.0200) 9.77 2.74 0.69(e) 5.87(e) 24.12 15,203 1.01(e) 5.55(e)
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(f)....... (0.0200) 10.00 2.01(k) 0.70(e) 3.81(e) 103.74 5,326 0.73(e) 3.78(e)
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(k) 0.20(e) 7.31(e) 145.67(e) 239,642 1.02(e) 6.49(e)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
ON GAIN (LOSS) TOTAL
NET ASSET INVESTMENT, ON FOREIGN INCOME
VALUE AT NET OPTION AND CURRENCY (LOSS) FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OEPRATIONS
------------ --------- ------------- ------------ ------------
SHORT DURATION GOVERNMENT FUND
------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1995--
Institutional
Shares.......... $ 9.64 $0.6652(c) $ 0.1666 (c) $-- $0.8318(c)
1995--Administration
Shares.......... 9.64 0.2384(c) (0.0433)(c) -- 0.1951(c)
1994--
Institutional
Shares.......... 10.14 0.5628(c) (0.4592)(c) -- 0.1036(c)
1994--Administration
Shares.......... 10.14 0.5329(c) (0.4539)(c) -- 0.0790(c)
1993--
Institutional
Shares.......... 10.16 0.5627 (0.0135)(a) -- 0.5492
1993--Administration
Shares(f)....... 10.23 0.2725 (0.0900)(a) -- 0.1825
1992--
Institutional
Shares.......... 10.22 0.6703 (0.0600)(a) -- 0.6103
1991--
Institutional
Shares.......... 10.00 0.8020 0.2200 (a) -- 1.0220
1990--
Institutional
Shares.......... 10.07 0.8300 (0.0700)(a) -- 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(a) -- 0.2800
<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 YEARS ENDED
OCTOBER 31,
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(f)....... (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)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- ----------- --------- ---------- ---------- ----------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
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(e) 7.91(e) 292.56 -- 0.90(e) 7.71(e)
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(f)....... (0.0900) 10.14 1.74 0.70(e) 4.84(e) 411.66 16,490 0.80(e) 4.74(e)
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 0.55(e) 8.55(e) 167.00(e) 39,052 1.42(e) 7.68(e)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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 YEARS ENDED
OCTOBER 31,
1995--Institutional
Shares.......... $ 9.79 $0.4235(c) $0.1500 (c) $-- $0.5735 (c)
1995--Administration
Shares.......... 9.79 0.3989(c) 0.1500 (c) -- 0.5489 (c)
1995--Service
Shares.......... 9.79 0.3744(c) 0.1600 (c) -- 0.5344 (c)
1994--Institutional
Shares.......... 10.23 0.3787(c) (0.3575)(c) -- 0.0212 (c)
1994--Administration
Shares.......... 10.23 0.3537(c) (0.3575)(c) -- (0.0038)(c)
1994--Service
Shares(i)....... 9.86 0.0475(c) (0.0700)(c) -- (0.0225)(c)
1993--Institutional
Shares.......... 9.93 0.3834 0.3000 (a) -- 0.6834
1993--Administration
Shares(i)....... 10.16 0.1555 0.0720 (a) -- 0.2275
FOR THE PERIOD OCTOBER
1, 1992(g) THROUGH
OCTOBER 31,
1992--Institutional
Shares.......... 10.00 0.0341 (0.0700)(a) -- (0.0359)
<CAPTION>
CORE FIXED INCOME FUND
-------------------------------------
FOR THE YEAR ENDED
OCTOBER 31,
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)
<CAPTION>
FROM NET IN EXCESS OF
REALIZED NET REALIZED NET
GAIN ON GAIN ON INCREASE
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) NET ASSET
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET VALUE AT
INVESTMENT FUTURES INVESTMENT FUTURES IN TO ASSET END OF
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD
---------- ------------ ---------- ------------ ------- ------------- ---------- ---------
SHORT DURATION TAX-FREE FUND
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1995--Institutional
Shares.......... $(0.4235) $ -- $-- $-- $-- $(0.4235) $0.1500 $9.94
1995--Administration
Shares.......... (0.3989) -- -- -- -- (0.3989) 0.1500 9.94
1995--Service
Shares.......... (0.3744) -- -- -- -- (0.3744) 0.1600 9.95
1994--Institutional
Shares.......... (0.3787) (0.0825) -- -- -- (0.4612) (0.4400) 9.79
1994--Administration
Shares.......... (0.3537) (0.0825) -- -- -- (0.4362) (0.4400) 9.79
1994--Service
Shares(i)....... (0.0475) -- -- -- -- (0.0475) (0.0700) 9.79
1993--Institutional
Shares.......... (0.3834) -- -- -- -- (0.3834) 0.3000 10.23
1993--Administration
Shares(i)....... (0.1555) -- -- -- -- (0.1555) 0.0720 10.23
FOR THE PERIOD OCTOBER
1, 1992(g) THROUGH
OCTOBER 31,
1992--Institutional
Shares.......... (0.0341) -- -- -- -- (0.0341) (0.0700) 9.93
<CAPTION>
CORE FIXED INCOME FUND
-------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31,
1995--Institutional
Shares.......... (0.6433) -- -- -- -- (0.6433) 0.7600 10.00
FOR THE PERIOD JANUARY
5, 1994(g) THROUGH
OCTOBER 31,
1994--Institutional
Shares.......... (0.4648) -- -- -- -- (0.4648) (0.7617) 9.24
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------------
RATIO OF RATIO OF
NET NET NET
INVESTMENT ASSETS INVESTMENT
RATIO OF INCOME AT END RATIO OF INCOME
EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
RETURN(b) NET ASSETS NET ASSETS RATE (IN 000'S) NET ASSETS NET ASSETS
------------ ---------- ---------- ----------- ---------- ---------- ----------
SHORT DURATION TAX-FREE FUND
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1995--Institutional
Shares.......... 5.98% 0.45% 4.31% 259.52% $58,389 0.77% 3.99%
1995--Administration
Shares.......... 5.76 0.70 4.14 259.52 46 1.02 3.82
1995--Service
Shares.......... 5.59 0.95 3.87 259.52 454 1.27 3.55
1994--Institutional
Shares.......... 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994--Administration
Shares.......... (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994--Service
Shares(i)....... (0.32)(k) 0.95(e) 4.30(e) 354.00 44 1.11(e) 4.14(e)
1993--Institutional
Shares.......... 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993--Administration
Shares(i)....... 2.28 (k) 0.70(e) 3.32(e) 404.60 911 1.07(e) 2.95(e)
FOR THE PERIOD OCTOBER
1, 1992(g) THROUGH
OCTOBER 31,
1992--Institutional
Shares.......... (0.34)(k) 0.05(e) 4.58(e) 31.19(k) 14,601 2.68(e) 1.95(e)
<CAPTION>
CORE FIXED INCOME FUND
-------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31,
1995--Institutional
Shares.......... 15.72 0.45 6.56 383.26(j) 55,502 0.96 6.05
FOR THE PERIOD JANUARY
5, 1994(g) THROUGH
OCTOBER 31,
1994--Institutional
Shares.......... (3.00) 0.45(e) 6.48(e) 288.25(j) 24,508 1.46(e) 5.47(e)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period. For Class
A shares only, total return would be reduced if a sales charge were taken
into account.
(c) Calculated based on the average shares outstanding methodology.
(d) Class A shares commenced operations on May 15, 1995.
(e) Annualized.
(f) Administration share activity commenced on April 15, 1993.
(g) Commencement of operations.
(h) Short Duration Government Administration shares were redeemed in full on
February 23, 1995. Amount shown represents net asset value on February 23,
1995.
(i) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(j) Includes the effect of mortgage dollar roll transactions.
(k) Not annualized.
9
<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, 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 the
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 6-month to 1-year
U.S. Treasury security. In addition, under normal interest rate conditions,
the Fund's maximum duration will not exceed 2 years. The approximate interest
rate sensitivity of the Fund is comparable to a 9-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, 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 gain.
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 (currently 1.8 years). In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed 3
years. The approximate interest rate sensitivity of the Fund is comparable to
a 2-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, 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 3-
year Municipal Bond Index, plus or minus .5 years (currently 2.8 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 4 years. The approximate interest rate sensitivity of the Fund
is comparable to a 3-year bond.
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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 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 and may increase liability
for the corporate environmental 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 A by S&P or Moody's. 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,
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. Shareholders may be subject to
state, local or foreign taxes on such income received from the Fund. See
"Description of Securities".
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 1 year (currently, 4.7 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 6 years. The approximate interest rate sensitivity of the Fund
is comparable to a 5-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. 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.
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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 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 currency
transactions to seek to hedge its exposure to foreign currencies. 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, mortgage dollar rolls,
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.
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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.
CORPORATE DEBT OBLIGATIONS
The Core Fixed Income Fund 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 Fund may invest in convertible securities, which may
include corporate notes or preferred stock but are ordinarily long-term debt
obligations of an issuer convertible at a stated exchange rate into common
stock of the issuer. As with all debt securities, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the
price of the convertible security tends to reflect the value of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which the Core Fixed Income Fund invests will be
subject to the same rating criteria as its other investments in fixed income
securities.
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 the 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.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government and Core Fixed Income 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.
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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 Core Fixed Income Fund 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 and
Core Fixed Income 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 and Core Fixed Income 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. Although the market for SMBS is increasingly liquid, certain SMBS
may not be readily marketable and will be considered illiquid for purposes of
a Fund's limitation on investments in illiquid securities. The market value of
the class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class
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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 Core Fixed Income Fund may 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.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income Fund, 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 Fund's
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
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.
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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 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.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Core Fixed Income Fund may invest in fixed income
securities of foreign issuers denominated in any currency but will limit its
investments in non-U.S. dollar-denominated fixed income securities to 25% of
its total assets. This 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 U.S. dollar-denominated securities of
domestic issuers. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate 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 exchange rate for the currency in
which the Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, the Fund may
have to sell portfolio securities to obtain sufficient cash to pay such
dividends. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, making it
more difficult to conduct such transactions.
The Core Fixed Income Fund may invest in an issuer domiciled in one country
yet issuing the security in the currency of another country. The Fund may also
invest in debt securities denominated in the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts in the currencies of
certain of the twelve member states of the European Community. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community from time to time to reflect changes in
relative values of the underlying currencies. In addition, the Fund may invest
in securities denominated in other currency "baskets".
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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. Most 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 taxes on dividend or interest payments, limitations
on the removal of funds or other assets of the Fund, political or social
instability or diplomatic developments which could affect investments in those
countries.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income Fund will usually involve currencies of foreign countries,
the value of the Fund's assets as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. The Fund may 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. If the Fund enters into a forward foreign currency exchange contract to
buy foreign currency for any purpose, the Fund will be required to place and
maintain cash or liquid, high grade debt securities in a segregated account
with the Fund's custodian in an amount equal to the value of the Fund's total
assets committed to the consummation of the forward contract. The Fund will
incur costs in connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, the Fund's net asset value to
fluctuate. 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 United States or
abroad. To the extent that a substantial portion of the Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments authorized for use by the
Fund offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange.
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 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. The Fund will not enter into forward foreign currency
exchange contracts 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.
STRUCTURED SECURITIES
The Core Fixed Income 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
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decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of the Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
ZERO COUPON, DEFERRED INTEREST 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. 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
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 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 this call
and/or extension risk.
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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 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 the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.
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.
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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 and Core Fixed 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) securities on a
specified future date. During the roll period, a Fund loses the right to
receive principal and interest paid on the securities sold. However, a Fund
may benefit from the interest earned on the cash proceeds of the securities
sold until the settlement date of the forward purchase. Each Fund will hold
and maintain in a segregated account until the settlement date cash or liquid,
high grade debt securities in an amount equal to the forward purchase price.
The benefits derived from the use of mortgage dollar rolls depend upon the
Investment Adviser's ability to manage mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed. For
financial reporting and tax purposes, each Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The 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 Fund may, to the extent
it invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign portfolio securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. As with other
kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. If an option that the 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 the Fund's position, the
Fund may forfeit the entire amount of the premium plus related transaction
costs. 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 a Fund will be traded on U.S. and foreign exchanges or
over-the-counter.
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FUTURES CONTACTS 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 Fund, currency exchange rates, each Fund
may purchase and sell various kinds of futures contracts, and purchase and
write call and put options on any of such futures contracts. Each Fund may
also enter into closing purchase and sale transactions with respect to any
such contracts and options. The futures contracts may be based on various
securities (such as U.S. Government Securities), foreign currencies, in the
case of the Core Fixed Income Fund, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission or to seek to increase total return
to the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on the Fund's outstanding positions in futures and related options entered
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid, high grade debt securities with
a value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment 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 Fund may enter into currency swaps for
hedging purposes. 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. The 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 the Fund would be less favorable than it would have been if
this investment technique were not
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used. The staff of the SEC currently take the position that swaps are illiquid
and thus subject to the Fund's limitation on investments in illiquid
securities.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swap transactions, 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 the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's transactions in certain derivative
transactions may be limited by the requirements of the Internal Revenue Code
(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 3-
day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until 3 days prior to settlement date, cash
or liquid, high grade debt securities in an amount sufficient to meet the
purchase price. Alternatively, each Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. The purchase of
securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
LLIQUID 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, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for sale under Rule 144A and,
therefore, is liquid. The Board of Trustees has adopted guidelines and
delegated to the Investment Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board of Trustees,
however, retains oversight focusing on factors such as valuation, liquidity
and availability of information and is ultimately responsible for each
determination. Investing in restricted securities eligible for resale pursuant
to Rule 144A 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. 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.
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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 of the Trust
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 advisory 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 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 Fund may for temporary defensive purposes depart from its
stated investment objective and invest more than 20% of its net assets in
taxable investments which would subject such income to taxation.
MISCELLANEOUS TECHNIQUES
In addition to the techniques described above, each Fund may, with respect
to no more than 5% of its total assets, engage in the following techniques:
(i) portfolio securities lending, (ii) mortgage swaps (other than Short
Duration Tax-Free Fund) and interest rate swaps, caps, floors and collars,
(iii) inverse floating rate securities, (iv) yield curve options, (v)
investments in other investment companies, (vi) custodial receipts, (vii) with
respect to the Short Duration Tax-Free Fund, tender option bonds and standby
commitments and (viii) with respect to the Core Fixed Income Fund, investments
in securities of issuers in countries with emerging markets and economies. 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 can not be changed without
approval of a majority of the outstanding shares of that Fund. All investment
objectives and policies not specifically designated as fundamental are non-
fundamental and may be changed without shareholder approval. If there is a
change in a Fund's investment objectives, shareholders should consider whether
the Fund still remains an appropriate investment in light of their then
current financial positions and needs.
The Short Duration Tax-Free Fund's policy to invest, under normal market
conditions, at least 80% of its 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.
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
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portfolio turnover rate of each Fund will vary from year to year. 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 Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Advisers, administrator,
distributor and transfer agent. The officers of the Trust conduct and
supervise each Fund's daily business operations. The Additional Statement
contains information as to the identity of, and other information about, the
Trustees and officers of the Trust.
INVESTMENT ADVISERS
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 Short
Duration Government and Adjustable Rate 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 and Core Fixed Income Funds. Goldman Sachs registered
as an investment adviser in 1981. As of January 31, 1996, GSAM and GSFM,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $57 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, subject to the general supervision of the Board of
Trustees, provides day-to-day advice as to the Fund's portfolio transactions.
Goldman Sachs has agreed to permit the Trust to use the name "Goldman Sachs"
or a derivative thereof as part of each Fund's name for as long as a Fund's
Investment Advisory 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.
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 joined the Investment Adviser in 1990 after working in the
trading and arbitrage group of Franklin Savings Association.
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CORE FIXED INCOME FUND. The Fund's 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
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
SHORT DURATION TAX-FREE FUND. The Fund's portfolio manager is Benjamin S.
Thompson. Mr. Thompson specializes in municipal securities, where his
responsibilities include developing investment strategy and structuring
portfolios. Mr. Thompson worked in the institutional sales and marketing group
at 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.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Investment Advisory Agreements, GSFM is entitled to a fee
from the Short Duration Government and Adjustable Rate Government Funds,
computed daily and payable monthly, at the annual rates of 0.50% and 0.40%,
respectively, of average daily net assets; however, GSFM is currently only
imposing its advisory fee with respect to the Short Duration Government Fund
at the annual rate of 0.40% of average daily net assets. As compensation for
its services rendered and assumption of certain expenses pursuant to separate
Investment Advisory Agreements, GSAM is entitled to a fee from the Short
Duration Tax-Free and Core Fixed Income Funds, computed daily and payable
monthly, at the annual rates of 0.40% and 0.40%, respectively, of average
daily net assets. The Investment Advisers may discontinue or modify such
limitations in the future at their discretion, although the Investment
Advisers have no current intention to do so. For the fiscal year ended October
31, 1995, the Short Duration Government, Adjustable Rate Government, Short
Duration Tax-Free and Core Fixed Income Funds paid fees at the foregoing
rates.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it by a Fund (to the extent of its fees) by the amount (if any) that the
Fund's expenses would exceed the applicable expense limitations imposed by
state securities administrators. See "Management -- Expenses" in the
Additional Statement. In addition, the Investment Advisers to the Short
Duration Government, Adjustable Rate Government, Short Duration Tax-Free and
Core Fixed Income Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding any applicable fees payable by the
Fund classes to service organizations, advisory fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.05%, 0.05%, 0.05% and 0.05% 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
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Sachs and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and in general it is not anticipated
that the Investment Advisers will have access to proprietary information for
the purpose of managing a Fund. The results of a Fund's investment activities,
therefore, may differ from those of Goldman Sachs and its affiliates and it is
possible that a Fund could sustain losses during periods in which Goldman
Sachs and its affiliates and other accounts and Funds achieve significant
profits on their trading for proprietary or other accounts. From time to time,
a Fund's activities may be limited because of regulatory restrictions
applicable to Goldman Sachs and its affiliates, and/or their internal policies
designed to comply with such restrictions. See "Management -- Activities of
Goldman Sachs and its Affiliates and Other Accounts Managed by Goldman Sachs"
in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois 60606 also serves as each Fund's transfer agent (the
"Transfer Agent") and as such performs various shareholder servicing
functions. Shareholders with inquiries regarding any Fund should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus. Goldman Sachs is entitled to
receive a fee from the Short Duration Government, Short Duration Tax-Free and
Core Fixed Income Funds equal to 0.04% of the average daily net assets of each
Fund. Goldman Sachs is entitled to receive a fee from the Adjustable Rate
Government Fund 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 agents) applicable to Class A shares plus 0.04% of the
average daily net assets attributable to the other classes of the Adjustable
Rate Government Fund.
DIVIDENDS
Each 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.
Shares 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 Fund's net investment income. From time to time a portion of such
dividends may constitute a return of capital. 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. On days on
which net asset value is calculated, such determination is made immediately
prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago
time. On days on which net asset value is not calculated, such determination
is made as of 3:00 p.m. Chicago time.
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Payment of dividends from net investment income will be made on the last
calendar day of each month in additional shares of the Fund at the net asset
value on such day, unless cash distributions are elected, in which case, cash
payment will be made on the first Business Day of the succeeding month. 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.
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 realized or unrealized
appreciation of any Fund's portfolio securities. Therefore, subsequent
distributions (or portions thereof) of taxable income or realized appreciation
on such shares may be taxable to the investor even if the net asset value of
the shares is, as a result of the distributions, reduced below the cost of
such shares and the distributions (or portions thereof) represent a return of
a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) 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. 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 Trust's Board of 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 Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition to the above, each Fund
may from time to time advertise its performance relative to certain
performance rankings and indices.
28
<PAGE>
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free Fund's tax-free yield. Tax
equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's
tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under
the laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest,
$.001 par value per share. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trustees of the Trust
have authority to create and classify shares of beneficial interest in
separate series, without further action by shareholders. Additional series may
be added in the future. The Trustees have authorization to classify or
reclassify any series or portfolio of shares into one or more classes. The
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
each offer Institutional Shares, Administration Shares and Service Shares. The
Adjustable Rate Government Fund offers Institutional Shares, Administration
Shares, Service Shares and Class A shares.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.
As of November 30, 1995, 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 & Trust Company--
29
<PAGE>
Goldman Sachs Employee Trust--One Enterprise Drive, No. Quincy, MA 02171
(30.64%) and Short Duration Tax-Free Fund--MGIC, Attn: James McGinnis, P.O.
Box 297, Milwaukee, WI 53201 (27.16%).
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of independent accountants. Shareholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding shares
and the Trustees must promptly call a meeting for such purpose when requested
to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Trust. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. The Board of Trustees, however,
will call a special meeting for the purpose of electing Trustees if, at any
time, less than a majority of Trustees holding office at the time were elected
by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
Under Massachusetts law, there exists a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Trust Agreement
contains provisions intended to limit such liability and to provide
indemnification out of Trust property of any shareholder charged or held
personally liable for obligations or liabilities of the Trust solely by reason
of being or having been a shareholder of the Trust and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected
or intends to elect to be treated as a regulated investment company and to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of
the Code so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Short Duration Tax-Free Fund that are
attributable to interest on tax-exempt obligations and that the Fund properly
designates as exempt-interest dividends will be exempt from regular federal
income tax, although all or a portion of such a distribution may be subject to
the federal alternative minimum tax and the entire distribution may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Persons who are "substantial users" (or related
persons to such substantial users) of facilities financed by industrial
development or certain private activity bonds should consult
30
<PAGE>
their own tax advisers before purchasing shares of the Short Duration Tax-Free
Fund. Interest on indebtedness incurred or continued to purchase or carry
shares of the Short Duration Tax-Free Fund is not deductible to the extent
attributable to the Short Duration Tax-Free Fund's distributions that are
exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain
over net long-term capital loss and original issue discount (except tax-exempt
original issue discount earned by the Short Duration Tax-Free Fund) 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. 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 on which a
shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable distributions, redemptions
and exchanges if they fail to furnish their correct taxpayer identification
number and certain certifications 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 non-resident alien withholding at
the rate of 30% (or a lower rate provided by an applicable tax treaty) on
amounts treated as ordinary dividends from the Funds.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt
municipal obligations issued by or on behalf of the particular state or a
political subdivision thereof, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
31
<PAGE>
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
ADMINISTRATION PLAN
The Trust, on behalf of the Funds, has adopted an Administration Plan with
respect to the Administration Shares which authorizes a Fund to compensate
Service Organizations for providing account administration services to their
customers who are beneficial owners of such Shares. The Trust, on behalf of
the Funds, enters into agreements with Service Organizations which purchase
Administration Shares on behalf of their customers ("Service Agreements"). The
Service Agreements provide for compensation to the Service Organizations in an
amount up to 0.25% (on an annualized basis) of the average daily net assets of
the Administration Shares of the Fund attributable to or held in the name of
the Service Organization for its customers. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers and
processing orders to purchase, redeem or exchange Administration Shares for
customers.
For the fiscal year ended October 31, 1995, the Trust, on behalf of the
Adjustable Rate Government, Short Duration Government and Short Duration Tax-
Free Funds, paid the Service Organizations fees at the annual rate of 0.25% of
each Fund's average daily net assets attributable to the Administration
Shares. No Administration Shares of the Core Fixed Income Fund were
outstanding during the period.
Holders of Administration Shares of a Fund bear all expenses and fees paid
to Service Organizations with respect to such Shares as well as any other
expenses which are directly attributable to such Shares.
Service Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Administration Shares in
connection with their customer accounts. These fees would be in addition to
any amounts received by the Service Organization under a Service Agreement and
may affect the return earned on an investment in the Fund. The Trust, on
behalf of the Funds, accrues payments made pursuant to a Service Agreement
daily. All inquiries of beneficial owners of Administration Shares should be
directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Administration Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Administration Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account
statement. A year-to-date statement for any account will be provided to a
Service Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each
transaction.
32
<PAGE>
PURCHASE OF ADMINISTRATION SHARES
It is expected that all direct purchasers of Administration Shares of the
Funds will be Service Organizations or their nominees. Customers of Service
Organizations may invest in Administration Shares only through their Service
Organizations. Administration Shares may be purchased by a Service
Organization 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
3:00 p.m. Chicago time (4:00 p.m. New York time), an order is received from a
Service Organization by Goldman Sachs, the price per share will be the net
asset value per share computed on the day the purchase order is received. See
"Net Asset Value". Purchases of Administration 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
Administration Shares".
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In
order to facilitate timely transmittal, the Service Organizations have
established times by which purchase orders and payments must be received by
them.
PURCHASE PROCEDURES
Purchase of Administration Shares by a Service Organization may be made by
placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal
Funds to the Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or
initiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by a Service Organization by check (except
that a check drawn on a foreign bank will not be accepted) or Federal Reserve
draft made payable to "Goldman Sachs Trust -- Name of Fund" and should be
directed to Goldman Sachs Trust -- Name of Fund, c/o GSAM Shareholder
Services, 4900 Sears Tower, Chicago, Illinois 60606.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Administration Shares. A Service Organization may, however, impose
a minimum amount for initial and subsequent investments in Administration
Shares, and may establish other requirements such as a minimum required
account 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.
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago
time 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
Northern.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a check or Federal Reserve
draft is received by Goldman Sachs by 3:00 p.m. Chicago time, shares will be
issued and dividends will begin to accrue on the purchased shares on the
Business Day after the date payment is received.
33
<PAGE>
The Funds reserve the right to redeem Administration Shares of any Service
Organization whose account balance is less than $100 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a
result of market conditions. The Trust will give sixty (60) days prior written
notice to Service Organizations whose Administration Shares are being redeemed
to allow them to purchase sufficient additional Administration Shares to avoid
such redemption.
The Funds and Goldman Sachs each reserve the right to reject or restrict any
specific purchase order (including exchanges) by a particular purchaser (or
group of related purchasers). This may occur, for example, when a purchaser's
pattern of frequent purchases, sales or exchanges of Administration 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 the
Funds.
EXCHANGE PRIVILEGE
Administration Shares of the Funds may be exchanged by Service Organizations
for (i) Administration Shares of any other mutual fund sponsored by Goldman
Sachs and designated as an eligible fund for this purpose and (ii) the
corresponding class of any portfolio of Goldman Sachs Money Market Trust at
the net asset value next determined either by writing to Goldman Sachs,
Attention: Goldman Sachs Trust -- Name of Fund, c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606 or if previously elected in the
Fund's Account Information Form, by telephone at 800-621-2550 (7:00 a.m. to
3:00 p.m. Chicago time). A shareholder should obtain and read the prospectus
relating to any other fund and its shares or units and consider its investment
objective, policies and applicable fees before making an exchange.
Administration Shares acquired by telephone exchange must be registered in the
same name(s) and have the same address as Administration Shares of the Fund
for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Administration Shares" to confirm that such instructions are genuine. 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 Administration Shares surrendered in the exchange, on
which an investor may realize a gain or loss, followed by a purchase of
Administration Shares or the corresponding class of any portfolio of Goldman
Sachs Money Market Trust received in the exchange. Shareholders should consult
their own tax advisers concerning the tax consequences of an exchange.
Exchanges are available only in states where exchanges may legally be made.
The exchange privilege may be modified or withdrawn at any time on sixty (60)
days' written notice to the recordholders of Administration Shares and is
subject to certain limitations. See "Purchase of Administration Shares".
REDEMPTION OF ADMINISTRATION SHARES
The Funds will redeem their Administration Shares upon request of the
recordholder of such Shares on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value". If Administration Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good
34
<PAGE>
funds have been collected for the purchase of such Administration Shares. This
may take up to fifteen (15) days. Redemption requests may be made by writing
to or calling the Transfer Agent at the address or telephone number set forth
on the cover page of this Prospectus. A Service Organization may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form. It may be difficult to implement
redemptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges, among accounts with different names, addresses and
social security or taxpayer identification numbers must be in writing and
signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the
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 Administration
Shares to be redeemed earn dividends declared on the day the request is
received.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Administration Shares. Redemption proceeds
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. 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 Administration Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
35
<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 & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIP-1AD-GST/10K/0396
- -------------------------------------------------
- -------------------------------------------------
THE GOLDMAN SACHS
FIXED INCOME
PORTFOLIOS
- -------------------------------------------------
PROSPECTUS
ADMINISTRATION SHARES
[LOGO] GOLDMAN SACHS
- -------------------------------------------------
- -------------------------------------------------
<PAGE>
GOLDMAN SACHS TRUST
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
SERVICE SHARES
----------------
SUPPLEMENT DATED FEBRUARY 28, 1997 TO
PROSPECTUS DATED MARCH 1, 1996
GS 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.
GS SHORT DURATION FUND
Seeks a high level of current income and secondarily, in seeking current
income, may also consider the potential for capital gain. The Fund invests
primarily in securities issued or guaranteed by the U.S. government, its
agencies, instrumentalities, or sponsored enterprises.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax.
The Fund invests primarily in municipal securities.
GS 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.
This Prospectus Supplement and the accompanying Prospectus provide 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 February 28, 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, is
incorporated herein by reference in its entirety, and may be obtained without
charge from institutions ("Service Organizations") that hold, directly or
through an agent, Service Shares for the benefit of its customers or Goldman
Sachs by calling the telephone number, or writing to one of the addresses,
listed on the back cover of the accompanying Prospectus.
The following replaces the Fees and Expenses Table and Financial Highlights
and supplements the information under the sections entitled "What are the
Investment Objectives and Policies of the Funds," "Management," "Shares of the
Trust" and "Additional Services" in the accompanying Prospectus:
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE
RATE SHORT DURATION CORE FIXED GLOBAL
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME
FUND FUND TAX-FREE FUND FUND FUND
---------- -------------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of
average daily net
assets)
Management Fees (after
fee adjustments)..... 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/ 0.59%/5/
Service Fees/6/....... 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/ 0.06%/5/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES
(after fee and
expense
limitations)......... 0.95%/1/ 0.95%/2/ 0.95%/3/ 0.95%/4/ 1.15%/5/
==== ==== ==== ==== ====
</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 $30 $53 $117
Short Duration Government....................... $10 $30 $53 $117
Short Duration Tax-Free......................... $10 $30 $53 $117
Core Fixed Income............................... $10 $30 $53 $117
Global Income................................... $12 $37 $63 $140
</TABLE>
/1/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, fees under
service plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Service Shares would be 0.11 and 1.01%, respectively. Annual operating
expenses which would have been incurred by Service Shares of the Fund had
Service Shares been outstanding, during the fiscal year ended October 31,
1996 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.95%, respectively.
<PAGE>
/2/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund. The
Investment Adviser also has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations,
"Management Fees," "Other Expenses" and "Total Operating Expenses"
attributable to Service Shares would be 0.50%, 0.21% and 1.21%,
respectively. Annual operating expenses incurred by Service Shares of the
Fund during the fiscal year ended October 31, 1996 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees," "Other Expenses" and "Total Operating Expenses" of 0.40%,
0.05% and 0.95%, respectively.
/3/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations, "Other
Expenses" and "Total Operating Expenses" attributable to Service Shares
would be 0.61% and 1.51%, respectively. Annual operating expenses incurred
by Service Shares of the Fund during the fiscal year ended October 31, 1996
(expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.95%, respectively.
/4/ Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations, "Other
Expenses" and "Total Operating Expenses" attributable to Service Shares
would be 0.43% and 1.33%, respectively. Annual operating expenses incurred
by Service Shares of the Fund during the fiscal year ended October 31, 1996
(expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees," "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.95%, respectively.
/5/ Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15%, respectively. The Investment Advisers have
voluntarily agreed to limit their advisory and subadvisory fees to such
amounts. Without such limitations, advisory and subadvisory fees would be
0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily
agreed to reduce or limit certain "Other Expenses" of the Global Income Fund
(excluding advisory, subadvisory, administration fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.06%
of the Fund's average daily net assets. Goldman Sachs and the Investment
Advisers have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, Global Income Fund's "Management Fees," "Other Expenses" and
"Total Operating Expenses" attributable to Service Shares would be 0.90%,
0.21% and 1.61%, respectively. Annual operating expenses which would have
been incurred by Service Shares of the Fund had Service Shares been
outstanding, during the fiscal year ended October 31, 1996 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees," "Other Expenses" and "Total Operating Expenses" of 0.59%,
0.06% and 1.15%, respectively.
<PAGE>
/6/ Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Service Shares in connection
with their customer accounts. See "Additional Services." Investors should be
aware that, due to the service fees, a long-term shareholder in the Fund may
pay over time more than the economic equivalent of the maximum front end
sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
The information set forth in the foregoing table and hypothetical example
relates only to Service Shares of the Funds. Short Duration Government Fund,
Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Institutional Shares and Administration Shares; Adjustable Rate Government
Fund also offers Institutional Shares, Administration Shares and Class A
Shares; and Global Income Fund also offers Institutional Shares, Class A
Shares and Class B Shares. The other classes of the Funds are subject to
different fees and expenses (which affects performance), have different
minimum investment requirements and are entitled to different services.
Information regarding any other class of the Funds may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding the
various costs and expenses of a Fund that an investor will bear directly or
indirectly. The information on fees and expenses included in the table and the
hypothetical example above are based on estimated fees and expenses for the
current fiscal year and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers, Subadviser and
Administrator."
<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 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
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $ 9.77 $0.5759(a) $0.0772 (a) -- $0.6531
1996-Administra-
tion 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-Institu-
tional Shares.. 9.74 0.5630(a) 0.0717 (a) -- 0.6347
1995-Administra-
tion 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-Institu-
tional Shares.. 10.00 0.4341(a) (0.2455)(a) -- 0.1886
1994-Administra-
tion Shares.... 10.00 0.4211(a) (0.2572)(a) -- 0.1639
1993-Institu-
tional Shares.. 10.04 0.4397 (0.0376)(d) -- 0.4021
1993-Administra-
tion
Shares(e)...... 10.02 0.2146 (0.0173)(d) -- 0.1973
1992-Institu-
tional Shares.. 10.03 0.5599 (0.0029)(d) -- 0.5570
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER
31,
1991-Institu-
tional Shares.. 10.00 0.1531 0.0322 (d) -- 0.1853
<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
---------- ------------ ---------- ------------ ------- -------------
GS ADJUSTABLE RATE GOVERNMENT FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1996-Institu-
tional Shares.. $(0.5725) -- $(0.0206) -- -- $(0.5931)
1996-Administra-
tion Shares.... (0.5489) -- (0.0198) -- -- (0.5687)
1996-Class A
Shares......... (0.5489) -- (0.0198) -- -- (0.5687)
1995-Institu-
tional Shares.. (0.5759) -- (0.0287) -- -- (0.6046)
1995-Administra-
tion Shares.... (0.5528) -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)...... (0.2697) -- (0.0134) -- -- (0.2831)
1994-Institu-
tional Shares.. (0.4486) -- -- -- -- (0.4486)
1994-Administra-
tion Shares.... (0.4239) -- -- -- -- (0.4239)
1993-Institu-
tional Shares.. (0.4397) -- (0.0024) -- -- (0.4421)
1993-Administra-
tion
Shares(e)...... (0.2146) -- (0.0027) -- -- (0.2173)
1992-Institu-
tional Shares.. (0.5470) -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
1991-Institu-
tional Shares.. (0.1553) -- -- -- -- (0.1553)
<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(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ --------- -------- ---------- --------- ---------- -------- ----------
GS ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 OC-
TOBER 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>
5
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $9.82 $0.6290(a) $0.0136 (a) -- $0.6426
1996-Administra-
tion
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-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(a) -- 0.0790
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER
31,
- -------------------------------------------------
1988-Institu-
tional Shares.. 10.00 0.1800 0.1000 (d) -- 0.2800
<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
---------- ------------ ---------- ------------ -------- -------------
GS SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $(0.6326) -- -- -- -- $(0.6326)
1996-Administra-
tion
Shares(h)...... (0.3940) -- -- -- -- (0.3940)
1996-Service
Shares(i)...... (0.3152) -- -- -- -- (0.3152)
1995-Institu-
tional Shares.. (0.6518) -- -- -- -- (0.6518)
1995-Administra-
tion Shares.... (0.2051) -- -- -- -- (0.2051)
1994-Institu-
tional Shares.. (0.5598) (0.0438) -- -- -- (0.6036)
1994-Administra-
tion Shares.... (0.5352) (0.0438) -- -- -- (0.5790)
1993-Institu-
tional Shares.. (0.5627) -- (0.0065) -- -- (0.5692)
1993-Administra-
tion
Shares(e)...... (0.2725) -- -- -- -- (0.2725)
1992-Institu-
tional Shares.. (0.6703) -- -- -- -- (0.6703)
1991-Institu-
tional Shares.. (0.8020) -- -- -- -- (0.8020)
1990-Institu-
tional Shares.. (0.8300) -- -- -- -- (0.8300)
1989-Institu-
tional Shares.. (0.8800) -- -- -- (0.0300) (0.9100)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER
31,
- -------------------------------------------------
1988-Institu-
tional Shares.. (0.1800) -- -- -- -- (0.1800)
<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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
- ------------------------------
1996-Institu-
tional Shares
............... $0.0100 $9.83 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administra-
tion
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-Institu-
tional Shares.. 0.1800 9.82 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. (0.5000) 9.64 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... (0.5000) 9.64 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. (0.0200) 10.14 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
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-Institu-
tional Shares.. (0.0600) 10.16 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 0.2200 10.22 10.93 0.45 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. (0.0700) 10.00 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional 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-Institu-
tional 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>
- ------------------
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
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
--------- ---------- ------------ ------------ ----------
GS SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)...... 9.86 0.0475(a) (0.0700)(a) (0.0225)
1993-Institu-
tional Shares.. 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion
Shares(j)...... 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER
31,
1992-Institu-
tional Shares.. 10.00 0.0341 (0.0700)(d) -- (0.0359)
<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
---------- ------------ ---------- ------------ ------- -------------
GS SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
1994-Service
Shares(j)...... (0.0475) -- (0.0475)
1993-Institu-
tional Shares.. (0.3834) -- -- -- -- (0.3834)
1993-Administra-
tion
Shares(j)...... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER
31,
1992-Institu-
tional Shares.. (0.0341) -- -- -- -- (0.0341)
<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
---------- ------ --------- -------- ---------- --------- ------- -------- ----------
GS SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------
NET REALIZED NET REALIZED
AND UNREALIZED AND UNREALIZED TOTAL
GAIN (LOSS) GAIN (LOSS) INCOME
NET ASSET ON INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- -------------- -------------- ----------
GS CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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
---------- ------------ ---------- ------------ -------- -------------
GS CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
GLOBAL INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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
---------- ------ --------- -------- ---------- --------- -------- -------- ----------
GS CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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) 0.45(b) 6.48(b) 288.25 24,508 1.46(b) 5.47(b)
GLOBAL INCOME FUND
- ---------------------------------------------------------------------------------------------------------------------------------
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(b) 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) GS 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 not 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 on June 1, 1995 and May 1, 1996,
respectively.
8
<PAGE>
With respect to GS Short Duration Tax-Free Fund:
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. 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.
With respect to GS Core Fixed Income Fund:
Non-dollar securities in which the Fund invests will be rated at least AA
by S&P or Aa by Moody's at the time of investment.
Emerging Markets. The Core Fixed Income Fund may invest up to 10% of its
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 in the attached Prospectus, including the possibility
of nationalization, expropriation and confiscatory taxation, may be
heightened. In addition, unanticipated political and social developments
may affect the value of the 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 the 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 the Fund's
investments in emerging markets.
The following replaces the information provided for Short Duration Tax-Free
Fund under the caption "Management--Investment Advisers, Subadvisers and
Administrator:"
The Fund's 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 Goldman Sachs's Municipal Finance Department.
The following is added under the caption "Management--Investment Advisers,
Subadviser and Administrator:"
For the fiscal year ended October 31, 1996, GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund,
GS Core Fixed Income Fund and Goldman Sachs Global Income Fund, paid
advisory (including subadvisory fees in the case of the Global Income Fund)
fees at the rate of .40%, .40%, .40%, and .44%, respectively, of average
daily net assets and Goldman Sachs Global Income Fund paid administration
fees at the rate of .15% of average daily net assets.
The following is added under the caption "Shares of the Trust:"
At a shareholders meeting called for April 1, 1997, shareholders of each
Fund as of January 31, 1997 will consider a proposal to reorganize the
Funds into series of a Delaware business trust. The above description
regarding shares of the Funds applies equally to shares of a Delaware
business trust except that, under Delaware law, shareholders of a Delaware
business trust are not personally liable as partners for the obligations of
the Delaware business trust.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
March 1, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE GOLDMAN SACHS TRUST
---- SERVICE SHARES
<S> <C> <C>
Fund Highlights........................ 1 GS ADJUSTABLE RATE GOVERNMENT FUND
Fees and Expenses...................... 5
Financial Highlights................... 7 Seeks a high level of current income,
Investment Objectives and Policies..... 11 consistent with low volatility of prin-
Description of Securities.............. 15 cipal. The Fund invests primarily in ad-
Risk Factors........................... 22 justable rate mortgage pass-through se-
Investment Techniques.................. 23 curities and other mortgage securities
Investment Restrictions................ 27 with periodic interest rate resets,
Portfolio Turnover..................... 27 which are issued or guaranteed by the
Management............................. 28 U.S. Government, its agencies, instru-
Dividends.............................. 31 mentalities or sponsored enterprises.
Net Asset Value........................ 32
Performance Information................ 32
Shares of the Trust.................... 33 GS SHORT DURATION GOVERNMENT FUND
Taxation............................... 34
Additional Information................. 36 Seeks a high level of current income and
Additional Services.................... 37 secondarily, in seeking current income,
Reports to Shareholders................ 37 may also consider the potential for cap-
Purchase of Service Shares............. 38 ital gain. The Fund invests primarily in
Exchange Privilege..................... 39 securities issued or guaranteed by the
Redemption of Service Shares........... 40 U.S. Government, its agencies, instru-
mentalities or sponsored enterprises.
GS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income,
consistent with relatively low volatil-
ity of principal, that is exempt from
regular federal income tax. The Fund in-
vests primarily in municipal securities.
GS CORE FIXED INCOME FUND
Seeks a total return consisting of capi-
tal 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 guaran-
teed by the U.S. Government, its agen-
cies, instrumentalities or sponsored en-
terprises, corporate securities, mort-
gage-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 ap-
preciation. The Fund invests primarily
in a portfolio of high quality fixed in-
come securities of U.S. and foreign is-
suers and foreign currencies.
(continued on next page)
----------
</TABLE>
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.
<PAGE>
(cover continued)
THE CORE FIXED INCOME AND GLOBAL INCOME FUNDS INVEST IN SECURITIES OF
FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS NOT
CUSTOMARILY ASSOCIATED WITH INVESTING IN DOLLAR-DENOMINATED FIXED INCOME
SECURITIES. THESE FUNDS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS
ASSOCIATED WITH THEIR INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS.
SEE "DESCRIPTION OF SECURITIES".
THE ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS' NET
ASSET VALUE AND YIELD ARE NOT GUARANTEED BY THE U.S. GOVERNMENT OR BY 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 and Core Fixed Income Funds and investment adviser and
administrator to the Global Income Fund. Goldman Sachs Asset Management
International ("GSAMI"), London, England, an affiliate of Goldman Sachs,
serves as subadviser to the Global Income Fund. GSAM, GSFM and GSAMI are 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 March 1, 1996,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission, is incorporated herein by reference in its entirety, and may be
obtained without charge from institutions ("Service Organizations") that hold,
directly or through an agent, Service Shares for the benefit of their
customers or Goldman Sachs by calling the telephone number, or writing to one
of the addresses, listed on the back cover of this Prospectus.
<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?
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 objective.
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>
ADJUSTABLE
RATE SHORT DURATION CORE FIXED
GOVERNMENT GOVERNMENT SHORT DURATION INCOME GLOBAL INCOME
FUND FUND TAX-FREE FUND FUND FUND
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT OBJECTIVES A high level A high level A high level Total return A high total
of current of current of current consisting of return,
income, income, and income, capital emphasizing
consistent secondarily, consistent appreciation current income
with low in seeking with low and income and, to a
volatility of current volatility of that exceeds lesser extent,
principal. income, may principal, the total providing
also consider that is exempt return of the opportunities
the potential from regular Lehman for capital
for capital federal income Brothers appreciation.
gain. tax. Aggregate Bond
Index.
--------------------------------------------------------------------------------------------------
DURATION Target = 6- Target = 2- Target = Target = Target = J.P.
month to year U.S. Lehman Lehman Morgan Global
1-year U.S. Treasury Brothers Brothers Government
Treasury Security plus 3-year Aggregate Bond Bond Index
Security or minus Municipal Bond Index plus or (hedged) plus
.5 years Index plus or minus 1-year or minus
minus .5 2.5 years
years
Maximum = 2 Maximum = 3 Maximum = 4 Maximum = 6 Maximum = 7.5
years years years years years
--------------------------------------------------------------------------------------------------
APPROXIMATE INTEREST 9-month note 2-year bonds 3-year bonds 5-year bonds 6-year bond
RATE SENSITIVITY
--------------------------------------------------------------------------------------------------
</TABLE>
(continued)
1
<PAGE>
<TABLE>
<CAPTION>
SHORT DURATION
ADJUSTABLE RATE GOVERNMENT SHORT DURATION CORE FIXED GLOBAL INCOME
GOVERNMENT FUND FUND TAX-FREE FUND INCOME FUND FUND
----------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT SECTOR At least 65% of At least 65% At least 80% At least 65% Securities of
total assets in of total of net assets of assets in U.S. and
securities issued assets in U.S. in Municipal fixed income foreign
or guaranteed by Government Securities. securities, governments
the U.S. Securities and including U.S. and
Government, its repurchase Government corporations.
agencies, agreements Securities,
instrumentalities collateralized corporate,
or sponsored by mortgage-
enterprises such backed and
("U.S. Government securities. asset-backed
Securities") that securities.
are adjustable
rate mortgage
pass- through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CREDIT QUALITY U.S. U.S. Minimum = A Minimum = Minimum = AA/Aa
Government Government BBB/Baa or A if sovereign issuer
Securities Securities Minimum for At least 50% = AAA/Aaa
foreign
securities =
AA/Aa
------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS Fixed rate Mortgage pass- U.S. Foreign fixed Mortgage and asset-
mortgage pass- through Government income, backed securities,
through securities and Securities and municipal and foreign currencies and
securities and other repurchase convertible repurchase agreements
repurchase securities agreements securities, collateralized by
agreements representing collateralized foreign U.S. Government
collateralized an interest in by currencies and Securities or certain
by or such repurchase foreign government
U.S. collateralized securities. agreements securities.
Government by mortgage collateralized
Securities. loans. by U.S.
Government
Securities.
------------------------------------------------------------------------------------------------------------
BENCHMARK 6-month and 1- 2-Year U.S. Lehman Lehman JP Morgan Global
year U.S. Treasury Brothers Brothers Government Bond Index
Treasury security 3-Year Aggregate Bond (hedged)
security Municipal Bond Index
Index
- -------------------------------------------------------------------------------------------------------------
</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 to the Core Fixed Income and Global Income Funds, foreign
exchange conditions, so that an investment in any of the Funds may be worth
more or less when redeemed than when purchased. None of the Funds should be
relied upon as a complete investment program. There can be no assurance that
a Fund's investment 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.
2
<PAGE>
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.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investment in
domestic securities. The risks of foreign investments and currencies include
changes in relative currency exchange rates, political and economic
developments, the imposition of exchange controls, confiscation and other
governmental restrictions. In addition, the securities markets of foreign
countries are generally less liquid and subject to greater price volatility.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures, and swap transactions,
will subject a Fund to greater risk than funds that do not employ such
techniques.
Non-Diversification. 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 acts as administrator to the Global Income Fund and
serves as the Investment Adviser to the Short Duration Tax-Free, Core Fixed
Income and Global Income Funds. Goldman Sachs Asset Management International
serves as subadviser to the Global Income Fund. As of January 31, 1996, the
Investment Advisers, together with their affiliates, acted as investment
adviser, administrator or distributor for assets in excess of $57 billion.
3
<PAGE>
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?
It is expected that all purchasers of Service Shares of a Fund will be
Service Organizations or their nominees. Customers of Service Organizations
may invest in Service Shares only through their Service Organizations.
Service Shares of a Fund are purchased by Service Organizations through
Goldman Sachs 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 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".
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
FUND DIVIDENDS
---- ------------------ CAPITAL GAINS
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
Core Fixed Income........................... Daily Monthly Annually
Global Income .............................. Monthly Monthly Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional shares
of the same class of the Fund in which you have invested or you may elect to
receive cash, shares of the same class of other mutual funds sponsored by
Goldman Sachs or the corresponding class of any portfolio of Goldman Sachs
Money Market Trust. For further information concerning dividends, see
"Dividends".
4
<PAGE>
FEES AND EXPENSES (SERVICE SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION CORE FIXED GLOBAL
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME
FUND FUND TAX-FREE FUND FUND FUND
--------------- -------------- -------------- ---------- ------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on
Purchases............ none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none
Redemption Fees....... none none none none none
Exchange Fees......... none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
daily net assets)
Management Fees (after
fee adjustments)..... 0.40%/1/ 0.40%/2/ 0.40%/3/ 0.40%/4/ 0.59%/5/
Service Fees/6/....... 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable
limitations)......... 0.05%/1/ 0.05%/2/ 0.05%/3/ 0.05%/4/ 0.06%/5/
---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE
AND EXPENSE
LIMITATIONS)......... 0.95%/1/ 0.95%/2/ 0.95%/3/ 0.95%/4/ 1.15%/5/
==== ==== ==== ==== ====
</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 $30 $53 $117
Short Duration Government....................... $10 $30 $53 $117
Short Duration Tax-Free......................... $10 $30 $53 $117
Core Fixed Income............................... $10 $30 $53 $117
Global Income................................... $12 $37 $63 $140
</TABLE>
/1/Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Adjustable Rate Government Fund (excluding advisory fees, fees under
service plans, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.05% of the Fund's average daily net assets. The Investment
Adviser has no current intention of modifying or discontinuing any of such
limitations but may do so in the future at its discretion. Without such
limitations, "Other Expenses" and "Total Operating Expenses" attributable to
Service Shares would be 0.13% and 1.03%, respectively. Annual operating
expenses which would have been incurred by Service Shares of the Fund had
Service Shares been outstanding, during the fiscal year ended October 31,
1995 (expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.06% and 0.96%, respectively.
/2/Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed that a portion of its advisory fee (0.10% on
an annual basis) would not be imposed on Short Duration Government Fund. The
Investment Adviser also has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations,
"Management Fees," "Other Expenses" and "Total Operating Expenses"
5
<PAGE>
attributable to Service Shares would be 0.50%, 0.22% and 1.22%, respectively.
Annual operating expenses which would have been incurred by Service Shares of
the Fund had Service Shares been outstanding, during the fiscal year ended
October 31, 1995 (expressed as a percentage of average daily net assets after
fee adjustments) were "Management Fees", "Other Expenses" and "Total
Operating Expenses" of 0.40%, 0.05% and 0.95%, respectively.
/3/Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Short Duration Tax-Free Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations,"Other
Expenses" and "Total Operating Expenses" attributable to Service Shares
would be 0.37% and 1.27%, respectively. Annual operating expenses incurred
by Service Shares of the Fund during the fiscal year ended October 31, 1995
(expressed as a percentage of average daily net assets after fee
adjustments) were "Management Fees", "Other Expenses" and "Total Operating
Expenses" of 0.40%, 0.05% and 0.95%, respectively.
/4/Based upon estimated amounts for the current fiscal year. The Investment
Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
of Core Fixed Income Fund (excluding advisory fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.05%
of the Fund's average daily net assets. The Investment Adviser has no
current intention of modifying or discontinuing any of such limitations but
may do so in the future at its discretion. Without such limitations, "Other
Expenses" and "Total Operating Expenses" attributable to Service Shares
would be 0.56% and 1.46%, respectively. Annual operating expenses which
would have been incurred by Service Shares of the Fund had Service Shares
been outstanding, during the fiscal year ended October 31, 1995 (expressed
as a percentage of average daily net assets after fee adjustments) were
"Management Fees", "Other Expenses" and "Total Operating Expenses" of 0.40%,
0.05% and 0.95%, respectively.
/5/Based upon estimated amounts for the current fiscal year. "Management Fees"
paid by Global Income Fund include advisory, subadvisory and administration
fees of 0.12%, 0.32% and 0.15% respectively. The Investment Advisers have
voluntarily agreed to limit their advisory and subadvisory fees to such
amounts. Without such limitations, advisory and subadvisory fees would be
0.25% and 0.50%, respectively. The Investment Advisers have also voluntarily
agreed to reduce or limit certain "Other Expenses" of the Global Income Fund
(excluding advisory, subadvisory, administration fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the extent such expenses exceed 0.06%
of the Fund's average daily net assets. Goldman Sachs and the Investment
Advisers have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, Global Income Fund's "Management Fees", "Other Expenses" and
"Total Operating Expenses" attributable to Service Shares would be 0.90%,
0.14% and 1.54%, respectively. Annual operating expenses which would have
been incurred by Service Shares of the Fund had Service Shares been
outstanding, during the fiscal year ended October 31, 1995 (expressed as a
percentage of average daily net assets after fee adjustments) were
"Management Fees", "Other Expenses" and "Total Operating Expenses" of 0.55%,
0.10% and 1.15%, respectively.
/6/Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Service Shares in connection
with their customer accounts. See "Additional Services". Investors should be
aware that, due to the service fees, a long-term shareholder in the Fund may
pay over time more than the economic equivalent of the maximum front end
sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
The information set forth in the foregoing table and hypothetical example
relates only to Service Shares of the Funds. Short Duration Government Fund,
Short Duration Tax-Free Fund and Core Fixed Income Fund also offer
Institutional Shares and Administration Shares; Adjustable Rate Government
Fund also offers Institutional Shares, Administration Shares and Class A
Shares; and Global Income Fund also offers Institutional Shares, Class A
Shares and Class B Shares. The other classes of the Funds are subject to
different fees and expenses (which affects performance), have different
minimum investment requirements and are entitled to different services.
Information regarding any other class of the Funds may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover page of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of a Fund that an investor will bear directly
or indirectly. The information on fees and expenses included in the table and
the hypothetical example above are based on estimated fees and expenses for
the current fiscal year and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management -- Investment Advisers, Subadviser and
Administrator".
6
<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 October 31, 1995 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $ 9.74 $0.5630(c) $0.0717 (c) -- $0.6347(c)
1995--Administration
Shares.......... 9.74 0.5366(c) 0.0737 (c) -- 0.6103(c)
1995--Class A
Shares (d)...... 9.79 0.2721(c) (0.0090)(c) -- 0.2631(c)
1994--Institutional
Shares.......... 10.00 0.4341(c) (0.2455)(c) -- 0.1886(c)
1994--Administration
Shares.......... 10.00 0.4211(c) (0.2572)(c) -- 0.1639(c)
1993--Institutional
Shares.......... 10.04 0.4397 (0.0376)(a) -- 0.4021
1993--Administration
Shares(f)....... 10.02 0.2146 (0.0173)(a) -- 0.1973
1992--Institutional
Shares.......... 10.03 0.5599 (0.0029)(a) -- 0.5570
FOR THE PERIOD JULY 17, 1991(g) THROUGH OCTOBER 31,
1991--Institutional
Shares.......... 10.00 0.1531 0.0322 (a) -- 0.1853
<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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $(0.5759) $-- $(0.0287) $-- $-- $(0.6046)
1995--Administration
Shares.......... (0.5528) -- (0.0275) -- -- (0.5803)
1995--Class A
Shares (d)...... (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(f)....... (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)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
ADJUSTABLE RATE GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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 (d)...... (0.0200) 9.77 2.74 0.69(e) 5.87(e) 24.12 15,203 1.01(e) 5.55(e)
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(f)....... (0.0200) 10.00 2.01(k) 0.70(e) 3.81(e) 103.74 5,326 0.73(e) 3.78(e)
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(k) 0.20(e) 7.31(e) 145.67(e) 239,642 1.02(e) 6.49(e)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--
Institutional
Shares.......... $ 9.64 $0.6652(c) $ 0.1666 (c) $-- $0.8318(c)
1995--Administration
Shares.......... 9.64 0.2384(c) (0.0433)(c) -- 0.1951(c)
1994--
Institutional
Shares.......... 10.14 0.5628(c) (0.4592)(c) -- 0.1036(c)
1994--Administration
Shares.......... 10.14 0.5329(c) (0.4539)(c) -- 0.0790(c)
1993--
Institutional
Shares.......... 10.16 0.5627 (0.0135)(a) -- 0.5492
1993--Administration
Shares(f)....... 10.23 0.2725 (0.0900)(a) -- 0.1825
1992--
Institutional
Shares.......... 10.22 0.6703 (0.0600)(a) -- 0.6103
1991--
Institutional
Shares.......... 10.00 0.8020 0.2200 (a) -- 1.0220
1990--
Institutional
Shares.......... 10.07 0.8300 (0.0700)(a) -- 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(a) -- 0.2800
<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 YEARS ENDED OCTOBER 31,
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(f)....... (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)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITAITONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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(e) 7.91(e) 292.56 -- 0.90(e) 7.71(e)
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(f)....... (0.0900) 10.14 1.74 0.70(e) 4.84(e) 411.66 16,490 0.80(e) 4.74(e)
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 0.55(e) 8.55(e) 167.00(e) 39,052 1.42(e) 7.68(e)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEARS ENDED OCTOBER 31,
1995--Institutional
Shares.......... $ 9.79 $0.4235(c) $0.1500 (c) $-- $0.5735 (c)
1995--Administration
Shares.......... 9.79 0.3989(c) 0.1500 (c) -- 0.5489 (c)
1995--Service
Shares.......... 9.79 0.3744(c) 0.1600 (c) -- 0.5344 (c)
1994--Institutional
Shares.......... 10.23 0.3787(c) (0.3575)(c) -- 0.0212 (c)
1994--Administration
Shares.......... 10.23 0.3537(c) (0.3575)(c) -- (0.0038)(c)
1994--Service
Shares(i)....... 9.86 0.0475(c) (0.0700)(c) -- (0.0225)(c)
1993--Institutional
Shares.......... 9.93 0.3834 0.3000 (a) -- 0.6834
1993--Administration
Shares(i)....... 10.16 0.1555 0.0720 (a) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... 10.00 0.0341 (0.0700)(a) -- (0.0359)
<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 YEARS ENDED OCTOBER 31,
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(i)....... (0.0475) -- -- -- -- (0.0475)
1993--Institutional
Shares.......... (0.3834) -- -- -- -- (0.3834)
1993--Administration
Shares(i)....... (0.1555) -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... (0.0341) -- -- -- -- (0.0341)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
SHORT DURATION TAX-FREE FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
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(i)....... (0.0700) 9.79 (0.32)(k) 0.95(e) 4.30(e) 354.00 44 1.11(e) 4.14(e)
1993--Institutional
Shares.......... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993--Administration
Shares(i)....... 0.0720 10.23 2.28 (k) 0.70(e) 3.32(e) 404.60 911 1.07(e) 2.95(e)
FOR THE PERIOD OCTOBER 1, 1992(g) THROUGH OCTOBER 31,
1992--Institutional
Shares.......... (0.0700) 9.93 (0.34)(k) 0.05(e) 4.58(e) 31.19(k) 14,601 2.68(e) 1.95(e)
</TABLE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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 YEAR ENDED OCTOBER 31,
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)
<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 YEAR ENDED OCTOBER 31,
1995--Institutional
Shares.......... (0.6433) -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(g) THROUGH OCTOBER 31,
1994--Institutional
Shares.......... (0.4648) -- -- -- -- (0.4648)
<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(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1995--Institutional
Shares.......... 0.7600 10.00 15.72 0.45 6.56 383.26(j) 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(e) 6.48(e) 288.25(j) 24,508 1.46(e) 5.47(e)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
NET REALIZED
AND NET
UNREALIZED REALIZED 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
--------- ---------- ------------ ------------ ----------
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $13.43 $0.89 $0.92 $0.15 $1.96
1995--Institutional
shares (l)...... 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>
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
---------- ------------ ---------- ------------ ------- -------------
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $(0.94) $-- $-- $-- $-- $(0.94)
1995--Institutional
shares (l)...... (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>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
----------------------
RATIO OF RATIO OF
NET NET NET NET
INCREASE RATIO OF INVESTMENT ASSETS INVESTMENT
(DECREASE) NET ASSET NET INCOME AT END RATIO OF INCOME
IN NET VALUE AT EXPENSES (LOSS) PORTFOLIO OF EXPENSES (LOSS)
ASSET END OF TOTAL TO AVERAGE TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
VALUE PERIOD RETURN(b) NET ASSETS NET ASSETS RATE(j) (IN 000'S) NET ASSETS NET ASSETS
---------- --------- --------- ---------- ---------- --------- ---------- ---------- ----------
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1995--Class A
shares.......... $1.02 $14.45 15.08% 1.29% 6.23% 265.86% $245,835 1.58% 5.94%
1995--Institutional
shares (l)...... 0.36 14.45 4.42 0.65(e) 6.01(e) 265.86 31,619 1.08(e) 5.58(e)
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(k) 1.72(k) 34.22 388,744 0.44(k) 1.66(k)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period. For Class
A shares only, total return would be reduced if a sales charge were taken
into account.
(c) Calculated based on the average shares outstanding methodology.
(d) Class A shares commenced operations on May 15, 1995.
(e) Annualized.
(f) Administration share activity commenced on April 15, 1993.
(g) Commencement of operations.
(h) Short Duration Government Administration shares were redeemed in full on
February 23, 1995. Amount shown represents net asset value on February 23,
1995.
(i) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(j) Includes the effect of mortgage dollar roll transactions.
(k) Not annualized.
(l) Institutional shares commenced operations on August 1, 1995.
10
<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, 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 the
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 6-month to 1-year
U.S. Treasury security. In addition, under normal interest rate conditions,
the Fund's maximum duration will not exceed 2 years. The approximate interest
rate sensitivity of the Fund is comparable to a 9-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.
11
<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, 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 gain.
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 (currently 1.8 years). In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed 3
years. The approximate interest rate sensitivity of the Fund is comparable to
a 2-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, 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 3-
year Municipal Bond Index, plus or minus .5 years (currently 2.8 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 4 years. The approximate interest rate sensitivity of the Fund
is comparable to a 3-year bond.
12
<PAGE>
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 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 and may increase liability
for the corporate environmental 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 A by S&P or Moody's. 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,
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. Shareholders may be subject to
state, local or foreign taxes on such income received from the Fund. See
"Description of Securities".
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 1 year (currently, 4.7 years). In
addition, under normal interest rate conditions, the Fund's maximum duration
will not exceed 6 years. The approximate interest rate sensitivity of the Fund
is comparable to a 5-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. 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.
13
<PAGE>
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 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 currency
transactions to seek to hedge its exposure to foreign currencies. 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, 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 (currently 5.0 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 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 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 enhance returns and for the purpose of hedging its portfolio.
14
<PAGE>
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 net 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 currency transactions both to
seek to enhance returns for a given level of risk and to seek to hedge its
exposure to foreign currencies. While the Fund will have both long and short
currency positions, its net long and short foreign currency exposure will not
exceed the value of the Fund's total assets. 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, mortgage dollar rolls, repurchase
agreements and other investment practices desired 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
any other foreign country.
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
15
<PAGE>
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.
CORPORATE DEBT OBLIGATIONS
The Core Fixed Income and Global Income 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 Fund may invest in convertible securities, which may
include corporate notes or preferred stock but are ordinarily long-term debt
obligations of an issuer convertible at a stated exchange rate into common
stock of the issuer. As with all debt securities, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the
price of the convertible security tends to reflect the value of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which the Core Fixed Income Fund invests will be
subject to the same rating criteria as its other investments in fixed income
securities.
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 the 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
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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, Core Fixed Income and
Global Income 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 Core Fixed Income and
Global Income 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, Core
Fixed Income and Global Income 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, Core Fixed Income and Global Income 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. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of a Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage loans are generally higher than prevailing market yields on
other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
ASSET-BACKED SECURITIES
The Core Fixed Income and Global Income Funds may 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.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income Fund, 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 Fund's
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
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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 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 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.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Core Fixed Income and Global Income Funds may invest
in fixed income securities of foreign issuers denominated in any currency.
However, the Core Fixed Income Fund will limit its investments in non-U.S.
dollar-denominated fixed income securities to 25% of its total assets. This
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 U.S. dollar-denominated securities of
domestic issuers. Such investments may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate 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 exchange rate for the currency in
which a Fund receives interest payments declines against the U.S. dollar
before such income is distributed as dividends to shareholders, the Fund may
have to sell portfolio securities to obtain sufficient cash to pay such
dividends. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such
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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 and Global Income 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. Most 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 taxes on dividend or interest payments, 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 CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income and Global Income Funds will usually involve currencies of
foreign countries, and because the Global Income Fund may have currency
exposure independent of its securities positions, the value of the assets of a
Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may 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. The Global
Income 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 Global Income Fund may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Adviser determines that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or the Global Income Fund enters into a forward foreign currency
exchange contract to sell foreign currency to seek to increase total return,
the Fund will be required to place and maintain cash or liquid, high grade
debt securities in a segregated account with the Fund's custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. A Fund will incur costs in connection with conversions
between various currencies. The Global Income 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 United
States 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 authorized for use by the
Funds 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 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.
STRUCTURED SECURITIES
The Core Fixed Income and Global Income 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 the
Fund's investment. Structured securities may be positively or negatively
indexed, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In
addition, changes in the interest rates or the value of the security at
maturity may be a multiple of changes in the value of the Reference.
Consequently, structured securities may entail a greater degree of market risk
than other types of fixed income securities. Structured securities may also be
more volatile, less liquid and more difficult to accurately price than less
complex securities.
ZERO COUPON, DEFERRED INTEREST 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. 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
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 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 the Fund's ability to acquire and dispose of Municipal Securities
at desirable yield and price levels.
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, 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) securities on a
specified future date. During the roll period, a Fund loses the right to
receive principal and interest paid on the securities sold. However, a Fund
may benefit from the interest earned on the cash proceeds of the securities
sold until the settlement date of the forward purchase. Each Fund will hold
and maintain in a segregated account until the settlement date cash or liquid,
high grade debt securities in an amount equal to the forward purchase price.
The benefits derived from the use of mortgage dollar rolls depend upon the
Investment Adviser's ability to manage mortgage prepayments. There is no
assurance that mortgage dollar rolls can be successfully employed. For
financial reporting and tax purposes, each Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. The 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
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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 and Global Income 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 Global Income Fund may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency,
if there is a pattern of correlation between the two currencies. As with other
kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. 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
Global Income Fund may purchase call or put options on currency to seek to
increase total return when the Investment Adviser anticipates that the
currency will appreciate or depreciate in value, but the securities quoted or
denominated in that currency do not present attractive investment
opportunities and are not held in the 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 a
Fund will be traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTACTS 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 (but only for hedging purposes) and Global
Income Funds, currency exchange rates, each Fund may purchase and sell various
kinds of futures contracts, and purchase and write call and put options on any
of such futures contracts. Each Fund may also enter into closing purchase and
sale transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income and
Global Income 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 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
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to segregate and maintain cash or liquid, high grade debt securities with a
value equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment 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 and Global Income Funds may enter into
currency swaps for hedging purposes and the Global Income Fund may also enter
into currency swaps 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 take 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, swap transactions, 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 the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's transactions in certain derivative
transactions may be limited by the requirements of the Internal Revenue Code
(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
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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 3-day settlement. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until 3 days prior to settlement date, cash or liquid, high grade
debt securities in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
LLIQUID 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, certain over-the-counter options, and
certain restricted securities, unless it is determined, based upon the
continuing review of the trading markets for a specific restricted security,
that such restricted security is eligible for sale under Rule 144A and,
therefore, is liquid. The Board of Trustees has adopted guidelines and
delegated to the Investment Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board of Trustees,
however, retains oversight focusing on factors such as valuation, liquidity
and availability of information and is ultimately responsible for each
determination. Investing in restricted securities eligible for resale pursuant
to Rule 144A 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 Global Income Fund 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 of the Trust 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 advisory 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 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 Fund may for temporary defensive purposes depart from its
stated investment objective and invest more than 20% of its net assets in
taxable investments which would subject such income to taxation.
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MISCELLANEOUS TECHNIQUES
In addition to the techniques described above, each Fund may, with respect
to no more than 5% of its total assets, engage in the following techniques:
(i) portfolio securities lending, (ii) mortgage swaps (other than Short
Duration Tax-Free Fund) and interest rate swaps, caps, floors and collars,
(iii) inverse floating rate securities, (iv) yield curve options, (v)
investments in other investment companies, (vi) custodial receipts, (vii) with
respect to the Short Duration Tax-Free Fund, tender option bonds and standby
commitments and (viii) with respect to the Core Fixed Income Fund, investments
in securities of issuers in countries with emerging markets and economies. 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 can not be changed without
approval of a majority of the outstanding shares of that Fund. All investment
objectives and policies not specifically designated as fundamental are non-
fundamental and may be changed without shareholder approval. If there is a
change in a Fund's investment objectives, shareholders should consider whether
the Fund still remains an appropriate investment in light of their then
current financial positions and needs.
The Short Duration Tax-Free Fund's policy to invest, under normal market
conditions, at least 80% of its 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-DIVERSIFICATION STATUS. Since the Global Income Fund is "non-
diversified" under the Act, it is subject only to certain federal tax
diversification requirements. Under federal tax laws, the Global Income Fund
may, with respect to 50% of its total assets, invest up to 25% of its total
assets in the securities of any issuer (except that this limitation does not
apply to U.S. Government Securities). With respect to the remaining 50% of the
Fund's total assets, (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than the U.S. Government),
and (2) the Fund may not acquire more than 10% of the outstanding voting
securities of any one issuer. These tests apply at the end of each quarter of
its taxable year and are subject to certain conditions and limitations under
the Code. 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 and Core Fixed Income 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. 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
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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 Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Investment Advisers, administrator,
distributor and transfer agent. The officers of the Trust conduct and
supervise each Fund's daily business operations. The Additional Statement
contains information as to the identity of, and other information about, the
Trustees and officers of the Trust.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
INVESTMENT ADVISERS AND SUBADVISER. Goldman Sachs Funds Management, L.P.,
One New York Plaza, New York, New York 10004, a Delaware limited partnership
which is an affiliate of Goldman Sachs, serves as the investment adviser to
the Short Duration Government and Adjustable Rate 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 and Core Fixed Income Funds and
investment adviser and administrator to the Global Income Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 140 Fleet Street, London EC4A 2BJ, England, an affiliate of
Goldman Sachs, serves as the subadviser to the Global Income Fund. Goldman
Sachs Asset Management International became a member of the Investment
Management Regulatory Organization Limited in 1990 and registered as an
investment adviser in 1991. As of January 31, 1996, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $57 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the Global Income Fund under a
Subadvisory Agreement, the subadviser, subject to the general supervision of
the Board of Trustees, provides day-to-day advice as to the Fund's portfolio
transactions. Goldman Sachs has agreed to permit the Trust to use the name
"Goldman Sachs" or a derivative thereof as part of each Fund's name for as
long as a Fund's Investment Advisory 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.
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 joined the Investment Adviser in 1990 after working in the
trading and arbitrage group of Franklin Savings Association.
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CORE FIXED INCOME FUND. The Fund's 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
joined the Investment Adviser in 1992 after spending nine years managing fixed
income assets at Brown Brothers Harriman & Co.
SHORT DURATION TAX-FREE FUND. The Fund's portfolio manager is Benjamin S.
Thompson. Mr. Thompson specializes in municipal securities, where his
responsibilities include developing investment strategy and structuring
portfolios. Mr. Thompson worked in the institutional sales and marketing group
at 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.
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. Prior to his employment at Invesco, Mr. Fitzgerald
spent three years with Foreign and Colonial Management Limited in London
managing fixed income and derivative funds, and, prior to that, in the
treasury department of NRMA Insurance Limited in Sydney. 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.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Investment Advisory Agreements, GSFM is entitled to a fee
from the Short Duration Government and Adjustable Rate Government Funds,
computed daily and payable monthly, at the annual rates of 0.50% and 0.40%,
respectively, of average daily net assets; however, GSFM is currently only
imposing its advisory fee with respect to the Short Duration Government Fund
at the annual rate of 0.40% of average daily net assets. As compensation for
its services rendered and assumption of certain expenses pursuant to separate
Investment Advisory Agreements, GSAM is entitled to a fee from the Short
Duration Tax-Free, Core Fixed Income and Global Income Funds, computed daily
and payable monthly, at the annual rates of 0.40%, 0.40% and 0.25%,
respectively, of average daily net assets; however, GSAM is currently only
imposing its advisory fee with respect to the Global Income Fund at the annual
rate of 0.12% of average daily net assets. As compensation for its services
rendered and assumption of certain expenses pursuant to a Subadvisory
Agreement, GSAMI is entitled to a fee from the Global Income Fund, computed
daily and payable monthly at the annual rate of 0.50% of average daily net
assets; however, GSAMI is currently only imposing its subadvisory fee with
respect to the Global Income Fund at the annual rate of 0.32% of average daily
net assets. The Investment Advisers may discontinue or modify such limitations
in the future at their discretion, although the Investment Advisers have no
current intention to
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do so. For the fiscal year ended October 31, 1995, the Short Duration
Government, Adjustable Rate Government, Short Duration Tax-Free and Core Fixed
Income Funds paid fees at the foregoing rates. At various times during the
fiscal year ended October 31, 1995, GSAM and GSAMI waived part of their
investment advisory and subadvisory fees, respectively, for the Global Income
Fund. The average rate for the period paid by the Global Income Fund to GSAM
and GSAMI was 0.22% and 0.45%, respectively. Without giving effect to fee
limitations, the aggregate management fees paid by the Global Income Fund are
higher than the fees paid by most funds but the Investment Adviser and
subadviser believe such fees are comparable to management fees paid by funds
with similar investment strategies.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it by a Fund (to the extent of its fees) by the amount (if any) that the
Fund's expenses would exceed the applicable expense limitations imposed by
state securities administrators. See "Management -- Expenses" in the
Additional Statement. In addition, the Investment Advisers to the Short
Duration Government, Adjustable Rate Government, Short Duration Tax-Free, Core
Fixed Income and Global Income Funds have voluntarily agreed to reduce or
limit certain "Other Expenses" of such Funds (excluding any applicable fees
payable by the Fund classes to service organizations, administration, advisory
and subadvisory fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses to the extent such expenses
exceed 0.05%, 0.05%, 0.05%, 0.05% and 0.06% 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.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with the Global Income Fund, GSAM provides personnel for supervisory,
administrative, and clerical functions; oversees the performance of
administrative and professional services to the Global Income Fund by others;
provides office facilities; and prepares, but does not pay for, reports to
shareholders, the SEC and other regulatory authorities. As compensation for
the services rendered to the Global Income Fund, GSAM is entitled to a fee,
computed daily and payable monthly, at an annual rate equal to 0.15% of such
Fund's average daily net assets. For the period ended October 31, 1995, the
Global Income Fund paid GSAM a fee for administration services at the
foregoing rate. GSAM has agreed to reduce its fees payable by the Fund (to the
extent of its fees) by the amount (if any) that the Fund's expenses exceed the
applicable expense limitations imposed by state securities administrators. See
"Management -- Expenses" in the Additional Statement.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts and Funds achieve significant profits on their trading for
proprietary or other accounts. From time to time, a Fund's activities may be
limited
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because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management -- Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois 60606 also serves as each Fund's transfer agent (the
"Transfer Agent") and as such performs various shareholder servicing
functions. Shareholders with inquiries regarding any Fund should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus. Goldman Sachs is not entitled
to receive a fee from the Global Income Fund for transfer agency services.
Goldman Sachs is entitled to receive a fee from the Short Duration Government,
Short Duration Tax-Free and Core Fixed Income Funds equal to 0.04% of the
average daily net assets of each Fund. Goldman Sachs is entitled to receive a
fee from the Adjustable Rate Government Fund 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 agents)
applicable to Class A shares plus 0.04% of the average daily net assets of the
other classes of the Adjustable Rate Government Fund.
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 Fund's net investment income. From
time to time a portion of such dividends may constitute a return of capital.
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
the Fund's net asset value as of 3:00 p.m. Chicago time. On days on which net
asset value is not calculated, such determination is made as of 3:00 p.m.
Chicago time.
Payment of dividends (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 the Fund at the net asset value on such day, unless cash
distributions are elected, in which case, cash payment will be made on the
first Business Day of the succeeding month. 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
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date for a particular dividend or distribution. If cash dividends are elected
with respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long term capital gains
component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of 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 (or portions
thereof) of taxable income or realized appreciation on such shares may be
taxable to the investor even if the net asset value of the shares is, as a
result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time) 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 Trust's Board of 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 Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition to the above, each Fund
may from time to time advertise its performance relative to certain
performance rankings and indices.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of
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net investment income for these purposes may differ from the net investment
income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free Fund's tax-free yield. Tax
equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's
tax-exempt yield by one minus a stated federal and/or state tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust" below.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was organized under
the laws of The Commonwealth of Massachusetts on September 24, 1987 as a
Massachusetts business trust under an Agreement and Declaration of Trust, as
amended (the "Trust Agreement"). Under the Trust Agreement, the Trustees are
authorized to issue an unlimited number of shares of beneficial interest,
$.001 par value per share. The Trustees of the Trust are responsible for the
overall management and supervision of its affairs. The Trustees of the Trust
have authority to create and classify shares of beneficial interest in
separate series, without further action by shareholders. Additional series may
be added in the future. The Trustees have authorization to classify or
reclassify any series or portfolio of shares into one or more classes. The
Short Duration Government, Short Duration Tax-Free and Core Fixed Income Funds
each offer Institutional Shares, Administration Shares and Service Shares. The
Adjustable Rate Government Fund offers Institutional Shares, Administration
Shares, Service Shares and Class A shares. The Global Income Fund offers
Institutional Shares, Service Shares, Class A shares and Class B shares.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.
As of November 30, 1995, 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 & Trust Company--
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Goldman Sachs Employee Trust--One Enterprise Drive, No. Quincy, MA 02171
(30.64%) and Short Duration Tax-Free Fund--MGIC, Attn: James McGinnis, P.O.
Box 297, Milwaukee, WI 53201 (27.16%).
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of independent accountants. Shareholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding shares
and the Trustees must promptly call a meeting for such purpose when requested
to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Trust. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. The Board of Trustees, however,
will call a special meeting for the purpose of electing Trustees if, at any
time, less than a majority of Trustees holding office at the time were elected
by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
Under Massachusetts law, there exists a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Trust Agreement
contains provisions intended to limit such liability and to provide
indemnification out of Trust property of any shareholder charged or held
personally liable for obligations or liabilities of the Trust solely by reason
of being or having been a shareholder of the Trust and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected
or intends to elect to be treated as a regulated investment company and to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of
the Code so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Short Duration Tax-Free Fund that are
attributable to interest on tax-exempt obligations and that the Fund properly
designates as exempt-interest dividends will be exempt from regular federal
income tax, although all or a portion of such a distribution may be subject to
the federal alternative minimum tax and the entire distribution may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Persons who are "substantial users" (or related
persons to such substantial users) of facilities financed by industrial
development or certain private activity bonds should consult
34
<PAGE>
their own tax advisers before purchasing shares of the Short Duration Tax-Free
Fund. Interest on indebtedness incurred or continued to purchase or carry
shares of the Short Duration Tax-Free Fund is not deductible to the extent
attributable to the Short Duration Tax-Free Fund's distributions that are
exempt-interest dividends.
Dividends paid by a Fund from taxable net investment income, certain net
realized foreign exchange gains, the excess of net short-term capital gain
over net long-term capital loss and original issue discount (except tax-exempt
original issue discount earned by the Short Duration Tax-Free Fund) 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. 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 on which a
shareholder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable distributions, redemptions
and exchanges if they fail to furnish their correct taxpayer identification
number and certain certifications required by the Internal Revenue Services or
if they are otherwise subject to backup withholding. Individuals, corporations
and other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to non-resident alien withholding at
the rate of 30% (or a lower rate provided by an applicable tax treaty) on
amounts treated as ordinary dividends from the Funds.
The Core Fixed Income and Global Income Funds may be subject to foreign
withholding or other foreign taxes on income or gain from certain foreign
securities. If more than 50% of the value of its total assets is comprised of
stock or securities of foreign corporations at the end of its taxable year and
the Fund so elects, shareholders will include in their gross incomes (in
addition to dividends they receive) their pro rata shares of qualified foreign
taxes paid by the Fund and may be entitled to take federal income tax credits
or deductions with respect to such taxes. It is not expected that the Core
Fixed Income Fund will qualify to make this election. If either 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. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt
municipal obligations issued by or on behalf of the particular state or a
political subdivision thereof, provided in some states that certain thresholds
for holdings of such obligations and/or reporting requirements are satisfied.
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
35
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
36
<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 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.
For the fiscal year ended October 31, 1995, the Trust, on behalf of the
Short Duration Tax-Free Fund, paid the Service Organizations fees at the
annual rate of 0.50% of the Fund's average daily net assets attributable to
Service Shares. No Service Shares of the other Funds were outstanding during
the period.
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 (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Service Shares in connection
with their customer accounts. These fees would be in addition to any amounts
received by the Service Organization under a Service Agreement and may affect
the return earned on an investment in the Fund. The Trust, on behalf of the
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.
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 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.
37
<PAGE>
PURCHASE OF SERVICE SHARES
It is expected that all direct purchasers of Service Shares of the Funds
will be Service Organizations or their nominees. Customers of Service
Organizations may invest in Service Shares only through their Service
Organizations. Service Shares may be purchased by a Service Organization
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 3:00 p.m. Chicago
time (4:00 p.m. New York time), an order is received from a Service
Organization by Goldman Sachs, the price per share will be the net asset value
per share computed on the day the purchase order is received. See "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 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 a check drawn
on a foreign bank will not be accepted) or Federal Reserve draft made payable
to "Goldman Sachs Trust--Name of Fund" and should be directed to Goldman Sachs
Trust--Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606.
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 a check drawn on a foreign bank
will not be accepted) or Federal Reserve draft made payable to "Goldman Sachs
Trust--Goldman Sachs Global Income Fund" and should be directed to "Goldman
Sachs Trust--Goldman Sachs Global Income Fund" 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 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 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:
38
<PAGE>
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received from a Service Organization by Goldman Sachs by 3:00 p.m. Chicago
time 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 Northern.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a check or Federal Reserve
draft is received by Goldman Sachs by 3:00 p.m. Chicago time, shares will
be issued and dividends will begin to accrue on the purchased shares on the
Business Day after the date payment is received.
The Funds reserve the right to redeem Service Shares of any Service
Organization whose account balance is less than $100 ($50 in the case of
Global Income Fund) as a result of earlier redemptions. Such redemptions will
not be implemented if the value of such shareholder's account falls below the
minimum account balance solely as a result of market conditions. The Trust
will give sixty (60) days prior written notice to Service Organizations whose
Service Shares are being redeemed to allow them to purchase sufficient
additional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserve the right to reject or restrict any
specific purchase order (including exchanges) by a particular purchaser (or
group of related purchasers). This may occur for example, when a 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 the Funds.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by Service Organizations for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the corresponding
class of any portfolio of Goldman Sachs Money Market Trust at the net asset
value next determined either by writing to Goldman Sachs, Attention: Goldman
Sachs Trust--Name of Fund, c/o GSAM Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares or units and consider its investment objective,
policies and applicable fees before making an exchange. Service Shares
acquired by telephone exchange must be registered in the same 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 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 portfolio of Goldman Sachs Money
Market Trust received in the exchange. Shareholders should consult their own
tax advisers concerning the tax consequences of an exchange. Exchanges are
available only in states where exchanges may legally be made. The exchange
privilege may be modified or withdrawn at any time on sixty (60) days' written
notice to recordholders of Service Shares and is subject to certain
limitations. See "Purchase of Service Shares".
39
<PAGE>
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder
of such Shares on any Business Day at the net asset value next determined
after the receipt by the Transfer Agent of such request in proper form. See
"Net Asset Value". 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 writing to or calling the Transfer Agent at the
address or telephone number set forth on the cover page of this Prospectus. A
Service Organization may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form. It
may be difficult to implement redemptions by telephone in times of drastic
economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the account Information Form.
Other procedures may be implemented from time to time. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the
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.
40
<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
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIP-1SS-GST /2K/0396
- ------------------------------------------------
- ------------------------------------------------
THE GOLDMAN SACHS
FIXED INCOME
PORTFOLIOS
- ------------------------------------------------
PROSPECTUS
SERVICE SHARES
[LOGO] Goldman
Sachs
- ------------------------------------------------
- ------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
GS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectus for the Class A Shares and Class B Shares of GS Adjustable Rate
Government Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Government
Income Fund, and Goldman Sachs Global Income Fund dated February 28, 1997, as
amended and/or supplemented from time to time, which may be obtained without
charge from Goldman, Sachs & Co. by calling the telephone number, or writing to
one of the addresses, listed below. Goldman Sachs Adjustable Rate Government
Fund currently does not offer Class B Shares. This Additional Statement
describes each series of Goldman Sachs Trust, not all of which offer Class A and
Class B Shares.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-117
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends B-118
Distribution and Authorized Dealer Service Plans B-119
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>
The date of this Additional Statement is February 28, 1997.
<PAGE>
GOLDMAN SACHS TRUST GOLDMAN, SACHS & CO.
4900 SEARS TOWER DISTRIBUTOR
CHICAGO, ILLINOIS 60606 85 BROAD STREET
NEW YORK, NY 10004
GOLDMAN SACHS ASSET MANAGEMENT
ADVISER TO GOLDMAN SACHS MUNICIPAL
INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE 4900 SEARS TOWER
RATE GOVERNMENT FUND CHICAGO, ILLINOIS 60606
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ ENGLAND
TOLL FREE .......800-526-7384
<PAGE>
OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS,EXCHANGES AND DIVIDENDS
The following information supplements the information in the
Prospectus under the captions "How to Invest," "How to Sell Shares of the
Funds" and "Dividends." Please see the Prospectus for more complete
information.
OTHER PURCHASE INFORMATION
If shares of a Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Funds will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Dealer to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the
account or to obtain information about the account. The transfer of shares
in a "street name" account to an account with another dealer or to an account
directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares
in the account from the Authorized Dealer.
RIGHT OF ACCUMULATION - (CLASS A)
A Class A shareholder qualifies for cumulative quantity discounts
if the current purchase price of the new investment plus the shareholder's
current holdings of existing Class A Shares (acquired by purchase or
exchange) of the Funds and Class A Shares of any other Goldman Sachs
Portfolio (as defined in the Prospectus) total the requisite amount for
receiving a discount. For example, if a shareholder owns shares with a
current market value of $65,000 and purchases additional Class A Shares of
any Fund with a purchase price of $45,000, the sales charge for the $45,000
purchase would be 3.0% (the rate applicable to a single purchase of more than
$100,000). Class A Shares purchased without the imposition of a sales charge
and shares of another class of the Funds may not be aggregated with Class A
Shares purchased subject to a sales charge. Class A Shares of the Funds and
any other Goldman Sachs Portfolio purchased (i) by an individual, his spouse
and his minor children, and (ii) by a trustee, guardian or other fiduciary of
a single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for such right of
accumulation and, if qualifying, the applicable sales charge level. For
purposes of applying the right of accumulation, shares of the Funds and any
other Goldman Sachs Portfolio purchased by an existing client of the Private
Client Services Division of Goldman Sachs will be combined with Class A
Shares held by any other account over which such client or the client's
spouse
B-119
<PAGE>
exercises investment or voting power. In addition, Class A Shares of the
Funds and Class A Shares of any other Goldman Sachs Portfolio purchased by
partners, directors, officers or employees of the same business organization
or by groups of individuals represented by and investing on the
recommendation of the same accounting firm or other similar organization
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation
and, if qualifying, the applicable sales charge level. This right of
accumulation is subject to the following conditions: (i) the business
organization's or firm's agreement to cooperate in the offering of the Funds'
shares to eligible persons; and (ii) notification to the Funds at the time of
purchase that the investor is eligible for this right of accumulation.
STATEMENT OF INTENTION - (CLASS A)
If a shareholder anticipates purchasing at least $100,000 of Class
A Shares of a Fund alone or in combination with Class A Shares of any other
Goldman Sachs Portfolio within a 13-month period, the shareholder may
purchase shares of the Fund at a reduced sales charge by submitting a
Statement of Intention (the "Statement"). Shares purchased pursuant to a
Statement will be eligible for the same sales charge discount that would have
been available if all of the purchases had been made at the same time. The
shareholder or his Authorized Dealer must inform Goldman Sachs that the
Statement is in effect each time shares are purchased. There is no
obligation to purchase the full amount of shares indicated in the Statement.
A shareholder may include the value of all Class A Shares on which a sales
charge has previously been paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on
Class A Shares purchased within ninety (90) days before submitting the
Statement. The Statement authorizes the Transfer Agent to hold in escrow a
sufficient number of shares which can be redeemed to make up any difference
in the sales charge on the amount actually invested. For purposes of
satisfying the amount specified on the Statement, the gross amount of each
investment, exclusive of any appreciation on shares previously purchased,
will be taken into account.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A Fund shareholder should obtain and read the prospectus relating
to any other Fund, Goldman Sachs Portfolio or ILA Portfolio (as defined in
the Prospectus) and its shares or units and consider its investment
objective, policies and applicable fees before electing cross-reinvestment
into that Fund or Portfolio. The election to cross-reinvest dividends and
capital gain distributions will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the
shareholder and then used to purchase shares of the acquired fund. Such
reinvestment of dividends and distributions in shares of other
B-120
<PAGE>
Goldman Sachs Portfolios or in units of ILA Portfolios is available only in
states where such reinvestment may legally be made.
AUTOMATIC EXCHANGE PROGRAM
A Fund shareholder may elect cross-reinvestment into an identical
account or an account registered in a different name or with a different
address, social security or other taxpayer identification number, provided
that the account in the acquired fund has been established, appropriate
signatures have been obtained and the minimum initial investment requirement
has been satisfied. A Fund shareholder should obtain and read the prospectus
relating to any other Goldman Sachs Portfolio and its shares and consider its
investment objective, policies and applicable fees and expenses before
electing an automatic exchange into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $5,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares
to provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the
right to initiate a fee of up to $5 per withdrawal, upon thirty (30) days
written notice to the shareholder. Withdrawal payments should not be
considered to be dividends, yield or income. If periodic withdrawals
continuously exceed new purchases and reinvested dividends and capital gains
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. The maintenance of a withdrawal plan
concurrently with purchases of additional Class A or Class B shares would be
disadvantageous because of the sales charge imposed on purchases of Class A
shares or the imposition of a CDSC on redemptions of Class A and Class B
shares. The CDSC applicable to Class B shares redeemed under a systematic
withdrawal plan may be waived. See "How to Invest--Waiver or Reduction of
Contingent Deferred Sales Charge" in the Prospectus. In addition, each
withdrawal constitutes a redemption of shares, and any gain or loss realized
must be reported for federal and state income tax purposes. A shareholder
should consult his or her own tax adviser with regard to the tax consequences
of participating in the
B-121
<PAGE>
Systematic Withdrawal Plan. For further information or to request a
Systematic Withdrawal Plan, please write or call the Transfer Agent.
OFFERING PRICE OF CLASS A SHARES
Class A Shares of each Fund are sold at a maximum sales charge of
4.5%, except for the Adjustable Rate Fund which is 1.5%. Using the offering
price as of October 31, 1996, the maximum offering price of the class A
shares of each Fund's shares would be as follows:
<TABLE>
<CAPTION>
Net Asset Maximum Offering Price
Value Sales Charge to Public
--------- ------------ --------------
<S> <C> <C> <C>
Adjustable Rate Fund $ 9.82 $0.15 $ 9.97
Municipal Income Fund $14.37 $0.68 $15.05
Government Income Fund $14.36 $0.68 $15.04
Global Income Fund $14.53 $0.68 $15.21
</TABLE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
CLASS A DISTRIBUTION PLANS. As described in the Prospectus, the Trust
with respect to the Class A Shares of each Fund has adopted a distribution plan
(the "Class A Plans") pursuant to Rule 12b-1 under the Act. See "Distribution
and Authorized Dealer Service Plans" in the Prospectus.
The Class A Plans were most recently approved on April 24, 1996 by a
majority vote of the Trustees of the Trust, including a majority of the non-
interested Trustees of the Trust who have no direct or indirect financial
interest in the Class A Plans, cast in person at a meeting called for the
purpose of approving the Plans. The Plans were approved by the sole initial
shareholder of Class A Shares of Adjustable Rate Fund on May 12, 1995, Municipal
Income Fund on July 16, 1993, Government Income Fund on January 29, 1993 and
Global Income Fund on December 5, 1991.
The compensation payable under the Class A Plans may not exceed 0.25%
per annum of each Fund's average daily net assets attributable to its Class A
Shares. Currently, Goldman Sachs is waiving its entire fee under the Class A
Plans applicable to each Fund other than Global Income Fund and is limiting the
fee payable by Global Income Fund to 0.21% of average daily net assets
attributable to Class A Shares. Goldman Sachs has no current intention of
modifying or discontinuing such waivers and limitation, but may do so in the
future at its discretion.
B-122
<PAGE>
Effective June 30, 1995, each Class A Plan was amended to reduce the
fee payable under the Plan from 0.50% to 0.25% of a Fund's average daily net
assets attributable to Class A Shares. At the same time, each Fund adopted an
Authorized Dealer Service Plan. See "Authorized Dealer Service Plans." For the
fiscal years ended October 31, 1996, 1995 and 1994, each Fund paid Goldman Sachs
the following amounts under the Class A Plans:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
Adjustable Rate $ $ $
Government Fund
with fee waivers 0 0 N/A
without fee waivers 30,905 17,967 N/A
Municipal Income Fund
with fee waivers 0 70,023 85,242
without fee waivers 131,925 195,152 217,701
Government Income Fund
with fee waivers 0 25,630 14,350
without fee waivers 73,949 76,499 65,604
Global Income Fund
with fee waivers 493,170 645,259 1,518,814
without fee waivers 549,164 1,257,211 3,037,628
</TABLE>
Goldman Sachs may pay up to the entire amount of such fee under the Plans
to Authorized Dealers for providing services in connection with the sale of each
Fund's shares. To the extent such fee is not paid to such dealers, Goldman
Sachs may retain such fee as compensation for its services and expenses incurred
in accordance with the Plans of distributing a Fund's shares. If such fee
exceeds its expenses, Goldman Sachs may realize a profit from these
arrangements.
The Plans are compensation plans which provide for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If a Plan were terminated by the Trustees of the Trust and no successor plan
were adopted, the Fund would cease to make payments under the Plan to Goldman
Sachs and Goldman Sachs would be unable to recover the amount of any of its
unreimbursed expenditures. However, Goldman Sachs does not intend to make
expenditures for which it may be compensated under a Plan at a rate that
materially exceeds the rate of compensation received under the Plan.
During the fiscal year ended October 31, 1996, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan on
behalf of each Fund (Goldman Sachs used
B-123
<PAGE>
the fees, if any, received under the Plan in the same proportion to the amounts
set forth below).
<TABLE>
<CAPTION>
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution of
October 31, 1996 of the Telephone Prospectuses Sales Literature
Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
<S> <C> <C> <C> <C> <C>
Adjustable
Rate Fund/1/ N/A N/A N/A N/A N/A
Municipal
Income Fund/2/ N/A N/A N/A N/A N/A
Government
Income Fund/2/ N/A N/A N/A N/A N/A
Global
Income Fund 0 $274,757 $116,417 $36,868 $102,215
</TABLE>
_________________________
/1/ No expenses are reflected for Class A shares of Adjustable Rate Fund.
Since inception of this class, Goldman Sachs has waived the 0.25% Class A Plan
fee; no revenue has therefore been earned for the period.
/2/ Commencing June 1, 1995, Goldman Sachs is waiving the 0.25% Class A Plan
fee; as no distribution revenue has therefore been earned after June 1, 1995, no
expenses are reflected above.
Under the Class A Plans, Goldman Sachs, as distributor of each Fund's Class
A Shares, will provide to the Trustees of the Trust for their review, and the
Trustees of the Trust will review at least quarterly a written report of the
services provided and amounts expended by Goldman Sachs under the Plans and the
purposes for which such services were performed and expenditures were made.
The Class A Plans will remain in effect until June 1, 1997 and from year to
year thereafter, provided such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Class A Plans. A Class A Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval of a
majority of the outstanding Class A Shares of the applicable Fund. All material
amendments of the Class A Plan must also be approved by the Trustees of the
Trust in the manner described above. A Class A Plan may be terminated at any
time without
B-124
<PAGE>
payment of any penalty by a vote of a majority of the non-interested Trustees of
the Trust or by vote of a majority of the Class A Shares of the applicable Fund.
So long as a Class A Plan is in effect, the selection and nomination of non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees of the Trust. The Trustees of the Trust have determined
that in their judgment there is a reasonable likelihood that the Plans will
benefit the Funds and their Class A Shareholders.
AUTHORIZED DEALER SERVICE PLAN. As described in the Prospectus, the Trust
with respect to each Fund has adopted non-Rule 12b-1 Authorized Dealer Service
Plans (the "Service Plans") with respect to Class A Shares and Class B Shares.
See "Distribution and Authorized Dealer Service Plans" in the Prospectus.
The compensation under the Service Plans may not exceed 0.25% per annum of
the average daily net assets attributable to the class of shares to which the
plan relates. Up to the entire amount of the fee under the Service Plans may be
paid to Authorized Dealers for providing personal and account maintenance
services in connection with each Fund's Shares. Under the Service Plans,
Goldman Sachs will provide to the Trustees for their review at least quarterly a
written report of the services provided and amount expended under the Service
Plans.
For the fiscal years ended October 31, 1996 and October 31, 1995 each Fund
paid Goldman Sachs the following amounts under its Service Plan with respect to
its Class A Shares and Class B shares:
B-124
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
1996 1995 1996
-------- ------- ------
<S> <C> <C> <C>
Adjustable Rate Fund $ 30,905 17,967 $ N/A
Municipal Income Fund 131,925 55,106 126
Government Income Fund 74,060 25,239 111
Global Income Fund 549,164 281,949 125
</TABLE>
The Service Plans applicable to Class A Shares and Class B Shares were most
recently approved on April 24, 1996 by a majority of the Board of Trustees of
the Trust. The Service Plans will remain in effect until June 1, 1997 and from
year to year thereafter, provided that such continuance is approved annually by
a majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Service Plans.
CLASS B DISTRIBUTION PLAN. As described in the Prospectus, the Trust has
adopted on behalf of Municipal Income Fund, Government Income Fund and Global
Income Fund, distribution plans (the "Class B Plans") pursuant to Rule 12b-1
under the Act with respect to Class B Shares. See "Distribution and Authorized
Dealer Service Plans" in the Prospectus.
The Class B Plans were approved on January 30, 1996 on behalf of the Trust
by a majority vote of the Trust's Board of Trustees, including a majority of the
Trustees who are not interested persons of the Trust and have no direct or
indirect financial interest in the Class B Plans (the "non-interested
Trustees"), cast in person at a meeting called for the purpose of approving the
Class B Plans.
With respect to each Fund, the compensation payable under the Class B Plans
is equal to 0.75% per annum of the average daily net assets attributable to
Class B Shares of that Fund. The fees received by Goldman Sachs under the Class
B Plans and contingent deferred sales charge on Class B Shares may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of Class B Shares. To the extent such
fee is not paid to such dealers, Goldman Sachs may retain such fee as
compensation for its services and expenses of distributing the Funds' Class B
Shares. If such fee exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements.
For the fiscal years ended October 31, 1996, each Fund paid Goldman Sachs
the following amounts under the Class B Plans:
B-125
<PAGE>
<TABLE>
<CAPTION>
1996
----
<S> <C>
Municipal Income Fund
with fee waivers 126
without fee waivers 126
Government Income Fund
with fee waivers 332
without fee waivers 332
Global Income Fund
with fee waivers 374
without fee waivers 374
</TABLE>
Goldman Sachs may pay up to the entire amount of such fee under the Plans
to Authorized Dealers for providing services in connection with the sale of each
Fund's shares. To the extent such fee is not paid to such dealers, Goldman
Sachs may retain such fee as compensation for its services and expenses incurred
in accordance with the Plans of distributing a Fund's shares. If such fee
exceeds its expenses, Goldman Sachs may realize a profit from these
arrangements.
The Class B Plans are compensation plans which provide for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class B Plans were terminated by the Trust's
Board of Trustees and no successor plan were adopted, the Funds would cease to
make distribution payments to Goldman Sachs and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
During the fiscal year ended October 31, 1996, Goldman Sachs incurred the
following expenses in connection with distribution under the Class B Plan on
behalf of each Fund (Goldman Sachs used the fees, if any, received under the
Plan in the same proportion to the amounts set forth below).
<TABLE>
<CAPTION>
Fiscal Year Compensation Compensation Allocable Printing and Preparation and
ended to Dealers and Expenses Overhead, Mailing of Distribution of
October 31, 1996 of the Telephone Prospectuses Sales Literature
Distributor and Travel to Other than and Advertising
and its Sales Expenses Current
Personnel Shareholders
<S> <C> <C> <C> <C> <C>
Municipal
Income Fund/2/ $241(1) N/A N/A N/A N/A
Government
Income Fund/2/ $299(1) N/A N/A N/A N/A
</TABLE>
B-126
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Global
Income Fund $247(1) N/A N/A N/A N/A
</TABLE>
Advance commissions paid to dealers of 4% on Class B sales are considered
deferred assets which are amortized over a period of 6 years; amounts presented
above reflect amortization expense recorded during the period presented.
Under the Class B Plans, Goldman Sachs, as distributor of the Funds' shares,
will provide to the Board of Trustees for its review, and the Board will review
at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class B Plans and the purposes for which
such services were performed and expenditures were made.
The Class B Plans will remain in effect with respect to the Funds from year to
year, provided such continuance is approved annually by a majority vote of the
Board of Trustees, including a majority of the non-interested Trustees. A Class
B Plan may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class B Shares of that Fund. All material amendments of the Class B
Plan must also be approved by the Board of Trustees of the Trust in the manner
described above. With respect to any Fund, a Class B Plan may be terminated at
any time without payment of any penalty by a vote of the majority of the non-
interested Trustees or by vote of a majority of the outstanding voting
securities of the Class B Shares of that Fund. So long as a Class B Plan is in
effect, the selection and nomination of non-interested Trustees shall be
committed to the discretion of the non-interested Trustees. The Trustees have
determined that in their judgment there is a reasonable likelihood that the
Class B Plans will benefit each Fund and their respective Class B shareholders.
B-127
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
ADMINISTRATION SHARES
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectuses for the Administration Shares of each of GS Adjustable Rate
Government Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free
Fund and GS Core Fixed Income, each dated February 28, 1997, as amended and/or
supplemented from time to time (each a "Prospectus"), which may be obtained
without charge from institutions ("Service Organizations") that hold
Administration Shares for the benefit of their customers, or from Goldman, Sachs
& Co. by calling the telephone number, or writing to one of the addresses,
listed below. Goldman Sachs Global Income Fund does not offer Administration
Shares.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-117
Administration Plan B-118
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
</TABLE>
The date of this Additional Statement is February 28, 1997.
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND AND GS CORE FIXED 85 BROAD STREET
INCOME FUND NEW YORK, NEW YORK 10004
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE RATE 4900 SEARS TOWER
GOVERNMENT FUND CHICAGO, ILLINOIS 60606
AND GS SHORT DURATION
GOVERNMENT FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
TOLL FREE .......800-621-2550
<PAGE>
ADMINISTRATION PLAN
Each Fund has adopted an administration plan (the "Plan") with respect
to its Administration Shares which authorizes it to compensate Service
Organizations for providing certain account administration services to their
customers who are beneficial owners of such Shares. Pursuant to the Plans, a
Fund enters into agreements with Service Organizations which purchase
Administration Shares on behalf of their customers ("Service Agreements").
Under such Service Agreements the Service Organizations may perform some or all
of the following services: (a) act, directly or through an agent, as the sole
shareholder of record and nominee for all customers, (b) maintain account
records for each customer who beneficially owns Administration Shares of a Fund,
(c) answer questions and handle correspondence from customers regarding their
accounts, (d) process customer orders to purchase, redeem and exchange
Administration Shares of a Fund and handle the transmission of funds
representing the customers' purchase price or redemption proceeds, and (e) issue
confirmations for transactions in shares by customers. As compensation for such
services, a Fund will pay each Service Organization an account administration
fee in an amount up to 0.25% (on an annualized basis) of the average daily net
assets of the Administration Shares of such Fund attributable to or held in the
name of such Service Organization. For the fiscal years ended October 31, 1996,
1995 and 1994, administration fees accrued by the Funds were as follows:
<TABLE>
<CAPTION>
Fund 1996 1995 1994
- ---- ------ ------- -------
<S> <C> <C> <C>
Adjustable Rate Fund $9,833 $12,632 $17,648
Core Fund $ 741 * *
Short Duration Government Fund $ 107 $ 425 $28,422
Short Duration Tax-Free Fund $ 129 $ 1,244 $13,825
- ------------------
</TABLE>
* No Administration Shares of Core Fund were outstanding at October 31, 1995
and October 31, 1994.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Administration Shares of a Fund. Service Organizations, including
banks regulated by the Comptroller of the Currency, the Federal Reserve Board or
the Federal Deposit Insurance Corporation, and investment advisers and other
money managers subject to the jurisdiction of the SEC, the Department of Labor
or state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Administration Shares of a Fund. In addition,
under some state securities laws, banks and other financial institutions
purchasing Administration Shares on behalf of their customers may be required to
register as dealers.
B-119
<PAGE>
The Plans with respect to Adjustable Rate Fund, Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fund were approved by The Goldman
Sachs Group, L.P., as the sole shareholder of Administration Shares of each
Fund. The Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, most
recently voted to approve each Plan and Service Agreements at a meeting called
for the purpose of voting on such Plans and Service Agreements on April 24,
1996. The Plans and Service Agreements will remain in effect until June 30, 1997
and will continue in effect thereafter only if such continuance is specifically
approved annually by a vote of the Board of Trustees in the manner described
above. No Plan may be amended to increase materially the amount to be spent for
the services described therein without approval of the Administration
Shareholders of the applicable Fund and all material amendments of the Plans
must also be approved by the Board of Trustees in the manner described above.
Each Plan may be terminated at any time by a majority of the Board of Trustees
as described above or by vote of a majority of the outstanding Administration
Shares of the applicable Fund. The Service Agreements may be terminated at any
time, without payment of any penalty, by a vote of a majority of the Board of
Trustees as described above or by a vote of a majority of the outstanding
Administration Shares of the applicable Fund on not more than sixty (60) days'
written notice to any other party to the Service Agreements. The Service
Agreements will terminate automatically if assigned. So long as the Plans are in
effect, the selection and nomination of those Trustees who are not interested
persons will be committed to the discretion of the Trust's Nominating Committee,
which consists of all of the non-interested members of the Board of Trustees.
The Board of Trustees has determined that, in its judgment, there is a
reasonable likelihood that each Fund's Plan will benefit such Fund and the
holders of its Administration Shares. In the Board of Trustees' quarterly review
of the Plans and Service Agreements, the Board will consider continued
appropriateness and the level of compensation provided therein.
B-120
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is
not a prospectus. This Additional Statement should be read in conjunction with
the prospectuses for the Service Shares of each of GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS
Core Fixed Income and Goldman Sachs Global Income Fund, each dated February 28,
1997, as amended and/or supplemented from time to time (each a "Prospectus"),
which may be obtained without charge from institutions ("Service Organizations")
that hold Service Shares for the benefit of their customers, or by calling
Goldman, Sachs & Co. at the telephone number, or writing to one of the
addresses, listed below.
TABLE OF CONTENTS
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-91
Taxation B-92
Performance Information B-104
Other Information B-116
Financial Statements B-117
Service Plan B-118
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
The date of this Additional Statement is February 28, 1997.
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND, GS CORE FIXED 85 BROAD STREET
INCOME FUND AND GOLDMAN SACHS NEW YORK, NEW YORK 10004
GLOBAL INCOME FUND AND ADMINISTRATOR
TO GOLDMAN SACHS GLOBAL INCOME FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE RATE 4900 SEARS TOWER
GOVERNMENT FUND CHICAGO, ILLINOIS 60606
AND GS SHORT DURATION
GOVERNMENT FUND GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA INTERNATIONAL
NEW YORK, NEW YORK 10004 SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ, ENGLAND
TOLL FREE (IN U.S.) .......800-621-2550
<PAGE>
SERVICE PLAN
Each Fund has adopted a service plan (the "Plan") with respect to its
Service Shares which authorizes it to compensate Service Organizations for
providing certain administration services and personal and account maintenance
services to their customers who are or may become beneficial owners of such
Shares. Pursuant to the Plan, a Fund will enter into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund, (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from a Fund, working with a Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, a Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization; provided, however, that the fee paid for
personal and account maintenance services shall not exceed 0.25% such average
daily net assets. For the fiscal years ended October 31, 1996, October 31, 1995
and October 31, 1994, services fees were paid by the Funds as follows:
B-119
<PAGE>
Fund 1996 1995 1994
- ---- ---- ---- ----
Adjustable Rate Fund (1) (1) (1)
Short Duration Government Fund $ 1,222 (2) (2)
Short Duration Tax-Free Fund $ 2,322 $ 1,797 $ 325
Core Fund $ 422 (3) (3)
Global Income Fund (4) (4) (4)
- -------------------
(1) No Service Shares of Adjustable Rate Fund were outstanding at October 31,
1996, 1995 and 1994.
(2) No Service Shares of Short Duration Government Fund were outstanding at
October 31, 1995 and 1994.
(3) No Service Shares of Core Fund were outstanding at October 31, 1995 and
1994.
(4) No Service Shares of Global Income Fund were outstanding at October 31,
1996, 1995 and 1994.
Each Fund has adopted its Plan pursuant to Rule 12b-1 under the 1940 Act
in order to avoid any possibility that payments to the Service Organizations
pursuant to the Service Agreements might violate the 1940 Act. Rule 12b-1, which
was adopted by the SEC under the Act, regulates the circumstances under which an
investment company or series thereof may bear expenses associated with the
distribution of its shares. In particular, such an investment company or series
thereof cannot engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of shares issued by the company unless
it has adopted a plan pursuant to, and complies with the other requirements of,
such Rule. The Trust believes that fees paid for the services provided in the
Plan and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distribution securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with the Funds, such Service Organizations might be required to
alter materially or discontinue the services performed under their Service
Agreements. If one or more of the Service Organizations were restricted from
effecting purchases or sales of Service Shares automatically pursuant to
pre-authorized instructions, for example, effecting such transactions on a
manual
B-120
<PAGE>
basis might affect the size and/or growth of a Fund. Any such alteration or
discontinuance of services could require the Board of Trustees to consider
changing a Fund's method of operations or providing alternative means of
offering Service Shares of a Fund to customers of such Service Organizations, in
which case the operation of such Fund, its size and/or its growth might be
significantly altered. It is not anticipated, however, that any alternation of a
Fund's operations would have any effect on the net asset value per share or
result in financial losses to any shareholder.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of such Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities regulators, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of the Funds.
The Plans with respect to Adjustable Rate Fund, Short Duration Government
Fund, Short Duration Tax-Free Fund and Core Fund were approved by The Goldman
Sachs Group, L.P., as the sole shareholder of Service Shares of each Fund. The
Trustees, including a majority of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or the related Service Agreements, most recently voted to approve
each Fund's Plan and Service Agreements (except Global Fund) at a meeting called
for the purpose of voting on such Plans and Service Agreements on April 24,
1996. The Trustees most recently voted to approve the Plan and Service
Agreements for the Global Fund at a meeting held on April 24, 1996. Each Plan
and Service Agreement will remain in effect until June 30, 1997 and will
continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Board of Trustees in the manner described above. No
Plan may be amended to increase materially the amount to be spent for the
services described therein without approval of the Service Shareholders of the
applicable Fund, and all material amendments of each Plan must also be approved
by the Board of Trustees in the manner described above. Each Plan may be
terminated at any time by a majority of the Board of Trustees as described above
or by vote of a majority of the outstanding Service Shares of the applicable
Fund. The Service Agreements may be terminated at any time, without payment of
any penalty, by vote of a majority of the Board of Trustees as described above
or by a vote of a majority of the outstanding Service Shares of the applicable
Fund on not more than sixty (60) days' written notice to any other party to the
Service Agreements. The Service Agreements will terminate automatically if
assigned.
B-121
<PAGE>
So long as the Plans are in effect, the selection and nomination of those
Trustees who are not interested persons will be committed to the discretion of
the Trust's Nominating Committee, which consists of all of the non-interested
members of the Board of Trustees. The Board of Trustees has determined that, in
its judgment, there is a reasonable likelihood that a Fund's Plan will benefit
such Fund and its holders of Service Shares. In the Board of Trustees' quarterly
review of the Plans and Service Agreements, the Board will consider their
continued appropriateness and the level of compensation provided therein.
B-122
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
GS ADJUSTABLE RATE GOVERNMENT FUND
GS SHORT DURATION GOVERNMENT FUND
GS SHORT DURATION TAX-FREE FUND
GS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
(EACH A PORTFOLIO OF GOLDMAN SACHS TRUST)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement describes each of the above-referenced
series of Goldman Sachs Trust. This Additional Statement should be read in
conjunction with the prospectus for the Institutional Shares of GS Adjustable
Rate Government Fund, GS Short Duration Government Fund, GS Short Duration
Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income Fund,
dated February 28, 1997, as amended and/or supplemented from time to time (the
"Prospectus"), which may be obtained without charge from Goldman, Sachs & Co.
by calling the telephone number, or writing to one of the addresses, listed
below.
TABLE OF CONTENTS
Introduction B-3
Other Investments and Practices B-10
Investment Restrictions B-53
Management B-70
Portfolio Transactions B-86
Shares of the Trust B-87
Net Asset Value B-92
Taxation B-93
Performance Information B-105
Other Information B-117
Financial Statements B-118
Appendix A 1-A
Appendix B 1-B
Appendix C 1-C
The date of this Additional Statement is February 28, 1997.
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN, SACHS & CO.
ADVISER TO GS SHORT DURATION DISTRIBUTOR
TAX-FREE FUND; GS CORE 85 BROAD STREET
FIXED INCOME FUND AND NEW YORK, NEW YORK 10004
GOLDMAN SACHS GLOBAL INCOME
FUND AND ADMINISTRATOR TO
GOLDMAN SACHS GLOBAL INCOME
FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS GOLDMAN, SACHS & CO.
MANAGEMENT, L.P. TRANSFER AGENT
ADVISER TO GS ADJUSTABLE 4900 SEARS TOWER
RATE GOVERNMENT FUND CHICAGO, ILLINOIS 60606
AND GS SHORT DURATION
GOVERNMENT FUND
ONE NEW YORK PLAZA GOLDMAN SACHS ASSET
NEW YORK, NEW YORK 10004 MANAGEMENT INTERNATIONAL
SUBADVISER TO GOLDMAN SACHS
GLOBAL INCOME FUND
140 FLEET STREET
LONDON EC4A 2BJ, ENGLAND
TOLL FREE (IN U.S.) .......800-621-2550
B-2
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") was organized under the laws of The
Commonwealth of Massachusetts on September 24, 1987 as a Massachusetts business
trust. The Trust assumed its current name on March 22, 1991. The Trustees of the
Trust have authority under the Declaration of Trust to create and classify
shares into separate series and to classify and reclassify any series of shares
into one or more classes without further action by shareholders. Pursuant
thereto, the Trustees have created GS Adjustable Rate Government Fund
("Adjustable Rate Fund"), GS Core Fixed Income Fund ("Core Fund"), Goldman Sachs
Global Income Fund ("Global Income Fund"), Goldman Sachs Government Income Fund
("Government Income Fund"), Goldman Sachs Municipal Income Fund ("Municipal
Income Fund"), GS Short Duration Tax-Free Fund ("Short Duration Tax-Free Fund")
and GS Short Duration Government Fund ("Short Duration Government Fund").
Adjustable Rate Fund, Core Fund, Global Income Fund, Government Income Fund,
Municipal Income Fund, Short Duration Tax-Free Fund and Short Duration
Government Fund are each sometimes referred to herein as a "Fund" and
collectively as the "Funds." Short Duration Government Fund, Short Duration Tax-
Free Fund and Core Fund are each authorized to issue three classes of shares:
Institutional Shares, Administration Shares and Service Shares. Adjustable Rate
Fund is authorized to issue four classes of shares: Institutional Shares,
Administration Shares, Service Shares and Class A Shares. Global Income Fund is
authorized to issue four classes of shares: Institutional Shares, Service
Shares, Class A Shares and Class B Shares. Government Income Fund and Municipal
Income Fund are each authorized to issue two classes of shares: Class A Shares
and Class B Shares.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the investment adviser to
Core Fund, Global Income Fund, Government Income Fund, Municipal Income Fund
and Short Duration Tax-Free Fund. In addition, GSAM serves as Government
Income Fund's, Municipal Income Fund's and Global Income Fund's administrator.
Goldman Sachs Asset Management International ("GSAMI" or the "Subadviser"), an
affiliate of Goldman Sachs, serves as subadviser to the Global Income Fund.
Goldman Sachs Funds Management, L.P. ("FMLP"), an affiliate of Goldman Sachs,
serves as the investment adviser to Adjustable Rate Fund and Short Duration
Government Fund. GSAM, GSAMI and FMLP are each sometimes referred to herein as
the "Adviser" and collectively herein as the "Advisers." In addition, Goldman
Sachs serves as each Fund's distributor and transfer agent. Each Fund's
custodian is State Street Bank and Trust Company.
Because each Fund's shares may be redeemed upon request of a shareholder
on any business day at net asset value, the Funds offer greater liquidity than
many competing investments, such as certificates of deposit and direct
investments in certain securities in which the respective Fund may invest.
However, unlike certificates of deposits, shares of the Funds are not insured
by the Federal Deposit Insurance Corporation.
B-3
<PAGE>
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the
Prospectus for a fuller description of each Fund's investment objective and
policies. Investing in the Funds entails certain risks and there is no
assurance that a Fund will achieve its objective.
EXPERIENCED MANAGEMENT. Successfully creating and managing a
----------------------
diversified portfolio of securities requires professionals with extensive
experience. Goldman Sachs' highly skilled portfolio management team brings
together many years of experience in the analysis, valuation and trading of
U.S. and foreign fixed income securities.
ADJUSTABLE RATE FUND AND SHORT DURATION GOVERNMENT FUND
Adjustable Rate Fund and Short Duration Government Fund are both designed
for investors who seek a high level of high current income, relative stability
of principal and the high credit quality of securities issued or guaranteed by
the U.S. government or its agencies, instrumentalities or sponsored
enterprises, without incurring the administrative and accounting burdens
involved in direct investment.
Market and economic conditions may affect the investments of Adjustable
Rate Fund and Short Duration Government Fund differently than the investments
normally purchased by such investors. Relative to U.S. Treasury and
non-fluctuating money market instruments, the market value of adjustable rate
mortgage securities in which Adjustable Rate and Short Duration Government
Funds may invest may be adversely affected by increases in market interest
rates. Conversely, decreases in market interest rates may result in less
capital appreciation for adjustable rate mortgage securities in relation to
U.S. Treasury and money market investments.
HIGH CURRENT INCOME. Adjustable Rate and Short Duration Government
-------------------
Funds seek a higher current yield than a money market fund or than that offered
by bank certificates of deposit and money market accounts. However, the
Adjustable Rate and Short Duration Government Funds do not maintain a constant
net asset value per share and are subject to greater fluctuations in the value
of their shares than a money market fund. Unlike bank certificates of deposit
and money market accounts, investments in shares of the Funds are not insured
or guaranteed by any government agency. Each of the Adjustable Rate and Short
Duration Government Funds seeks to provide such high current income without
sacrificing credit quality.
RELATIVE LOW VOLATILITY OF PRINCIPAL. Adjustable Rate Fund seeks
-------------------------------------
to minimize net asset value fluctuations by investing primarily in adjustable
rate mortgage pass-through securities and other mortgage securities with
periodic interest rate resets, maintaining a maximum duration of two years and
a target duration equal to that of a six-month to one-year U.S. Treasury
security,
B-4
<PAGE>
and utilizing certain active management techniques to seek to hedge interest
rate risk. Short Duration Government Fund seeks to minimize net asset value
fluctuations by utilizing certain interest rate hedging techniques and by
maintaining a maximum duration of not more than three years. The duration
target of the Short Duration Government Fund is that of the 2-year U.S.
Treasury Security plus or minus .5 years. There is no assurance that these
strategies for the Adjustable Rate Fund and Short Duration Government Fund will
always be successful.
PROFESSIONAL MANAGEMENT AND ADMINISTRATION. Investors who invest
-------------------------------------------
in securities of the Government National Mortgage Association ("Ginnie Mae")
and other mortgage-backed securities may prefer professional management and
administration of their mortgage-backed securities portfolios. A
well-diversified portfolio of such securities emphasizing minimal fluctuation
of net asset value requires significant active management as well as
significant accounting and administrative resources. Members of Goldman Sachs'
highly skilled portfolio management team bring together many years of
experience in the analysis, valuation and trading of U.S. fixed-income
securities.
GOVERNMENT INCOME FUND
Government Income Fund is designed for investors who seek the relatively
high current income, relative safety of principal and the high credit quality
of securities issued by the U.S. government or its agencies, instrumentalities
or sponsored enterprises, without incurring the administrative and account
burdens involved in direct investment.
Government Income Fund's overall returns are generally likely to move in
the same direction as interest rates. Therefore, when interest rates decline,
Government Income Fund's return is also likely to decline. In exchange for
accepting a higher degree of share price fluctuation, investors have the
potential to achieve a higher return from the Government Income Fund than from
shorter-term investments.
High Current Income. Government Income Fund is designed to have a
-------------------
higher current yield than a money market fund, since it can invest in
longer-term, higher yielding securities, and may utilize certain investment
techniques not available to a money market fund. Similarly, Government Income
Fund's yield is expected to exceed that offered by bank certificates of deposit
and money market accounts. However, Government Income Fund does not maintain a
constant net asset value per share and is subject to greater fluctuation in the
value of its shares than a money market fund. Unlike bank certificates of
deposit and money market accounts, investments in shares of Government Income
Fund are not insured or guaranteed by any government agency. Government Income
Fund seeks to provide high current income without, however, sacrificing credit
quality.
B-5
<PAGE>
Liquidity. Because Government Income Fund's shares may be redeemed
---------
upon request of a shareholder on any business day at net asset value,
Government Income Fund offers greater liquidity than many competing investments
such as certificates of deposit and direct investments in certain securities in
which Government Income Fund may invest.
A Sophisticated Investment Process. Government Income Fund's
----------------------------------
investment process starts with a review of trends for the overall economy as
well as for different sectors of the U.S. government and mortgage-backed
securities markets. Goldman Sachs' portfolio managers then analyze yield
spreads, implied volatility and the shape of the yield curve. In planning the
Government Income Fund's portfolio investment strategies, the Adviser is able to
draw upon the economic and fixed-income research resources of Goldman Sachs. The
Adviser will use a sophisticated analytical process involving Goldman Sachs'
proprietary mortgage prepayment model and option-adjusted spread model to
structure and maintain the Government Income Fund's investment portfolio. In
determining the Government Income Fund's investment strategy and making market
timing decisions, the Adviser will have access to information from Goldman
Sachs' economists, fixed-income analysts and mortgage specialists.
Convenience of a Fund Structure. Government Income Fund eliminates
-------------------------------
many of the complications that direct ownership of U.S. government and
mortgage-backed securities entails. Government Income Fund automatically
reinvests all principal payments within the Fund and distributes only current
income each month, thereby conserving principal and eliminating the investor's
need to segregate and reinvest the principal portion of each payment on his
own.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS
Short Duration Tax-Free Fund and Municipal Income Fund (the "Tax Exempt
Funds") are not money market funds. Each is designed for investors who seek
the tax benefits associated with investing in municipal securities and who are
able to accept greater risk with the possibility of higher returns than
investors in municipal money market funds. While municipal money market funds
almost always maintain a constant net asset value, they must meet stringent
high quality credit standards, their portfolios must be broadly diversified and
their portfolio securities must have remaining maturities of 397 days or less.
An example of an "eligible" investment for the Tax Exempt Funds is auction rate
municipal securities, which generally have higher yields than money market
municipal securities, but which typically are not eligible investments for
municipal money market funds.
In addition, unlike a municipal money market fund, the Tax Exempt Funds'
increased investment flexibility permits their portfolios to be more easily
adjusted to reflect the shape of the current yield curve as well as to respond
to anticipated developments that might affect the shape of the yield curve.
B-6
<PAGE>
Investors who wish to invest in municipal securities may find that a
mutual fund structure offers some important advantages when compared to
investing in individual municipal securities, including:
. The ratings given to municipal securities by the rating
organizations are difficult to evaluate. For example, some
municipal securities with relatively low credit ratings have
yields comparable to municipal securities with much higher
ratings. The credit research professionals at Goldman Sachs
closely follow market events and are well positioned to judge
current and expected credit conditions of municipal issuers;
. Because of the relative inefficiency of the secondary market in
municipal securities, the value of an individual municipal
security is often difficult to determine. As such, investors
may obtain a wide range of different prices when asking for
quotes from different dealers. In addition, a dealer may have
a large inventory of a particular issue that it wants to
reduce. Obtaining the best overall prices can require
extensive negotiation, which is a function performed by the
portfolio manager;
. Market expertise is also an important consideration for
municipal investors, and because the Tax Exempt Funds take
relatively large positions in different securities, the Tax
Exempt Funds may be able to obtain more favorable prices in the
municipal securities market than investors with relatively
small positions; and
. Industry and geographical diversification are important
considerations for municipal investors. The Tax Exempt Funds
are designed to provide this diversification.
CORE FUND
Core Fund is designed for investors seeking a total return consisting of
both income and capital appreciation that exceeds the total return of the
Lehman Brothers Aggregate Bond Index, without incurring the administrative and
accounting burdens involved in direct investment. Such investors also prefer
liquidity, experienced professional management and administration, a
sophisticated investment process, and the convenience of a mutual fund
structure. Core Fund may be appropriate as part of a balanced investment
strategy consisting of stocks, bonds and cash or as a complement to positions
in other types of fixed-income investments.
Core Fund's overall returns are generally likely to move in the opposite
direction from interest rates. Therefore, when interest rates decline, Core
Fund's return is likely to increase. Conversely, when interest rates increase,
Core Fund's return is
B-7
<PAGE>
likely to decline. However, the Adviser believes that, given the flexibility
of managers to invest in a diversified portfolio of securities, Core Fund's
return is not likely to decline as quickly as that of other fixed-income funds
with a comparable average portfolio duration. In exchange for accepting a
higher degree of potential share price fluctuation, investors have the
opportunity to achieve a higher return from Core Fund than from shorter-term
investments.
A number of investment strategies will be used to achieve the Core Fund's
investment objective, including market sector selection, determination of yield
curve exposure, and issuer selection. In addition, the Adviser will attempt to
take advantage of pricing inefficiencies in the fixed-income markets. Market
sector selection is the underweighting or overweighting of one or more of the
five market sectors (i.e., U.S. Treasuries, U.S. government agencies, corporate
securities, mortgage-backed securities and asset-backed securities) in which
the Fund primarily invests. The decision to overweight or underweight a given
market sector is based on expectations of future yield spreads between
different sectors. Yield curve exposure strategy consists of overweighting or
underweighting different maturity sectors to take advantage of the shape of the
yield curve. Issuer selection is the purchase and sale of corporate securities
based on a corporation's current and expected credit standing. To take
advantage of price discrepancies between securities resulting from supply and
demand imbalances or other technical factors, the Fund may simultaneously
purchase and sell comparable, but not identical, securities. The 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.
A SOPHISTICATED INVESTMENT PROCESS. Core Fund will attempt to
----------------------------------
control its exposure to interest rate risk, including overall market exposure
and the spread risk of particular sectors and securities, through active
portfolio management techniques. Core Fund's investment process starts with a
review of trends for the overall economy as well as for different sectors of
the fixed-income securities markets. Goldman Sachs' portfolio managers then
analyze yield spreads, implied volatility and the shape of the yield curve. In
planning Core Fund's portfolio investment strategies, the Adviser is able to
draw upon the economic and fixed-income research resources of Goldman Sachs.
The Adviser will use a sophisticated analytical process including Goldman
Sachs' proprietary mortgage prepayment model and option-adjusted spread model
to assist in structuring and maintaining Core Fund's investment portfolio. In
determining Core Fund's investment strategy and making market timing decisions,
the Adviser will have access to input from Goldman Sachs' economists,
fixed-income analysts and mortgage specialists.
B-8
<PAGE>
GLOBAL INCOME FUND
Global Income Fund is designed for investors seeking a combination of
high income, capital appreciation, stability of principal, experienced
professional management, flexibility and liquidity. However, investing in the
Fund involves certain risks and there is no assurance that the Fund will
achieve its investment objective.
In selecting securities for the Fund, portfolio managers consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. In determining
the countries and currencies in which the Fund will invest, the Fund's
portfolio mangers form opinions based primarily on the views of Goldman Sachs'
economists as well as information provided by securities dealers, including
information relating to factors such as interest rates, inflation, monetary and
fiscal policies, taxation, and political climate. The portfolio managers apply
the Black-Litterman Model (the "Model") to their views to develop a portfolio
that produces, in the view of the Adviser, the optimal expected return for a
given level of risk. The Model factors in the opinions of the portfolio
managers, adjusting for their level of confidence in such opinions, with the
views implied by an international capital asset pricing formula. The Model is
also used to maintain the level of portfolio risk within the guidelines
established by the Adviser.
High Income. Global Income Fund's portfolio managers will seek out
-----------
the highest yielding bonds in the global fixed-income market that meet the
Global Income Fund's credit quality standards and certain other criteria.
Capital Appreciation. Investing in the foreign bond markets offers
--------------------
the potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers attempt to identify
investments with appreciation potential by carefully evaluating trends
affecting a country's currency as well as a country's fundamental economic
strength. However, there is a risk of capital depreciation as a result of
unanticipated interest rate and currency fluctuations.
Portfolio Management Flexibility. Global Income Fund is actively
--------------------------------
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the Fund's investment guidelines and often have strong
currencies and stable economies and in securities that they believe offer
favorable performance prospects.
Relative Stability of Principal. Global Income Fund may be able to
-------------------------------
reduce principal fluctuation by investing in foreign countries with economic
policies or business cycles different from those of the United States and in
foreign securities markets that do not necessarily move in the same direction
or magnitude as the U.S. market. Investing in a broad range of U.S. and
foreign fixed-income securities and currencies reduces the dependence of
the
B-9
<PAGE>
Fund's performance on developments in any particular market to the extent that
adverse events in one market are offset by favorable events in other markets.
The Fund's policy of investing primarily in high quality securities may also
reduce principal fluctuation. However, there is no assurance that these
strategies will always be successful.
Professional Management. Individual U.S. investors may prefer
-----------------------
professional management of their global bond and currency portfolios because a
well-diversified portfolio requires a large amount of capital and because the
size of the global market requires access to extensive resources and a
substantial commitment of time.
OTHER INVESTMENTS AND PRACTICES
OBLIGATIONS OF THE UNITED STATES, ITS AGENCIES, INSTRUMENTALITIES AND SPONSORED
ENTERPRISES
Each Fund may invest in U.S. government securities ("U.S. Government
Securities"), which are obligations issued or guaranteed by the U.S. government
and its agencies, instrumentalities or sponsored enterprises. Some U.S.
Government Securities (such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance) are supported
by the full faith and credit of the United States of America. Others, such as
obligations issued or guaranteed by U.S. government agencies, instrumentalities
or sponsored enterprises, are supported either by (a) the full faith and credit
of the U.S. government (such as securities of the Small Business
Administration), (b) the right of the issuer to borrow from the Treasury (such
as securities of Federal Home Loan Banks), (c) the discretionary authority of
the U.S. government to purchase the agency's obligations (such as securities of
Federal National Mortgage Association ("Fannie Mae")) or (d) only the credit of
the issuer (such as securities of the Financing Corporation). The U.S.
government is under no legal obligation, in general, to purchase the
obligations of its agencies, instrumentalities or sponsored enterprises. No
assurance can be given that the U.S. government will provide financial support
to the U.S. government agencies, instrumentalities or sponsored enterprises in
the future.
U.S. Government Securities include (to the extent consistent with the
Investment Company Act of 1940, as amended (the "Act")) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. government, or its agencies, instrumentalities or
sponsored enterprises. U.S. Government Securities also include (to the extent
consistent with the Act) participations in loans made to foreign governments or
their agencies that are guaranteed as to principal and interest by the U.S.
government or its agencies, instrumentalities or sponsored enterprises. The
secondary market for certain of these participations is extremely limited. In
the absence of a substantial secondary market, such participations are
B-10
<PAGE>
regarded as illiquid. Each Fund may also purchase U.S. Government Securities
in private placements, subject to the Fund's limitation on investment in
illiquid securities.
The Funds may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the separate trading of registered
interest and principal of securities program ("STRIPS").
CUSTODIAL RECEIPTS
Each Fund may acquire custodial receipts in respect of U.S. Government
Securities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds. These
custodial receipts are known by various names, including "Treasury Receipts,"
"Treasury Investors Growth Receipts" ("TIGRs"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). For certain securities law purposes, custodial
receipts are not considered U.S. Government Securities.
MORTGAGE LOANS AND MORTGAGE-BACKED SECURITIES
Adjustable Rate Fund, Short Duration Government Fund, Core Fund, Global
Income Fund and Government Income Fund (collectively, the "Taxable Funds") may
each invest in mortgage loans and mortgage pass-through securities and other
securities representing an interest in or collateralized by adjustable and
fixed-rate mortgage loans ("Mortgage-Backed Securities").
GENERAL CHARACTERISTICS. Each mortgage pool underlying
-----------------------
Mortgage-Backed Securities consists of mortgage loans evidenced by promissory
notes secured by first mortgages or first deeds of trust or other similar
security instruments creating a first lien on owner occupied and non-owner
occupied one-unit to four-unit residential properties, multi-family (i.e., five
or more) properties, agriculture properties, commercial properties and mixed
use properties (the "Mortgaged Properties"). The Mortgaged Properties may
consist of detached individual dwelling units, multi-family dwelling units,
individual condominiums, townhouses, duplexes, triplexes, fourplexes, row
houses, individual units in planned unit developments and other attached
dwelling units. The Mortgaged Properties may also include residential
investment properties and second homes.
The investment characteristics of adjustable and fixed rate Mortgage-
Backed Securities differ from those of traditional fixed-income securities. The
major differences include the payment of interest and principal on Mortgage-
Backed Securities on a more frequent (usually monthly) schedule, and the
possibility that principal may be prepaid at any time due to prepayments on the
underlying mortgage loans or other assets. These differences can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. As a result, a
B-11
<PAGE>
faster than expected prepayment rate will reduce both the market value and the
yield to maturity from those which were anticipated. A prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity and market value. To the extent that the Funds invest in Mortgage-
Backed Securities, the Advisers will seek to manage these potential risks by
investing in a variety of Mortgage-Backed Securities and by using certain
hedging techniques.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). ARMs generally provide
---------------------------------------
for a fixed initial mortgage interest rate for a specified period of time.
Thereafter, the interest rates (the "Mortgage Interest Rates") may be subject
to periodic adjustment based on changes in the applicable index rate (the
"Index Rate"). The adjusted rate would be equal to the Index Rate plus a fixed
percentage spread over the Index Rate established for each ARM at the time of
its origination.
Adjustable interest rates can cause payment increases that some
mortgagors may find difficult to make. However, certain ARMs may provide that
the Mortgage Interest Rate may not be adjusted to a rate above an applicable
lifetime maximum rate or below an applicable lifetime minimum rate for such
ARM. Certain ARMs may also be subject to limitations on the maximum amount by
which the Mortgage Interest Rate may adjust for any single adjustment period
(the "Maximum Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may
provide instead or as well for limitations on changes in the monthly payment on
such ARMs. Limitations on monthly payments can result in monthly payments
which are greater or less than the amount necessary to amortize a Negatively
Amortizing ARM by its maturity at the Mortgage Interest Rate in effect in any
particular month. In the event that a monthly payment is not sufficient to pay
the interest accruing on a Negatively Amortizing ARM, any such excess interest
is added to the principal balance of the loan, causing negative amortization,
and will be repaid through future monthly payments. It may take borrowers
under Negatively Amortizing ARMs longer periods of time to build up equity and
may increase the likelihood of default by such borrowers. In the event that a
monthly payment exceeds the sum of the interest accrued at the applicable
Mortgage Interest Rate and the principal payment which would have been
necessary to amortize the outstanding principal balance over the remaining term
of the loan, the excess (or "accelerated amortization") further reduces the
principal balance of the ARM. Negatively Amortizing ARMs do not provide for
the extension of their original maturity to accommodate changes in their
Mortgage Interest Rate. As a result, unless there is a periodic recalculation
of the payment amount (which there generally is), the final payment may be
substantially larger than the other payments. These limitations on periodic
increases in interest rates and on changes in monthly payments protect
borrowers from unlimited interest rate and payment increases.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a
B-12
<PAGE>
cost of funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year, three-year and five-year constant maturity
Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill
rate, rates on longer-term Treasury securities, the 11th District Federal Home
Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month,
three-month, six-month or one-year London Interbank Offered Rate, the prime rate
of a specific bank or commercial paper rates. Some indices, such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Federal Home Loan Bank Cost of Funds
index, tend to lag behind changes in market rate levels and tend to be somewhat
less volatile. The degree of volatility in the market value of each Taxable
Fund's portfolio and therefore in the net asset value of each Taxable Fund's
shares will be a function of the length of the interest rate reset periods and
the degree of volatility in the applicable indices.
Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans
-------------------------
included in a mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple
interest at fixed annual rates and have original terms to maturity ranging from
5 to 40 years. Fixed-Rate Mortgage Loans generally provide for monthly
payments of principal and interest in substantially equal installments for the
term of the mortgage note in sufficient amounts to fully amortize principal by
maturity, although certain Fixed-Rate Mortgage Loans provide for a large final
"balloon" payment upon maturity.
LEGAL CONSIDERATIONS OF MORTGAGE LOANS. The following is a
--------------------------------------
discussion of certain legal and regulatory aspects of the mortgage loans in
which the Taxable Funds may invest. These regulations may impair the ability
of a mortgage lender to enforce its rights under the mortgage documents. These
regulations may adversely affect the Funds' investments in Mortgage-Backed
Securities (including those issued or guaranteed by the U.S. government, its
agencies or instrumentalities) by delaying the Funds' receipt of payments
derived from principal or interest on mortgage loans affected by such
regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be
-----------
delayed due to compliance with statutory notice or service of process
provisions, difficulties in locating necessary parties or legal
challenges to the mortgagee's right to foreclose. Depending upon market
conditions, the ultimate proceeds of the sale of foreclosed property may
not equal the amounts owed on the Mortgage-Backed Securities.
Furthermore, courts in some cases have imposed general equitable
principles upon foreclosure generally designed to relieve the borrower
from the legal effect of default and have required lenders to undertake
affirmative and expensive actions to determine the causes for the default
and the likelihood of loan reinstatement.
B-13
<PAGE>
2. Rights of Redemption. In some states, after foreclosure of a
--------------------
mortgage loan, the borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property, which right may diminish
the mortgagee's ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure a default on a mortgage
loan, including a payment default. The court in certain instances may also
reduce the monthly payments due under such mortgage loan, change the rate
of interest, reduce the principal balance of the loan to the then-current
appraised value of the related mortgaged property, alter the mortgage loan
repayment schedule and grant priority of certain liens over the lien of
the mortgage loan. If a court relieves a borrower's obligation to repay
amounts otherwise due on a mortgage loan, the mortgage loan servicer will
not be required to advance such amounts, and any loss may be borne by the
holders of securities backed by such loans. In addition, numerous federal
and state consumer protection laws impose penalties for failure to comply
with specific requirements in connection with origination and servicing of
mortgage loans.
4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a
------------------------
so-called "due-on-sale" clause permitting acceleration of the maturity of
the mortgage loan if the borrower transfers the property. The Garn-St.
Germain Depository Institutions Act of 1982 sets forth nine specific
instances in which no mortgage lender covered by that Act may exercise a
"due-on-sale" clause upon a transfer of property. The inability to
enforce a "due-on-sale" clause or the lack of such a clause in mortgage
loan documents may result in a mortgage loan being assumed by a purchaser
of the property that bears an interest rate below the current market
rate.
5. Usury Laws. Some states prohibit charging interest on mortgage loans
----------
in excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are
------------------------------------------------
several types of guaranteed Mortgage-Backed Securities currently available,
including guaranteed mortgage pass-through certificates and multiple class
securities, which include guaranteed Real Estate Mortgage Investment Conduit
Certificates ("REMIC Certificates"), other collateralized mortgage obligations
and stripped Mortgage-Backed Securities. The Taxable Funds are permitted to
invest in other types of Mortgage-Backed Securities that may be available in
B-14
<PAGE>
the future to the extent consistent with their respective investment policies
and objectives.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
-----------------------
instrumentality of the United States authorized to guarantee the timely payment
of the principal of and interest on certificates that are based on and backed
by a pool of mortgage loans insured by the Federal Housing Administration ("FHA
Loans"), or guaranteed by the Veterans Administration ("VA Loans"), or by pools
of other eligible mortgage loans. In order to meet its obligations, Ginnie Mae
is authorized to borrow from the U.S. Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned
-----------------------
corporation chartered under an act of the U.S. Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each
Pool consists of residential mortgage loans ("Mortgage Loans") either
previously owned by Fannie Mae or purchased by it in connection with the
formation of the Pool. The Mortgage Loans may be either conventional Mortgage
Loans (i.e., not insured or guaranteed by any U.S. government agency) or
Mortgage Loans that are either insured by the FHA or guaranteed by the VA.
However, the Mortgage Loans in Fannie Mae Pools are primarily conventional
Mortgage Loans. The lenders originating and servicing the Mortgage Loans are
subject to certain eligibility requirements established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to
each Pool, Fannie Mae is obligated to distribute scheduled monthly installments
of principal and interest after Fannie Mae's servicing and guaranty fee,
whether or not received, to Certificate holders. Fannie Mae also is obligated
to distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. The Federal Home Loan Corporation
------------------------
("Freddie Mac") is a publicly held U.S. government sponsored enterprise. The
principal activity of Freddie Mac currently is the purchase of first lien,
conventional, residential mortgage loans and participation interests in such
mortgage loans and their resale in the form of mortgage securities, primarily
Freddie Mac Certificates. A Freddie Mac Certificate represents a pro rata
interest in a group of mortgage loans or participations in mortgage loans (a
"Freddie Mac Certificate group") purchased by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered
B-15
<PAGE>
Certificate holder ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. The obligations of Freddie Mac under its
guaranty of Freddie Mac Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed-rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one- to four-family residential properties
or multi-family projects. Each mortgage loan must meet the applicable
standards set forth in the law creating Freddie Mac or Fannie Mae. A Freddie
Mac Certificate group may include whole loans, participation interests in whole
loans, undivided interests in whole loans and participations comprising another
Freddie Mac Certificate group.
CONVENTIONAL MORTGAGE LOANS. The conventional mortgage loans
---------------------------
underlying the Freddie Mac and Fannie Mae Certificates consist of adjustable
rate or fixed-rate mortgage loans with original terms to maturity of between
five and thirty years. Substantially all of these mortgage loans are secured
by first liens on one- to four-family residential properties or multi-family
projects. Each mortgage loan must meet the applicable standards set forth in
the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate group
may include whole loans, participation interests in whole loans, undivided
interests in whole loans and participations comprising another Freddie Mac
Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. The Taxable Funds may invest
--------------------------------
in government guaranteed mortgage pass-through securities ("Mortgage
Pass-Throughs"), that are fixed or adjustable rate Mortgage-Backed Securities
which provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be
---------------------------
issued in one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC
B-16
<PAGE>
election has been made, certificates of such subclasses may be entitled to
payments on the basis of a stated principal balance and stated interest rate,
and payments among different subclasses may be made on a sequential, concurrent,
pro rata or disproportionate basis, or any combination thereof. The stated
- --- ----
interest rate on any such subclass of certificates may be a fixed rate or one
which varies in direct or inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion
--- ----
of principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate,
or both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related
mortgage loan and will be distributed pro rata to certificate-holders
--- ----
as principal of such mortgage loan when paid by the mortgagor in subsequent
monthly payments or at maturity.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
----------------------------------------------------------------------
OBLIGATIONS. Each Taxable Fund may invest in multiple class securities
- -----------
including collateralized mortgage obligations ("CMOs") and REMIC Certificates
issued by U.S. government agencies, instrumentalities (such as Fannie Mae) and
sponsored enterprises (such as Freddie Mac) or, in the case of Core, Global and
Government Income Funds, by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations
of a legal entity that are collateralized by, and multiple class
Mortgage-Backed Securities represent direct ownership interests in, a pool of
mortgage loans or Mortgage-Backed Securities the payments on which are used to
make payments on the CMOs or multiple class Mortgage-Backed Securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
B-17
<PAGE>
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class Mortgage-Backed Securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Funds do not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed Mortgage-Backed Securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final scheduled distribution dates. Generally, interest is
paid or accrues on all classes of CMOs or REMIC Certificates on a monthly
basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in
the order of their respective final distribution dates. Thus no payment of
principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
B-18
<PAGE>
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class certificates ("PAC Certificates"), which are parallel pay
REMIC Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes of REMIC Certificates, even
though all other principal payments and prepayments of the Mortgage Assets are
then required to be applied to one or more other classes of the Certificates.
The scheduled principal payments for the PAC Certificates generally have the
highest priority on each payment date after interest due has been paid to all
classes entitled to receive interest currently. Shortfalls, if any, are added to
the amount payable on the next payment date. The PAC Certificate payment
schedule is taken into account in calculating the final distribution date of
each class of PAC. In order to create PAC tranches, one or more tranches
generally must be created that absorb most of the volatility in the underlying
Mortgage Assets. These tranches tend to have market prices and yields that are
much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Taxable Funds may
-----------------------------------
invest in stripped Mortgage-Backed Securities ("SMBS"), which are derivative
multi-class mortgage securities, issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Core Fund, Government Income Fund and
Global Fund may also invest in privately-issued SMBS. Although the market for
such securities is increasingly liquid, privately-issued SMBS may not be
readily marketable and will be considered illiquid for purposes of each Fund's
limitation on investments in illiquid securities. The Adviser may determine
that SMBS which are U.S. Government Securities are liquid for purposes of each
Fund's limitation on investments in illiquid securities in accordance with
procedures adopted by the Board of Trustees. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from Mortgage Assets are generally higher
than prevailing market yields on other Mortgage-Backed Securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES
RATINGS. The ratings assigned by a rating organization to
-------
Mortgage Pass-Throughs address the likelihood of the receipt of all
distributions on the underlying mortgage loans by the related
certificate-holders under the agreements pursuant to which such certificates
are issued. A rating organization's ratings take into consideration the credit
quality of the related mortgage pool, including any credit support providers,
structural and legal
B-19
<PAGE>
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two
------------------
categories: (i) liquidity protection and (ii) protection against losses
resulting from default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the entity
administering the pools of mortgages, the provision of a reserve fund, or a
combination thereof, to ensure, subject to certain limitations, that scheduled
payments on the underlying pool are made in a timely fashion. Protection
against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. Such credit
support can be provided by, among other things, payment guarantees, letters of
credit, pool insurance, subordination, or any combination thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to
-------------------------------------------------
achieve ratings on one or more classes of Mortgage Pass-Throughs, one or more
classes of certificates may be subordinate certificates which provide that the
rights of the subordinate certificate-holders to receive any or a specified
portion of distributions with respect to the underlying mortgage loans may be
subordinated to the rights of the senior certificate-holders. If so
structured, the subordination feature may be enhanced by distributing to the
senior certificate-holders on certain distribution dates, as payment of
principal, a specified percentage (which generally declines over time) of all
principal payments received during the preceding prepayment period ("shifting
interest credit enhancement"). This will have the effect of accelerating the
amortization of the senior certificates while increasing the interest in the
trust fund evidenced by the subordinate certificates. Increasing the interest
of the subordinate certificates relative to that of the senior certificates is
intended to preserve the availability of the subordination provided by the
subordinate certificates. In addition, because the senior certificate-holders
in a shifting interest credit enhancement structure are entitled to receive a
percentage of principal prepayments which is greater than their proportionate
interest in the trust fund, the rate of principal prepayments on the mortgage
loans will have an even greater effect on the rate of principal payments and
the amount of interest payments on, and the yield to maturity of, the senior
certificates.
B-20
<PAGE>
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due to them and
will protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event that the Reserve Fund is depleted before
the subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from
the mortgage pool to the extent of the then outstanding subordinated amount.
Unless otherwise specified, until the subordinated amount is reduced to zero,
on any distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro
---
rata among all certificate-holders in proportion to their respective
- ----
outstanding interests in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in
------------------------------
addition to the credit enhancement afforded by subordination, credit
enhancement for Mortgage Pass-Throughs may be provided by mortgage insurance,
hazard insurance, by the deposit of cash, certificates of deposit, letters of
credit, a limited guaranty or by such other methods as are acceptable to a
rating agency. In certain circumstances, such as where credit enhancement is
provided by guarantees or a letter of credit, the security is subject to credit
risk because of its exposure to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in
------------------
payments on the mortgage loans underlying the Mortgage Pass-Throughs, the
servicer agrees to make advances of cash for the benefit of certificate-holders,
but only to the extent that it determines such voluntary advances will be
recoverable from future payments and collections on the mortgage loans or
otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option
--------------------
with respect to any certificates, repurchase all of the underlying mortgage
loans remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is
B-21
<PAGE>
less than a specified percentage (generally 5-10%) of the aggregate outstanding
principal balance of the mortgage loans as of the cut-off date specified with
respect to such series.
ASSET-BACKED SECURITIES
Core Fund, Government Income Fund and Global Income Fund may invest in
asset-backed securities. Such securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying
asset-backed securities can be expected to accelerate. Accordingly, a Fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not
be available to support payments on these securities.
ZERO COUPON, DEFERRED INTEREST AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon bonds, deferred interest and capital
appreciation bonds. Zero coupon, deferred interest and capital appreciation
bonds are debt securities issued or sold at a discount from their face value
and which do not entitle the holder to any periodic payment of interest prior
to maturity or a specified date. The original issue discount varies depending
on the time remaining until maturity or cash payment date, prevailing interest
rates, the liquidity of the security and the perceived credit quality of the
issuer. These securities also may take the form of debt securities that have
been stripped of their unmatured interest coupons, the coupons themselves or
receipts or certificates representing interests in such stripped debt
obligations or coupons. The market prices of zero coupon, deferred interest
and capital appreciation bonds generally are more volatile than the market
prices of interest bearing securities and are
B-22
<PAGE>
likely to respond to a greater degree to changes in interest rates than interest
bearing securities having similar maturities and credit quality.
Zero coupon, deferred interest and capital appreciation securities involve
the additional risk that, unlike securities that periodically pay interest to
maturity, a Fund will realize no cash until a specified future payment date
unless a portion of such securities is sold and, if the issuer of such
securities defaults, a Fund may obtain no return at all on its investment. In
addition, even though such securities do not provide for the payment of current
interest in cash, the Funds are nonetheless required to accrue income on such
investments for each taxable year and generally are required to distribute such
accrued amounts (net of deductible expenses, if any) to avoid being subject to
tax. Because no cash is generally received at the time of the accrual, a Fund
may be required to liquidate other portfolio securities to obtain sufficient
cash to satisfy federal tax distribution requirements applicable to the Fund.
See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
The interest rates payable on certain securities in which each Fund may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation. The absence of an unconditional
demand feature on variable and floating rate municipal securities exercisable
within seven days would, and the failure of the issuer or a third party to
honor its obligations under a demand or put feature might, require a variable
or floating rate obligation to be treated as illiquid for purposes of the Tax
Exempt Funds' limitation on illiquid investments.
Each Fund may invest in "leveraged" inverse floating rate debt
instruments ("inverse floaters"), including "leveraged inverse floaters." The
interest rate on inverse floaters resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index
rate of interest. The higher the degree of leverage of an inverse floater, the
greater the volatility of its market value. Accordingly, the duration of an
inverse floater may exceed its stated final maturity. Certain inverse floaters
may be deemed to be illiquid securities for purposes of each Fund's limitation
on illiquid investments.
B-23
<PAGE>
CORPORATE DEBT OBLIGATIONS
Core Fund, Global Income Fund and Government Income Fund may invest in
corporate debt obligations, including obligations of industrial, utility and
financial issuers. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.
BANK OBLIGATIONS
Government Income Fund, Global Income Fund and Core Fund may each invest
in obligations issued or guaranteed by United States and foreign banks
(Government Income Fund may only invest in U.S. dollar denominated securities).
Bank obligations, including without limitation time deposits, bankers'
acceptances and certificates of deposit, may be general obligations of the
parent bank or may be obligations only of the issuing branch pursuant to the
terms of the specific obligations or government regulation.
Banks are subject to extensive but different governmental regulations
which may limit both the amount and types of loans which may be made and
interest rates which may be charged. Foreign banks are subject to different
regulations and are permitted to engage in different activities than U.S.
banks. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
MUNICIPAL SECURITIES
Core Fund, Municipal Income Fund and Short Duration Tax-Free Fund may
invest in bonds, notes and other instruments issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies or instrumentalities
("Municipal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purposes
but not necessarily exempt from the federal alternative minimum tax or from the
income taxes of any state or local government). In addition, Municipal
Securities include participation interests in such securities the interest on
which is, in the opinion of bond counsel or counsel selected by the Adviser,
excluded from gross income for federal income tax purposes. The Core Fund,
Municipal Income Fund and Short Duration Tax-Free Fund may revise their
definition of Municipal Securities in the future to include other types of
securities that currently exist, the interest on which is or will be, in the
opinion of such counsel, excluded from gross income for federal income tax
B-24
<PAGE>
purposes, provided that investing in such securities is consistent with each
Fund's investment objective and policies.
Municipal Securities are often issued to obtain funds for various public
purposes including refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include certain "private
activity bonds" or industrial development bonds, which are issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly
owned corporations.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest, although the characteristics and enforcement of general obligations
may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer, and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a
revenue obligation may be backed by a letter of credit, guarantee or insurance.
General obligations and revenue obligations may be issued in a variety of forms,
including commercial paper, fixed, variable and floating rate securities, tender
option bonds, auction rate bonds and zero coupon bonds, deferred interest bonds
and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of Municipal Securities. There are also
numerous differences in the security of Municipal Securities both within and
between these two principal classifications.
For the purpose of applying a Fund's investment restrictions, the
identification of the issuer of a Municipal Security which is not a general
obligation is made by the Adviser based on the characteristics of the Municipal
Security, the most important of which is the source of funds for the payment of
principal and interest on such securities.
An entire issue of Municipal Securities may be purchased by one or a
small number of institutional investors such as Short Duration Tax-Free Fund,
Municipal Income Fund and Core Fund. Thus, the issue may not be said to be
publicly offered. Unlike some securities that are not publicly offered, a
secondary market exists for many Municipal Securities that were not publicly
offered initially and such securities may be readily marketable.
B-25
<PAGE>
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a Municipal
Security may be materially affected.
Municipal Leases, Certificates of Participation and Other Participation
------------------------------------------------------------------------
Interests. The Core, Municipal Income, and Short-Duration Tax-Free Funds may
- ---------
invest in municipal leases, certificates of participation and other
participation interests. 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. Income from such obligations is generally
exempt from state and local taxes in the state of issuance. Municipal leases
frequently involve special risks not normally associated with general
obligations or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional
and statutory requirements for the issuance of debt. The debt issuance
limitations are deemed to be inapplicable because of the inclusion in many
leases or contracts of "non-appropriation" clauses that relieve the
governmental issuer of any obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. In addition, such leases
or contracts may be subject to the temporary abatement of payments in the event
the issuer is prevented from maintaining occupancy of the leased premises or
utilizing the leased equipment. Although the obligations may be secured by the
leased equipment or facilities, the disposition of the property in the event of
non-appropriation or foreclosure might prove difficult, time consuming and
costly, and result in a delay in recovering or the failure to fully recover a
Fund's original investment.
Certificates of participation represent undivided interests in municipal
leases, installment purchase agreements or other instruments. The certificates
are typically issued by a trust or other entity which has received an
assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase agreements.
Certain municipal lease obligations and certificates of participation may
be deemed to be illiquid for the purpose of the Funds' limitation on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Fund may be determined by the
Adviser, pursuant to
B-26
<PAGE>
guidelines adopted by the Trustees of the Trust, to be liquid securities for the
purpose of such limitation. In determining the liquidity of municipal lease
obligations and certificates of participation, the Adviser will consider a
variety of factors including: (1) the willingness of dealers to bid for the
security; (2) the number of dealers willing to purchase or sell the obligation
and the number of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of the marketplace trades. In addition,
the Adviser will consider factors unique to particular lease obligations and
certificates of participation affecting the marketability thereof. These include
the general creditworthiness of the issuer, the importance to the issuer of the
property covered by the lease and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation is held by a
Fund.
The Core, Municipal Income and Short Duration Tax-Free Funds may purchase
participations in Municipal Securities held by a commercial bank or other
financial institution. Such participations provide a Fund with the right to a
pro rata undivided interest in the underlying Municipal Securities. In
addition, such participations generally provide a Fund with the right to demand
payment, on not more than seven days' notice, of all or any part of such Fund's
participation interest in the underlying Municipal Security, plus accrued
interest. A Fund will only invest in such participations if, in the opinion of
bond counsel, counsel for the issuers of such participations or counsel
selected by the Adviser, the interest from such participations is exempt from
regular federal income tax.
Municipal Notes. Municipal Securities in the form of notes
---------------
generally are used to provide for short-term capital needs, in anticipation of
an issuer's receipt of other revenues or financing, and typically have
maturities of up to three years. Such instruments may include tax anticipation
notes, revenue anticipation notes, bond anticipation notes, tax and revenue
anticipation notes and construction loan notes. Tax anticipation notes are
issued to finance the working capital needs of governments. Generally, they
are issued in anticipation of various tax revenues, such as income, sales,
property, use and business taxes, and are payable from these specific future
taxes. Revenue anticipation notes are issued in expectation of receipt of
other kinds of revenue, such as federal revenues available under federal
revenue sharing programs. Bond anticipation notes are issued to provide
interim financing until long-term bond financing can be arranged. In most
cases, the long-term bonds then provide the funds needed for repayment of the
notes. Tax and revenue anticipation notes combine the funding sources of both
tax anticipation notes and revenue anticipation notes. Construction Loan
Notes are sold to provide construction financing. These notes are secured by
mortgage notes insured by the FHA; however, the proceeds from the insurance may
be less than the economic equivalent of the payment of principal and interest
on the mortgage note if there has been a default. The obligations of an issuer
of municipal notes are generally secured by the anticipated revenues
B-27
<PAGE>
from taxes, grants or bond financing. An investment in such instruments,
however, presents a risk that the anticipated revenues will not be received or
that such revenues will be insufficient to satisfy the issuer's payment
obligations under the notes or that refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Issues of commercial paper
---------------------------
typically represent short-term, unsecured, negotiable promissory notes. These
obligations are issued by state and local governments and their agencies to
finance working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions.
Pre-Refunded Municipal Securities. The principal of and interest
---------------------------------
on pre-refunded Municipal Securities are no longer paid from the original
revenue source for the securities. Instead, the source of such payments is
typically an escrow fund consisting of U.S. Government Securities. The assets in
the escrow fund are derived from the proceeds of refunding bonds issued by the
same issuer as the pre-refunded Municipal Securities. Issuers of Municipal
Securities use this advance refunding technique to obtain more favorable terms
with respect to securities that are not yet subject to call or redemption by the
issuer. For example, advance refunding enables an issuer to refinance debt at
lower market interest rates, restructure debt to improve cash flow or eliminate
restrictive covenants in the indenture or other governing instrument for the
pre-refunded Municipal Securities. However, except for a change in the revenue
source from which principal and interest payments are made, the pre-refunded
Municipal Securities remain outstanding on their original terms until they
mature or are redeemed by the issuer. Pre-refunded Municipal Securities are
usually purchased at a price which represents a premium over their face value.
Private Activity Bonds. Short Duration Tax-Free Fund, Municipal
----------------------
Income Fund and Core Fund may each invest in certain types of Municipal
Securities, generally referred to as industrial development bonds (and referred
to under current tax law as private activity bonds), which are issued by or on
behalf of public authorities to obtain funds to provide privately operated
housing facilities, airport, mass transit or port facilities, sewage disposal,
solid waste disposal or hazardous waste treatment or disposal facilities and
certain local facilities for water supply, gas or electricity. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although the
current federal tax laws place substantial limitations on the size of such
issues. A Tax Exempt Fund's distributions of its interest income from private
activity bonds may subject certain investors to the federal alternative minimum
tax whereas
B-28
<PAGE>
Core Fund's distributions of any tax-exempt interest it receives from any source
will be taxable for regular federal income tax purposes.
Tender Option Bonds. A tender option bond is a Municipal Security (generally
-------------------
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-
term, tax-exempt rates. The bond is typically issued with the agreement of a
third party, such as a bank, broker-dealer or other financial institution, which
grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the
tender option, to trade at par on the date of such determination. Thus, after
payment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. However, an
institution will not be obligated to accept tendered bonds in the event of
certain defaults or a significant downgrade in the credit rating assigned to the
issuer of the bond. The liquidity of a tender option bond is a function of the
credit quality of both the bond issuer and the financial institution providing
liquidity. Tender option bonds are deemed to be liquid unless, in the opinion of
the Adviser, the credit quality of the bond issuer and the financial institution
is deemed, in light of the Fund's credit quality requirements, to be inadequate
and the bond would not otherwise be readily marketable. The Tax Exempt Funds
intend to invest in tender option bonds the interest on which will, in the
opinion of bond counsel, counsel for the issuer of interests therein or counsel
selected by the Adviser, be exempt from regular federal income tax. However,
because there can be no assurance that the Internal Revenue Service (the
"Service") will agree with such counsel's opinion in any particular case, there
is a risk that a Tax Exempt Fund will not be considered the owner of such tender
option bonds and thus will not be entitled to treat such interest as exempt from
such tax. Additionally, the federal income tax treatment of certain other
aspects of these investments, including the proper tax treatment of tender
option bonds and the associated fees in relation to various regulated investment
company tax provisions is unclear. The Tax Exempt Funds intend to manage their
portfolio in a manner designed to eliminate or minimize any adverse impact from
the tax rules applicable to these investments.
Auction Rate Securities. The Core, Municipal Income and Short
-----------------------
Duration Tax-Free Funds may invest in auction rate securities. Auction rate
securities consist of auction rate Municipal Securities and auction rate
preferred securities issued by closed-end investment companies that invest
primarily in Municipal Securities (collectively, "auction rate securities").
Provided that the auction mechanism is successful, auction rate securities
usually permit the holder to sell the securities in an auction at
B-29
<PAGE>
par value at specified intervals. The dividend is reset by "Dutch" auction in
which bids are made by broker-dealers and other institutions for a certain
amount of securities at a specified minimum yield. The dividend 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 some risk that an auction will
fail due to insufficient demand for the securities.
Dividends on auction rate preferred securities issued by a closed-end
fund may be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the fund on the securities in its
portfolio and distributed to holders of the preferred securities, provided that
the preferred securities are treated as equity securities for federal income
tax purposes and the closed-end fund complies with certain tests under the
Code.
A Fund's investments in auction rate securities of closed-end funds are
subject to the limitations prescribed by the Act and certain state securities
regulations. The Funds will indirectly bear their proportionate share of any
management and other fees paid by such closed-end funds in addition to the
advisory fees payable directly by the Funds.
Insurance. The Funds may invest in "insured" tax-exempt Municipal
---------
Securities. Insured Municipal Securities are securities for which scheduled
payments of interest and principal are guaranteed by a private
(nongovernmental) insurance company. The insurance only entitles a Fund to
receive the face or par value of the securities held by the Fund. The
insurance does not guarantee the market value of the Municipal Securities or
the value of the shares of a Fund.
The Funds may utilize new issue or secondary market insurance. A new
issue insurance policy is purchased by a bond issuer who wishes to increase the
credit rating of a security. By paying a premium and meeting the insurer's
underwriting standards, the bond issuer is able to obtain a high credit rating
(usually, Aaa from Moody's Investors Service, Inc. ("Moody's") or AAA from
Standard & Poor's Ratings Group ("Standard & Poor's")) for the issued security.
Such insurance is likely to increase the purchase price and resale value of the
security. New issue insurance policies are non-cancelable and continue in
force as long as the bonds are outstanding.
A secondary market insurance policy is purchased by an investor (such as
a Fund) subsequent to a bond's original issuance and generally insures a
particular bond for the remainder of its term. The Funds may purchase bonds
which have already been insured under a secondary market insurance policy by a
prior investor, or the Funds may directly purchase such a policy from insurers
for bonds which are currently uninsured.
An insured Municipal Security acquired by a Fund will typically be
covered by only one of the above types of policies.
B-30
<PAGE>
All of the insurance policies used by a Fund will be obtained only from
insurance companies rated, at the time of purchase, Aaa by Moody's or AAA by
Standard & Poor's.
Standby Commitments. In order to enhance the liquidity of Municipal
-------------------
Securities, the Tax Exempt Funds may acquire the right to sell a security to
another party at a guaranteed price and date. Such a right to resell may be
referred to as a "standby commitment" or liquidity put, depending on its
characteristics. The aggregate price which a Fund pays for securities with
standby commitments may be higher than the price which otherwise would be paid
for the securities. Standby commitments may not be available or may not be
available on satisfactory terms.
Standby commitments may involve letters of credit issued by domestic or
foreign banks supporting the other party's ability to purchase the security
from a Tax Exempt Fund. The right to sell may be exercisable on demand or at
specified intervals, and may form part of a security or be acquired separately
by a Tax Exempt Fund. In considering whether a security meets a Tax Exempt
Fund's quality standards, the particular Tax Exempt Fund will look to the
creditworthiness of the party providing the Fund with the right to sell as well
as the quality of the security itself.
The Tax Exempt Funds value Municipal Securities which are subject to
standby commitments at amortized cost. The exercise price of the standby
commitments is expected to approximate such amortized cost. No value is
assigned to the standby commitments for purposes of determining a Tax Exempt
Fund's net asset value. The cost of a standby commitment is carried as
unrealized depreciation from the time of purchase until it is exercised or
expires. Since the value of a standby commitment is dependent on the ability
of the standby commitment writer to meet its obligation to repurchase, a Tax
Exempt Fund's policy is to enter into standby commitment transactions only with
banks, brokers or dealers which present a minimal risk of default.
The Adviser understands that the Service has issued a favorable revenue
ruling to the effect that, under specified circumstances, a registered
investment company will be the owner of tax-exempt municipal obligations
acquired subject to a put option. The Service has subsequently announced that
it will not ordinarily issue advance ruling letters as to the identity of the
true owner of property in cases involving the sale of securities or
participation interests therein if the purchaser has the right to cause the
security, or the participation interest therein, to be purchased by either the
seller or a third party. The Tax Exempt Funds intend to take the position that
they are the owner of any Municipal Securities acquired subject to a standby
commitment or acquired or held with certain other types of put rights and that
tax-exempt interest earned with respect to such Municipal Securities will be
tax-exempt in their hands. There is no assurance that standby commitments will
be available to the Tax Exempt Funds nor have the Tax Exempt Funds assumed that
such
B-31
<PAGE>
commitments would continue to be available under all market conditions.
Call Risk and Reinvestment Risk. Municipal Securities may include
-------------------------------
"call" provisions which permit the issuers of such securities, at any time or
after a specified period, to redeem the securities prior to their stated
maturity. In the event that Municipal Securities held in a Fund's portfolio are
called prior to the maturity, the Fund will be required to reinvest the proceeds
on such securities at an earlier date and may be able to do so only at lower
yields, thereby reducing the Fund's return on its portfolio securities.
FOREIGN INVESTMENTS
Core and Global Income Funds may invest in securities of foreign
issuers and in fixed-income securities quoted or denominated in a currency
other than U.S. dollars. Investing in the securities of foreign issuers
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. issuers. Since investments
in the securities of foreign issuers may involve currencies of foreign
countries, and since Core Fund and Global Income Fund may temporarily hold
funds in bank deposits in foreign currencies during completion of investment
programs, Core Fund and Global Income Fund may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations
and may incur costs in connection with conversions between various
currencies.
Foreign companies are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. companies. In addition, there may be less publicly
available information about a foreign company than about a comparable U.S.
company. Volume and liquidity in most foreign bond markets are less than in
the United States markets and securities of many foreign companies are less
liquid and more volatile than securities of comparable U.S. companies.
Commissions on foreign securities exchanges are often fixed and generally are
higher than negotiated commissions or dealer mark-ups in the U.S. markets,
although each Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of securities markets and exchanges, brokers, dealers and listed
companies than in the United States. Mail service between the United States and
foreign countries may be slower or less reliable than within the United States,
thus increasing the risk of delayed settlement of portfolio transactions or
loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
B-32
<PAGE>
periods when a portion of the assets of Core Fund or Global Income Fund is
uninvested and no return is earned thereon. The inability of Core Fund or
Global Income Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to Core Fund or Global Income Fund due to subsequent
declines in value of the portfolio securities, or, if Core Fund or Global
Income Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could adversely affect Core Fund's or Global Income Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources self-sufficiency
and balance of payments position.
SPECIAL RISKS OF INVESTMENTS IN EMERGING MARKETS. The Core Fund may
invest up to 10% of its total assets in securities of issuers located in
countries with emerging economies or securities markets ("emerging markets").
Emerging markets are generally located in the Asia-Pacific region, Eastern
Europe, Latin and South America and Africa. The Fund's purchase and sale of
portfolio securities in certain emerging markets 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 the Fund, the Investment Adviser and its affiliates and
their respective clients and other service providers. The 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 markets
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 such company 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 the Fund. Furthermore, the repatriation of both investment income
and capital from several of the Asian emerging
B-33
<PAGE>
markets is subject to restrictions such as the need for certain governmental
consents.
Many of the emerging markets 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 of the
emerging markets do not have fully democratic governments. For example, some
governments of emerging market countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other emerging markets 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 emerging market countries. The
economies of most of the emerging markets are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. In addition, the economies of some
of the emerging markets are vulnerable to weakness in world prices for their
commodity exports.
Settlement procedures in emerging markets are frequently less developed
and reliable than those in the United States and may involve the 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
the 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 market countries. Consequently, there can be
no assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when the Fund wishes to use them.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Core Fund may enter into
forward foreign currency exchange contracts for hedging purposes, and Global
Income Fund may enter into forward foreign currency exchange contracts for
hedging purposes and to seek to increase total return. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward
B-34
<PAGE>
contract generally has no deposit requirement, and no commissions are generally
charged at any stage for trades.
At the maturity of a forward contract, Global Income Fund and Core Fund
may either accept or make delivery of the currency specified in the contract or,
at or prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract.
Global Income Fund or Core Fund may enter into forward foreign currency
exchange contracts in several circumstances. First, when Global Income Fund or
Core Fund enters into a contract for the purchase or sale of a security quoted
or denominated in a foreign currency, or when Global Income Fund or Core Fund
anticipates the receipt in a foreign currency of a dividend or interest payment
on such a security which it holds, Global Income Fund or Core Fund may desire
to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for the purchase or sale, for a fixed amount
of U.S. dollars, of the amount of foreign currency involved in the underlying
transactions, Global Income Fund or Core Fund will attempt to protect itself
against an adverse change in the relationship between the U.S. dollar and the
subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it
may enter into a forward contract to sell, for a fixed amount of U.S. dollars,
the amount of foreign currency approximating the value of some or all of a
Fund's portfolio securities quoted or denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Global Income Fund may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities denominated or quoted in a different currency if the Adviser
determines that there is a pattern of
B-35
<PAGE>
correlation between the two currencies. The Global Income Fund and Core Fund may
also purchase and sell forward contracts to seek to increase total return when
the Adviser anticipates that the foreign currency will appreciate or depreciate
in value, but securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Funds' portfolio.
Global Income Fund's and Core Fund's custodian will place cash or liquid
assets, as permitted by applicable law, into a segregated account of the Fund in
an amount equal to the value of the Funds' total assets committed to the
consummation of forward foreign currency exchange contracts requiring the Funds
to purchase foreign currencies, forward contracts entered into to seek to
increase total return. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Funds' commitments with respect to such contracts. The segregated accounts will
be marked-to-market on a daily basis. Although the contracts are not presently
regulated by the Commodity Trading Futures Commission ("CFTC"), the CFTC may in
the future assert authority to regulate these contracts. In such event, a Fund's
ability to utilize forward foreign currency exchange contracts may be
restricted. The Global Income Fund and Core Fund will not enter into a forward
contract with a term of greater than one year.
While Global Income Fund and Core Fund may enter into forward contracts
to seek to reduce currency exchange rate risks, transactions in such contracts
involve certain other risks. Thus, while Global Income Fund and Core Fund may
benefit from such transactions, unanticipated changes in currency prices may
result in a poorer overall performance for a Fund than if it had not engaged in
any such transactions. Moreover, there may be imperfect correlation between a
Fund's portfolio holdings of securities quoted or denominated in a particular
currency and forward contracts entered into by Global Income Fund and Core
Fund. Such imperfect correlation may cause the Fund to sustain losses which
will prevent the Fund from achieving a complete hedge or expose the Fund to
risk of foreign exchange loss.
Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive 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 such transactions unless the credit quality of the unsecured senior debt
or the claims-paying ability of the counterparty is considered to be investment
grade by the Adviser.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CURRENCY SWAPS AND INTEREST RATE CAPS,
FLOORS AND COLLARS
B-36
<PAGE>
Each Fund may enter into interest rate swaps, caps, floors and collars. In
addition, Core Fund, Adjustable Rate Fund, Government Income, Short Duration
Government Fund and Global Income Fund may enter into mortgage swaps and Core
Fund and Global Income Fund may also enter into currency swaps. Each Fund may
enter into swap transactions for hedging purposes or to seek to increase total
return, except that the Core Fund will not enter into currency swaps to seek to
increase total return. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed-rate payments for floating rate payments. Mortgage swaps
are similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. Currency swaps involve the exchange of the parties'
respective rights to make or receive payments in specified currencies. The
purchase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payment of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination of a
cap and a floor that preserves a certain return within a predetermined range of
interest rates. Since interest rate, mortgage and currency swaps and interest
rate caps, floors and collars are individually negotiated, each Fund expects to
achieve an acceptable degree of correlation between its portfolio investments
and its swap, cap, floor and collar positions.
A Fund will enter into interest rate and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and mortgage swaps is limited to the net amount of
payments that a Fund is contractually obligated to make. If the other party to
an interest rate swap defaults, a Fund's risk of loss consists of the net amount
of payments that such Fund is contractually entitled to receive, if any. In
contrast, currency swaps usually involve the delivery of the entire principal
amount of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. The net amount of the excess, if any, of a Fund's obligations over
its entitlements with respect to each interest rate or currency swap will be
accrued on a daily basis and an amount of cash or liquid assets, as permitted by
applicable law, having anaggregate net asset value at least equal to such
accrued excess will be maintained in a segregated account by a Fund's custodian.
Inasmuch as these transactions are entered into for hedging purposes or are
offset by cash or liquid assets, as permitted by applicable law,
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maintained in a segregated account the Funds and the Advisers
believe that swaps do not constitute senior securities under the Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restriction.
The Funds will not enter into any swap transactions unless the unsecured
commercial paper, senior debt or claims-paying ability of the other party is
rated either AA or A-1 or better by Standard & Poor's or Aa or P-1 or better by
Moody's or their equivalent ratings. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the interbank market.
The staff of the Securities and Exchange Commission (the "SEC") currently takes
the position that swaps, caps, floors and collars are illiquid for purposes of a
Fund's limitation on illiquid investments.
The use of interest rate, mortgage and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have
been if this investment technique were not used.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call
-----------------------
and put options on any securities in which it may invest or on any securities
index based on securities in which it may invest. A Fund may purchase and
write such options on securities that are listed on national domestic
securities exchanges or foreign securities exchanges or traded in the
over-the-counter market. A call option written by a Fund obligates the Fund to
sell specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. All call
options written by a Fund are covered, which means that the Fund will own the
securities subject to the option so long as the option is outstanding or use
the other methods described below. The purpose of a Fund in writing covered
call options is to realize greater income than would be realized in portfolio
securities transactions alone. However, in writing covered call options for
additional income, a Fund may forego the opportunity to profit from an increase
in the market price of the underlying security.
A put option written by a Fund obligates the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. The purpose of writing such
options is to generate additional income.
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However, in return for the option premium, the Fund accepts the risk that it
will be required to purchase the underlying securities at a price in excess of
the securities' market value at the time of purchase.
All call and put options written by a Fund are covered. A written call
option or put option may be covered by (i) maintaining cash or liquid
securities, either of which, in the case of Global Income Fund or Core Fund, may
be quoted or denominated in any currency, in a segregated account maintained by
the Fund's custodian with a value at least equal to the Fund's obligation under
the option, (ii) entering into an offsetting forward commitment and/or (iii)
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position.
A Fund may terminate its obligations under an exchange-traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Each Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations
in a single security.
The Funds may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration held in a segregated account by their respective custodian) upon
conversion or exchange of other securities in its portfolio. The Funds may
also cover call and put options on a securities index by maintaining cash or
liquid securities with a value equal to the exercise price in a segregated
account with their custodian or by using the other methods described above.
PURCHASING OPTIONS. Each Fund may also purchase put and call
------------------
options on any securities in which it may invest or on any securities index
based on securities in which it may invest, and each Fund may enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
A Fund would normally purchase call options in anticipation of an
increase, or put options in anticipation of a decrease ("protective puts") in
the market value of securities of the type in which it may invest. The
purchase of a call option would
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entitle a Fund, in return for the premium paid, to purchase specified securities
at a specified price during the option period. A Fund would ordinarily realize a
gain on the purchase of a call option if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Fund
would realize either no gain or a loss on the purchase of the put option. Gains
and losses on the purchase of put options may be offset by countervailing
changes in the value of the underlying portfolio securities.
A Fund may purchase put and call options on securities indices for the
same purposes as it may purchase options on securities. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Transactions by a Fund in options on securities and securities indices
will be subject to limitations established by each of the exchanges, boards of
trade or other trading facilities on which such options are traded governing
the maximum number of options in each class which may be written or purchased
by a single investor or group of investors acting in concert, regardless of
whether the options are written or purchased on the same or different
exchanges, boards of trade or other trading facilities or are held or written
in one or more accounts or through one or more brokers. Thus, the number of
options which a Fund may write or purchase may be affected by options written
or purchased by other investment advisory clients of the Advisers. An
exchange, board of trade or other trading facility may order the liquidation of
positions found to be in excess of these limits, and it may impose certain
other sanctions.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Core Fund
----------------------------------------------------
and Global Income Fund may write covered put and call options and purchase put
and call options on foreign currencies in an attempt to protect against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired. Global Income Fund may use
options on currency to cross-hedge, which involves writing or purchasing
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options on one currency to seek to hedge against changes in exchange rates for a
different currency with a pattern of correlation. In addition, Global Income
Fund may purchase call options on currency to seek to increase total return when
the Adviser anticipates that the currency will appreciate in value, but the
securities denominated or quoted in that currency do not present attractive
investment opportunities and are not included in Global Income Fund's portfolio.
A call option written by Core Fund and Global Income Fund obligates the
Fund to sell specified currency to the holder of the option at a specified
price if the option is exercised at any time before the expiration date. A put
option written by a Fund obligates the Fund to purchase specified currency
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The writing of currency options involves a
risk that a Fund will, upon exercise of the option, be required to sell
currency subject to a call at a price that is less than the currency's market
value or be required to purchase currency subject to a put at a price that
exceeds the currency's market value.
A Fund may terminate its obligations under a written call or put option
by purchasing an option identical to the one written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on purchased options.
Core Fund and Global Income Fund would normally purchase call options in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by the Fund are denominated or quoted. The purchase
of a call option would entitle a Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
Core Fund or Global Income Fund would normally purchase put options in
anticipation of a decline in the U.S. dollar value of currency in which
securities in its portfolio are denominated or quoted ("protective puts"). The
purchase of a put option would entitle Core Fund and Global Income Fund, in
exchange for the premium paid, to sell specified currency at a specified price
during the option period. The purchase of protective puts is designed merely
to offset or hedge against a decline in the U.S. dollar value of a Fund's
portfolio securities due to currency exchange rate fluctuations. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more
than cover the premium and transaction costs; otherwise the Fund would realize
either no gain or a loss on the purchase of the put option. Gains and losses
on the purchase of protective put options would tend to
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be offset by countervailing changes in the value of underlying currency.
In addition to using options for the hedging purposes described above,
Global Income Fund may use options on currency to seek to increase total return.
Global Income Fund may write (sell) covered put and call options on any currency
in an attempt to realize greater income than would be realized on portfolio
securities transactions alone. However, in writing covered call options for
additional income, Global Income Fund may forego the opportunity to profit from
an increase in the market value of the underlying currency. Also, when writing
put options, Global Income Fund accepts, in return for the option premium, the
risk that it may be required to purchase the underlying currency at a price in
excess of the currency's market value at the time of purchase.
Global Income Fund would normally purchase call options to seek to
increase total return in anticipation of an increase in the market value of a
currency. Global Income Fund would ordinarily realize a gain if, during the
option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Global Income Fund
would realize either no gain or a loss on the purchase of the call option. Put
options may be purchased by the Global Income Fund for the purpose of
benefiting from a decline in the value of currencies which it does not own.
Global Income Fund would ordinarily realize a gain if, during the option
period, the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise
Global Income Fund would realize either no gain or a loss on the purchase of
the put option.
YIELD CURVE OPTIONS. Each Fund may enter into options on the
-------------------
yield "spread," or yield differential between two securities. Such options are
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
Yield curve options may be used for the same purposes as other options on
securities. For example, a Fund may purchase a call option on the yield
spread between two securities if it owns one of the securities and anticipates
purchasing the other security and wants to hedge against an adverse change in
the yield spread between the two securities. A Fund may also purchase or write
yield curve options for other than hedging purposes (i.e., in an attempt to
increase its current income) if, in the judgment of the Adviser, the Fund will
be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In
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addition, however, such options present a risk of loss even if the yield of one
of the underlying securities remains constant, or if the spread moves in a
direction or to an extent which was not anticipated.
Yield curve options written by a Fund must be "covered." A call (or put)
option is covered if the Fund holds another call (or put) option on the spread
between the same two assets, as permitted by applicable law, and maintains in a
segregated account with its custodian cash or liquid securities sufficient to
cover the Fund's net liability under the two options. Therefore, a Fund's
liability for such a covered option is generally limited to the difference
between the amount of the Fund's liability under the option written by the Fund
less the value of the option held by the Fund. Yield curve options may also be
covered in such other manner as may be in accordance with the requirements of
the counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter, and because they
have been only recently introduced, established trading markets for these
options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
------------------------------------------
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist although outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
A Fund's ability to terminate over-the-counter options is more limited
than with exchange-traded options and may involve the risk
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that broker-dealers participating in such transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Funds will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities, except that with
respect to options written with primary dealers in U.S. Government Securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to a
formula approved by the SEC.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The successful use of options
for hedging purposes depends in part on the applicable Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates or securities prices or, in the case of Core Fund (but only for hedging
purposes) and Global Income Fund, currency exchange rates, each Fund may
purchase and sell various kinds of futures contracts, and purchase and write
call and put options on any of such futures contracts. Each Fund may also enter
into closing purchase and sale transactions with respect to any of such
contracts and options. The futures contracts may be based on various securities
(such as U.S. Government Securities), securities indices, foreign currencies in
the case of Global Income Fund and Core Fund, and any other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined below or for
purposes of seeking to increase total return to the extent permitted by
regulations of the CFTC. All futures contracts entered into by a Fund are traded
on U.S. exchanges or boards of trade that are licensed and regulated by the CFTC
or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described
-----------------
as an agreement between two parties to buy and sell particular financial
instruments or currencies for an agreed price during a designated month (or to
deliver the final cash settlement price, in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading
in the contract).
When interest rates are rising or securities prices are falling, a Fund
can seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, a Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases. Core Fund and
Global Income Fund may each seek to offset anticipated changes in the
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value of a currency in which its portfolio securities, or securities that it
intends to purchase, are quoted or denominated by purchasing and selling futures
contracts on such currencies.
Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While futures contracts on securities or currency will
usually be liquidated in this manner, a Fund may instead make, or take,
delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks
------------------
to establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that a Fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts in an attempt to
hedge against an anticipated rise in interest rates or a decline in market
prices or foreign currency rates that would adversely affect the U.S. dollar
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by a Fund or securities
with characteristics similar to those of a Fund's portfolio securities.
Similarly, Core Fund and Global Income Fund may each sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or
in one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies. If, in the opinion of the
Adviser, there is a sufficient degree of correlation between price trends for a
Fund's portfolio securities and futures contracts based on other financial
instruments, securities indices or other indices, the Fund may also enter into
such futures contracts as part of its hedging strategy. Although under some
circumstances prices of securities in a Fund's portfolio may be more or less
volatile than prices of such futures contracts, the Advisers will attempt to
estimate the extent of this volatility difference based on historical patterns
and compensate for any such differential by having a Fund enter into a greater
or lesser number of futures contracts or by attempting to achieve only a
partial hedge against price changes affecting a Fund's portfolio securities.
When hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing
futures contracts. This would be done, for example,
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when a Fund anticipates the subsequent purchase of particular securities when it
has the necessary cash, but expects the prices or currency exchange rates then
available in the applicable market to be less favorable than prices that are
currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call
----------------------------
options on futures contracts will give a Fund the right (but not the
obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, a Fund obtains the benefit of the
futures position if prices move in a favorable direction but limits its risk of
loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium,
(upon exercise of the option) to sell a futures contract if the option is
exercised, which may have a value higher than the exercise price. Conversely,
the writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that a Fund intends to
purchase. However, a Fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. Thus, the loss incurred by a Fund in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. The Funds will incur transaction costs in connection with
the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid
market.
OTHER CONSIDERATIONS. Each Fund will engage in futures and
--------------------
related options transactions only for bona fide hedging or, except for
purchases or sales by Core Fund of futures on currencies, to seek to increase
total return as permitted by CFTC regulations which permit principals of an
investment company registered under the Act to engage in such transactions
without registering as commodity pool operators. Each Fund will determine that
the price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes -- i.e., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that a Fund owns or futures contracts will be
purchased to protect a Fund
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against an increase in the price of securities (or the currency in which they
are quoted or denominated) it intends to purchase. As evidence of this hedging
intent, each Fund expects that on 75% or more of the occasions on which it takes
a long futures or option position (involving the purchase of futures contracts),
the Fund will have purchased, or will be in the process of purchasing,
equivalent amounts of related securities (or assets denominated in the related
currency) in the cash market at the time when the futures or option position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to compliance with the bona fide hedging definition, a
CFTC regulation permits the Funds to elect to comply with a different test
under which the aggregate initial margin and premiums required to establish
positions to seek to increase total return in futures contracts and options on
futures will not exceed 5% of the net asset value of a Fund's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") for
maintaining their qualifications as regulated investment companies for federal
income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to establish with the custodian a segregated account consisting of cash or
liquid securities in an amount equal to the underlying value of such contracts
and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and a Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not
related to currency fluctuations.
Perfect correlation between a Fund's futures positions and portfolio
positions will be impossible to achieve. There are no futures contracts based
upon individual securities, except certain U.S. Government Securities. The
only futures contracts available
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to hedge a Fund's portfolio are various futures on U.S. Government Securities,
securities indices and foreign currencies.
MORTGAGE DOLLAR ROLLS
The Taxable 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 similar (same type, coupon and
maturity), but not identical securities on a specified future date. During the
roll period, a Fund loses the right to receive principal and interest paid on
the securities sold. However, a Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase (often referred to as the "drop") or fee
income plus the interest earned on the cash proceeds of the securities sold
until the settlement date of the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what such performance would have been without the use
of mortgage dollar rolls. All cash proceeds will be invested in instruments
that are permissible investments for the applicable Fund. Each Fund will hold
and maintain in a segregated account until the settlement date cash or liquid
securities in an amount equal to its forward purchase price.
For financial reporting and tax purposes, the Funds treat 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.
Mortgage dollar rolls involve certain risks including the following: if
the broker-dealer to whom a Fund sells the security becomes insolvent, a Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which a Fund is
required to repurchase may be worth less than an instrument which a Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Adviser's ability to manage a Fund's interest rate and mortgage prepayments
exposure. For these reasons, there is no assurance that mortgage dollar rolls
can be successfully employed.
CONVERTIBLE SECURITIES
Convertible securities include corporate notes or preferred stock but are
ordinarily long-term debt obligation of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase
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and, conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus may
not depreciate to the same extent as the underlying common stock. Convertible
securities in which the Core Fund invests will be subject to the same rating
criteria as its other investments in fixed-income securities.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as brokers or dealers
and would be required to be secured continuously by collateral in cash, cash
equivalents, letters of credit 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. A Fund has the
right to call a loan and obtain the securities loaned at any time on five days'
notice. For the duration of a loan, a Fund continues to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
also receives compensation from investment of the collateral. A Fund would not
have the right to vote any securities having voting rights during the existence
of the loan, but a Fund would call the loan in anticipation of an important
vote to be taken among holders of the securities or the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit there are risks of delay in recovering, or even loss of
rights in, the collateral should the borrower of the securities fail
financially. However, the loans are made only to firms deemed by the
applicable Adviser to be of good standing, and when, in the judgment of the
applicable Adviser, the consideration which can be earned currently from
securities loans of this type justifies the attendant risk. If an Adviser
determines to make securities loans, the value of the securities loaned will
not exceed one-third of the value of the total assets of each Fund.
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RESTRICTED AND ILLIQUID SECURITIES
Each Fund may purchase securities that are not registered or offered in
an exempt non-public offering ("Restricted Securities") under the Securities
Act of 1933, as amended ("1933 Act"), including securities eligible for resale
to "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act.
However, a Fund will not invest more than 15% of its net assets in illiquid
investments, which includes repurchase agreements maturing in more than seven
days, interest rate, currency and mortgage swaps, interest rate caps, floors
and collars, certain SMBS, municipal leases, certain over-the-counter options,
securities that are not readily marketable and Restricted Securities, unless
the Board of Trustees determines, based upon a continuing review of the trading
markets for the specific Restricted Securities, that such Restricted Securities
are liquid. Certain commercial paper issued in reliance on Section 4(2) of the
1933 Act is treated like Rule 144A Securities. The Trustees have adopted
guidelines and delegated to the Advisers the daily function of determining and
monitoring the liquidity of the Funds' portfolio securities. The Board of
Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations. Since it is not possible to predict with
assurance exactly how the market for Restricted Securities sold and offered
under Rule 144A or Section 4(2) will develop, the Trustees will carefully
monitor the Funds' investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these Restricted Securities.
The purchase price and subsequent valuation of Restricted Securities
normally reflect a discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the Restricted Securities and prevailing
supply and demand conditions.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and
the date when the securities will be delivered and paid for (the settlement
date) are fixed at the time the transaction is negotiated. When-issued
purchases and forward commitment transactions are negotiated directly with the
other party, and such commitments are not traded on exchanges. The Funds will
purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis
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only with the intention of completing the transaction and actually purchasing or
selling the securities. If deemed advisable as a matter of investment strategy,
however, the Funds may dispose of or negotiate a commitment after entering into
it. A Fund also may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. The Funds may
realize a capital gain or loss in connection with these transactions. For
purposes of determining each Fund's duration, the maturity of when-issued or
forward commitment securities will be calculated from the commitment date. Each
Fund is required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to settlement date, cash or liquid assets, as
permitted by applicable law, in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. Securities purchased or sold on a when-
issued or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date or if the value
of the security to be sold increases prior to the settlement date.
OTHER INVESTMENT COMPANIES
Each Fund reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies, but may not invest more than 5% of its total assets in the
securities of any one investment company or acquire more than 3% of the voting
securities of any other investment company. Pursuant to an exemptive order
obtained from the SEC, the Funds may invest in money market funds for which the
Adviser or any of its affiliates serves as investment adviser. A Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
a Fund invests in a money market fund for which the Adviser acts as adviser,
the advisory and administration fees payable by the Fund to the Adviser will be
reduced by an amount equal to the Fund's proportionate share of the advisory
and administration fees paid by such money market fund to the Adviser or any of
its affiliates.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities will be maintained by each Fund's custodian. The
repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the security subject to the repurchase agreement.
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For purposes of the Act and, generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security.
For other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, the Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the
transaction.
As with any unsecured debt instrument purchased for each Fund, the
applicable Adviser seeks to minimize the risk of loss from repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the security. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the security subject to the
repurchase agreement becomes less than the repurchase price (including accrued
interest), each Fund will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price. Certain
repurchase agreements which provide for settlement in more than seven days can
be liquidated before the nominal fixed term on seven days or less notice. Such
repurchase agreements will be regarded as liquid instruments.
In addition, the Funds, together with other registered investment
companies having advisory agreements with the Advisers or their affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
INVESTMENT IN UNSEASONED COMPANIES
Global Income Fund and Government Income Fund may each invest up to 5% of
its total assets, calculated at the time of purchase, in companies (including
predecessors) which have operated less than three years, excluding issuers
whose debt securities have been rated, at the time of investment, investment
grade or better by at least one nationally recognized statistical rating
organization. The securities of such companies may have limited liquidity,
which can result in their being priced higher or lower than might otherwise be
the case. In addition, investments in unseasoned companies are more
speculative and entail greater risk than do investments in companies with an
established operating record.
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INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions on behalf of
the Funds, none of which may be changed without the approval of the holders of
a majority of the outstanding voting securities of the applicable Fund. The
investment objective of each Fund and all other investment policies or
practices of the Funds, except for Short Duration Tax-Free Fund's and Municipal
Income Fund's policy to invest under normal market conditions 80% of its net
assets in Tax-Free Securities, are considered by the Trust not to be
fundamental and accordingly may be changed without shareholder approval. See
"INVESTMENT OBJECTIVE AND POLICIES" in the Prospectuses. As defined in the
Act, "a majority of the outstanding voting securities" of a Fund means the vote
(a) of 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Fund, whichever is less.
For the purposes of the limitations (except for the 300% asset coverage
requirement with respect to borrowings), any limitation which involves a
maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. With respect
to the Tax Exempt Funds, the identification of the issuer of a Municipal
Security that is not a general obligation is made by the Adviser based on the
characteristics of the Municipal Security, the most important of which is the
source of funds for the payment of principal and interest on such securities.
AS A MATTER OF FUNDAMENTAL POLICY, ADJUSTABLE RATE FUND MAY NOT:
(1) Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
if immediately after such purchase more than 5% of the Fund's total assets
would be invested in such issuer, except that (a) up to 25% of the value of the
Fund's total assets may be invested without regard to such 5% limitation, and
(b) such 5% limitation shall not apply to repurchase agreements collateralized
by obligations of the U.S. government, its agencies or instrumentalities.
(2) Borrow money, except as a temporary measure for extraordinary or
emergency purposes, provided that the Fund is required to maintain asset
coverage of at least 300% for all borrowings. For purposes of this investment
restriction, short sales, swap transactions, options, futures contracts and
options on futures contracts, and forward commitment transactions shall not
constitute borrowings.
(3) Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This limitation does not
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apply to investments in obligations of the U.S. government or any of its
agencies or instrumentalities.
(4) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options, swap transactions, the purchase of securities on a forward commitment
or delayed delivery basis and collateral and initial or variation margin
arrangements with respect to options, futures contracts and options on futures
contracts.
(5) Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures and options
on futures.
(6) Make short sales of securities, except short sales against-the-box,
or maintain a short position.
(7) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
(8) Purchase, hold or deal in real estate, including limited
partnership interests, or oil and gas interests, although the Fund may purchase
and sell securities that are secured by real estate or interests therein and
may purchase mortgage-related securities and may hold and sell real estate
acquired by the Fund as a result of the ownership of securities.
(9) Invest in commodities or commodity futures contracts, except that
the Fund may (a) purchase and sell futures contracts, including those relating
to securities and indices, and options on any such futures contracts, and (b)
purchase and sell securities on a forward commitment or delayed delivery basis.
(10) Lend any funds or other assets except through repurchase agreements
or the purchase of all or a portion of an issue of securities or obligations of
the type in which it may invest; however, the Fund may lend portfolio
securities in an amount not to exceed one-third of the value of its total
assets.
(11) Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act) except as permitted in Investment Restriction Nos. (2), (5),
(6) and (10).
In addition to the investment restrictions mentioned above, the Trustees
of the Trust have voluntarily adopted the following policies and restrictions
on behalf of Adjustable Rate Fund which are observed in the conduct of its
affairs. These represent intentions of the Trustees based upon current
circumstances. They differ from fundamental investment restrictions in that
they may be changed or amended by action of the Trustees of the Trust without
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prior notice to or approval of shareholders. Accordingly, Adjustable Rate Fund
may not:
(a) invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act;
(b) purchase warrants of any issuer, except on a limited basis, if, as
a result, more than 2% of the value of its total assets would be invested in
warrants which are not listed on the New York Stock Exchange and more than 5%
of the value of its total assets would be invested in warrants, whether or not
so listed, such warrants in each case to be valued at the lesser of cost or
market, but assigning no value to warrants acquired by the Fund in shares or
attached to debt securities;
(c) purchase (i) securities of any issuer with a record of less than
three years' continuous operation, including predecessors, except U.S.
Government Securities and securities guaranteed by any foreign government or
its agencies or instrumentalities, or (ii) common or preferred stocks that are
not readily marketable, if such purchase would cause the investment of the Fund
in all such securities to exceed 5% of the value of the total assets of the
Fund;
(d) purchase puts, calls, straddles, spreads and any combination
thereof if the value of the Fund's aggregate investment in such securities
exceeds 5% of its total assets;
(e) purchase additional securities if the Fund's borrowings exceed 5% of
the Fund's net assets; or
(f) invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the 1933 Act; or (b) more than
10% of its total assets in restricted securities (including those eligible for
resale under Rule 144A).
AS A MATTER OF FUNDAMENTAL POLICY, GOVERNMENT INCOME FUND MAY NOT:
(1) Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government, its agencies, instrumentalities or
sponsored enterprises, if immediately after such purchase more than 5% of the
Fund's total assets would be invested in such issuer, except that (a) up to 25%
of the value of the Fund's total assets may be invested without regard to such
5% limitation, and (b) such 5% limitation shall not apply to repurchase
agreements collateralized by obligations of the
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U.S. government or by its agencies, instrumentalities or sponsored enterprises.
(2) Borrow money, except (a) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding
one-third of the Fund's total assets, including the amount borrowed; (b) in
connection with the redemption of Fund shares or to finance failed settlements
of portfolio trades without immediately liquidating portfolio securities or
other assets; and (c) in order to fulfill commitments or plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets and (d) transactions in mortgage dollar rolls, but only if
after each such borrowing there is asset coverage of at least 300% as defined
in the Act. For purposes of this investment restriction, short sales, swap
transactions, options, futures contracts and options on futures contracts, and
forward commitment transactions shall not constitute borrowings.
(3) Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This limitation does not apply to investments
in obligations of the U.S. government or any of its agencies, instrumentalities
or sponsored enterprises.
(4) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options, swap transactions, the purchase of securities on a forward commitment
or delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to options, futures contracts and options on futures
contracts.
(5) Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures and options
on futures.
(6) Make short sales of securities, except short sales against-the-box,
or maintain a short position.
(7) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
(8) Purchase, hold or deal in real estate, including limited
partnership interests, or in oil, gas or mineral interests, although the Fund
may purchase and sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and Mortgage-Backed
Securities and may hold and sell real estate acquired by the Fund as a result
of the ownership of securities.
(9) Invest in commodities or commodity futures contracts, except that
the Fund may (a) purchase and sell futures contracts,
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including those relating to securities and indices, and options on any such
futures contracts, and (b) purchase and sell securities on a forward commitment
or delayed-delivery basis.
(10) Lend any funds or other assets except through repurchase agreements
or the purchase of all or a portion of an issue of securities or obligations of
the type in which it may invest; however, the Fund may lend portfolio
securities in an amount not to exceed one-third of the value of its total
assets.
(11) Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restriction No. (2).
In addition, as non-fundamental policies, the Government Income Fund may
not:
(a) invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act;
(b) purchase warrants of any issuer, except on a limited basis, if, as
a result, more than 2% of the value of its total assets would be invested in
warrants which are not listed on the New York Stock Exchange and more than 5%
of the value of its total assets would be invested in warrants, whether or not
so listed, such warrants in each case to be valued at the lesser of cost or
market, but assigning no value to warrants acquired by the Fund in shares or
attached to debt securities;
(c) invest more than 5% of the Fund's total assets in (i) securities of
any issuer with a record of less than three years' continuous operation,
including predecessors, except U.S. Government Securities and securities
guaranteed by any foreign government or its agencies or instrumentalities;
(d) purchase puts, calls, straddles, spreads and any combination
thereof if the value of the Fund's aggregate investment in such securities
exceeds 5% of its total assets;
(e) purchase additional securities if the Fund's borrowings exceeds 5%
of the Fund's total assets; or
(f) invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the 1933 Act; or (b) more than
10% of its total assets in restricted securities (including those eligible for
resale under Rule 144A).
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AS A MATTER OF FUNDAMENTAL POLICY, SHORT DURATION GOVERNMENT FUND MAY NOT:
(1) Purchase the securities of issuers conducting their principal
business activity in the same industry if immediately after such purchase the
value of the Fund's investments in such industry would exceed 25% of the value
of its total assets, provided that (a), as to utility companies, the gas,
electric, water and telephone businesses will be considered separate
industries, (b) all finance companies as a group will not be considered a
single industry, (c) industry determinations with respect to Securitized Assets
will be based on the type of assets backing the security, and (d) there is no
limitation with respect to or arising out of investments in obligations issued
or guaranteed by the U.S. government, its agencies and instrumentalities,
repurchase agreements or loans by the Fund of securities collateralized by such
obligations or by cash. With respect to both clauses (c) and (d), Securitized
Assets which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities or backed directly or indirectly by obligations so issued or
guaranteed will be treated as being within clause (d).
(2) Purchase the securities of any one issuer if, immediately after
such purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, except that (a) up to 25% of the value of its total
assets may be invested without regard to such 5% limitation, and (b) such 5%
limitation shall not apply to securities which are issued or guaranteed by the
U.S. government, its agencies or instrumentalities or backed directly or
indirectly by obligations so issued or guaranteed (including repurchase
agreements collateralized by obligations so issued or guaranteed).
(3) Make loans, except through (a) the purchase of debt obligations or
pass-through instruments in accordance with the Fund's investment objective and
policies, (b) repurchase agreements with banks, brokers, dealers and other
financial institutions; and (c) loans of securities.
(4) Borrow money, except (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Fund's net assets or (b) from
banks, provided that immediately after any such borrowing all borrowings of the
Fund do not exceed one-third of its net assets (excluding borrowings). The
exceptions to this restriction are not for investment leverage purposes but are
solely for extraordinary or emergency purposes or to facilitate management of
the Fund by enabling the Fund to meet redemption requests when the liquidation
of portfolio instruments is deemed to be disadvantageous or not possible.
While the Fund has borrowings outstanding in excess of 5% of the value of its
net assets, it will not make any purchases of portfolio instruments. If, due
to market fluctuations or other reasons, the net assets of the Fund fall below
300% of its borrowings, the Fund will promptly reduce its borrowings in
accordance with the Act. To do this, the Fund may have to sell a portion of
its investments at a time when it may be disadvantageous to do so. For
purposes of this restriction,
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neither the arrangements referred to in restriction (5) below nor the purchase
or sale of futures or related options shall be regarded as involving the
borrowing of money.
(5) Mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. For purposes of this restriction, collateral
arrangements with respect to the writing of options, interest rate futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a mortgage, pledge
or hypothecation of assets.
(6) Purchase or sell real estate, but this restriction shall not
prevent the Fund from investing directly or indirectly in portfolio instruments
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein.
(7) Purchase or sell commodities or commodity contracts, except that
the Fund may purchase and sell interest rate futures contracts and related
options, or purchase or sell interests in oil, gas or other mineral exploration
or development programs.
(8) Purchase any voting securities or invest in companies for the
purpose of exercising control or management.
(9) Act as an underwriter of securities.
(10) Purchase any security on margin (except for delayed-delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions). The payment or deposit by the Fund of initial or
variation margin in connection with interest rate futures contracts or related
option transactions is not considered the purchase of a security on margin.
(11) Make short sales of securities or maintain a short position unless
(a) at all times when a short position is open the Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as, and
equal in amount to, the securities sold short or (b) for the purpose of hedging
the Fund's exposure to an actual or anticipated market decline in the value of
its investments.
(12) Write, purchase or sell puts, calls or combinations thereof, except
that the Fund may purchase puts and write, purchase and sell call options with
respect to portfolio securities and with respect to interest rate futures
contracts.
For purposes of Short Duration Government Fund's investment restriction
no. 1 above, "Securitized Assets" denotes securities representing interests in
pools of assets.
Although it has the authority to do so, Short Duration Government Fund
does not currently intend to purchase or sell
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interests in oil, gas or other mineral exploration or development programs.
AS A MATTER OF FUNDAMENTAL POLICY, SHORT DURATION TAX-FREE FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government or any of its agencies, authorities
or instrumentalities, if immediately after such purchase, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would hold
more than 10% of any class of the outstanding voting securities of such issuer,
except that (a) up to 25% of the Fund's total assets may be invested without
regard to such limitations and (b) such limitations shall not apply to
repurchase agreements collateralized by obligations of the U.S. government or
any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This restriction is not applicable to
investments in tax-exempt securities issued by state and municipal governments
and their agencies and instrumentalities; telephone companies are considered to
be a separate industry from water, gas or electric utilities; personal credit
finance companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents). This limitation does not apply to
investments or obligations of, or to municipal securities which have been
pre-refunded by the use of obligations of, the U.S. government or any of its
agencies or instrumentalities. The Fund may invest 25% or more of the value of
its total assets in Municipal Securities which are related in such a way that
an economic, business or political development or change affecting one
Municipal Security would also affect the other Municipal Securities. The Fund
may so invest in (a) Municipal Securities the interest on which is paid solely
from revenues of similar projects such as hospitals, electric utility systems,
multi-family housing, nursing homes, commercial facilities (including hotels),
steel companies or life care facilities, (b) Municipal Securities whose issuers
are in the same state or (c) industrial development obligations.
3. Borrow money, except: (a) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding
one-third of the Fund's total assets, not including the amount borrowed; (b) in
connection with the redemption of Fund shares of the Fund or to finance failed
settlements of portfolio trades without immediately liquidating portfolio
securities or other assets; and (c) in order to fulfill commitments or plans to
purchase additional securities pending the anticipated sale of other portfolio
securities or assets, but only if after each such borrowing there is asset
coverage of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales,
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<PAGE>
futures contracts, options on futures contracts, securities or indices and
forward commitment transactions shall not constitute borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to futures contracts and options on futures
contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures and options
on futures.
6. Make short sales of securities, except short sales against-the-box,
or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate
limited partnerships) or oil, gas or mineral leases, although the Fund may
purchase and sell securities that are secured by real estate or interests
therein and may purchase mortgage-related securities and may hold and sell real
estate acquired by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities or indices, and
options on futures contracts and purchase and sell securities on a forward
commitment or delayed-delivery basis.
10. Lend any funds or other assets except through the purchase of all
or a portion of an issue of securities or obligations of the type in which it
may invest; however, the Fund may lend its portfolio securities in an amount
not to exceed 33 1/3% of the value of its total assets. Any loans of portfolio
securities will be made in accordance with guidelines established by the SEC
and the Trust's Board of Trustees.
11. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restriction Nos. 3, 4, 9 and 10
and except for any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees
of the Trust have voluntarily adopted the following policies and restrictions
on behalf of Short Duration Tax-Free Fund which are observed in the conduct of
its affairs. These represent intentions of the Trustees based upon current
circumstances. They
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<PAGE>
differ from fundamental investment restrictions in that they may be changed or
amended by action of the Trustees of the Trust without prior notice to or
approval of shareholders. Accordingly, Short Duration Tax-Free Fund may not:
(a) Purchase or retain the securities of any issuers if the officers,
directors, partners or Trustees of the Trust, its investment adviser or manager
owning beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
(b) Invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act.
(c) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads or straddles, other than protective put options. The
aggregate value of premiums paid on all options, other than protective puts,
held by the Fund at any time will not exceed 5% of its total assets.
(d) Invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the 1933 Act; or (b) more than
10% of its total assets in restricted securities (including those eligible for
resale under Rule 144A).
(e) Purchase additional securities if the Fund's borrowings exceed 5%
of its net assets.
(f) Invest more than 5% of the Fund's total assets in the securities of
issuers which, together with predecessors, have a record of less than three
years of continuous operation, other than Municipal Securities that have been
rated A or better by Moody's or Standard & Poor's.
For the purpose of applying Short Duration Tax-Free Fund's investment
restrictions, the identification of the issuer of a Municipal Security that is
not a general obligation is made by the Adviser based on the characteristics of
the Municipal Security, the most important of which is the source of funds for
the payment of principal and interest on such securities. For purposes of the
foregoing limitations, any limitation which involves a maximum percentage shall
not be considered violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by, the Fund. With respect to fundamental investment
restriction No. 3, the Fund must maintain asset coverage of at
B-62
<PAGE>
least 300% (as defined in the Act), inclusive of any amounts borrowed.
AS A MATTER OF FUNDAMENTAL POLICY, MUNICIPAL FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. government or any of its agencies, authorities or
instrumentalities, if immediately after such purchase, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would hold
more than 10% of any class of the outstanding voting securities of such issuer,
except that (a) up to 25% of the Fund's total assets may be invested without
regard to such limitations and (b) such limitations shall not apply to
repurchase agreements collateralized by obligations of the U.S. government or
any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. (This restriction is not applicable to
investments in tax-exempt securities issued by state and municipal governments
and their agencies and instrumentalities; telephone companies are considered to
be a separate industry from water, gas or electric utilities; personal credit
finance companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents). This limitation does not apply to
investments or obligations of, or to Municipal Securities which have been
pre-refunded by the use of obligations of, the U.S. government or any of its
agencies or instrumentalities. The Fund may invest 25% or more of the value of
its total assets in Municipal Securities which are related in such a way that
an economic, business or political development or change affecting one
Municipal Security would also affect the other Municipal Securities. The Fund
may so invest in (a) Municipal Securities the interest on which is paid solely
from revenues of similar projects such as hospitals, electric utility systems,
multi-family housing, nursing homes, commercial facilities (including hotels),
steel companies or life care facilities, (b) Municipal Securities whose
issuers are in the same state, or (c) industrial development obligations.
3. Borrow money, except: (a) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding
one-third of the Fund's total assets, not including the amount borrowed; (b) in
connection with the redemption of shares of the Fund or to finance failed
settlements of portfolio trades without immediately liquidating portfolio
securities or other assets; and (c) in order to fulfill commitments or plans to
purchase additional securities pending the anticipated sale of other portfolio
securities or assets, but only if after each such borrowing there is asset
coverage of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales, futures contracts, options on futures
contracts, securities or
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<PAGE>
indices and forward commitment transactions shall not constitute borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to futures contracts and options on futures
contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in options, futures and options on
futures.
6. Make short sales of securities, except short sales against-the-box,
or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities or indices, and
options on futures contracts and purchase and sell securities on a forward
commitment or delayed-delivery basis.
10. Lend any funds or other assets except through repurchase agreements or
the purchase of all or a portion of an issue of securities or obligations of the
type in which it may invest; however, the Fund may lend its portfolio securities
in an amount not to exceed 33-1/3% of the value of its total assets. Any loans
of portfolio securities will be made in accordance with guidelines established
by the SEC and the Trust's Board of Trustees.
11. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restriction No. 3 and except for
any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees
of the Trust have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions
of the Trustees based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of
B-64
<PAGE>
the Trustees of the Trust without prior notice to or approval of shareholders.
Accordingly, the Municipal Income Fund may not:
(a) Purchase or retain the securities of any issuers if the officers,
directors, partners or Trustees of the Trust, its investment adviser or manager
owning beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
(b) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads or straddles, other than protective put options. The
aggregate value of premiums paid on all options, other than protective puts,
held by the Fund at any time will not exceed 5% of the Fund's total assets.
(c) Invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or
(b) more than 10% of its total assets in restricted securities (including those
eligible for resale under Rule 144A).
(d) Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
(e) Invest more than 5% of the Fund's total assets in the securities of
issuers which, together with predecessors, have a record of less than three
years of continuous operation, other than Municipal Securities that have been
rated A or better by Moody's or Standard & Poor's.
(f) Invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act.
For the purpose of applying the Fund's investment restrictions, the
identification of the issuer of a Municipal Security that is not a general
obligation made by the Adviser based on the characteristics of the Municipal
Security, the most important of which is the source of funds for the payment of
principal and interest on such securities. For purposes of the foregoing
limitations, any limitation which involves a maximum percentage shall not be
considered violated unless an excess over the percentage occurs immediately
after, and is caused by, an acquisition or encumbrance of securities or assets
of, or borrowings by, the Fund. With respect to fundamental investment
restriction No. 3, the Fund must maintain asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed.
B-65
<PAGE>
AS A MATTER OF FUNDAMENTAL POLICY, CORE FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government or any of its agencies, authorities
or instrumentalities, if immediately after such purchase, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would hold
more than 10% of any class of the outstanding voting securities of such issuer,
except that (a) up to 25% of the Fund's total assets may be invested without
regard to such limitations and (b) such limitations shall not apply to
repurchase agreements collateralized by obligations of the U.S. government or
any of its agencies, authorities or instrumentalities.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry. This limitation does not apply to investments
or obligations of the U.S. government or any of its agencies or
instrumentalities.
3. Borrow money, except: (a) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not exceeding
one-third of the Fund's total assets, not including the amount borrowed; (b) in
connection with the redemption of Fund shares or to finance failed settlements
of portfolio trades without immediately liquidating portfolio securities or
other assets; (c) in order to fulfill commitments or plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets, and (d) transactions in mortgage dollar rolls which are
accounted for as financings, but only if after each such borrowing there is
asset coverage of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales, mortgage dollar rolls that are not
accounted for as financings, options, transactions in currencies, forward
contracts, currency, mortgage and interest rate swaps (to the extent a
segregated account has been established collateralizing the Fund's swap
obligations), interest rate caps and floors, futures contracts, options on
futures contracts and forward commitment transactions shall not constitute
borrowing.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward currency contracts, futures contracts and
options on futures contracts, securities or indices.
5. Purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures contracts
and options on futures contracts.
B-66
<PAGE>
6. Make short sales of securities, except short sales against-the-box,
or maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate
limited partnerships) or oil, gas or mineral leases, although the Fund may
purchase and sell securities that are secured by real estate or interests
therein, may purchase mortgage-related securities and may hold and sell real
estate acquired by the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies or
indices, and options on futures contracts or currencies and purchase and sell
securities or currencies on a forward commitment or delayed-delivery basis.
10. Lend any funds or other assets except through repurchase agreements
or the purchase of all or a portion of an issue of securities or obligations of
the type in which it may invest; however, the Fund may lend its portfolio
securities in an amount not to exceed 33-1/3% of the value of its total assets.
11. Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restriction No. 3 and except for
any class or series of its shares of beneficial interest.
In addition to the investment restrictions mentioned above, the Trustees
of the Trust have voluntarily adopted the following policies and restrictions
on behalf of Core Fund which are observed in the conduct of its affairs. These
represent intentions of the Trustees based upon current circumstances. They
differ from fundamental investment restrictions in that they may be changed or
amended by action of the Trustees of the Trust without prior notice to or
approval of shareholders. Accordingly, Core Fund may not:
(a) Purchase or retain the securities of any issuers if the officers,
directors, partners or Trustees of the Trust, its investment adviser or manager
owning beneficially more than one-half of 1% of the securities of such issuer,
together own beneficially more than 5% of such securities.
(b) Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads or straddles, other than protective put options. The
aggregate value of premiums paid on all options, other than protective puts,
held by the Fund at any time will not exceed 5% of the Fund's total assets.
(c) Invest (a) more than 15% of the Fund's net assets in illiquid
investments including repurchase agreements maturing in
B-67
<PAGE>
more than seven days, securities which are not readily marketable and
restricted securities not eligible for resale pursuant to Rule 144A under the
1933 Act; or (b) more than 10% of its total assets in restricted securities
(including those eligible for resale pursuant to Rule 144A).
(d) Purchase additional securities if the Fund's borrowings exceed
(excluding covered mortgage dollar rolls) 5% of its total assets.
(e) Invest more than 5% of the Fund's total assets in the securities of
issuers which, together with predecessors, have a record of less than three
years of continuous operation.
(f) Invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act.
AS A MATTER OF FUNDAMENTAL POLICY, GLOBAL INCOME FUND MAY NOT:
(1) Borrow money, except from banks on a temporary basis, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, short sales,
transactions in currency, forward contracts, options, futures contracts and
options on futures contracts, and forward commitment transactions shall not
constitute borrowing.
(2) Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments in
obligations of the U.S. government or any of its agencies or
instrumentalities.
(3) Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
segregation of assets in connection with the writing of covered put and call
options and the purchase of securities or currencies on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to forward contracts, options, futures contracts and
options on futures contracts.
(4) Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.
(5) Make short sales of securities, except short sales against-the-box,
or maintain a short position. (The Fund does not currently intend to make
short sales against-the-box.)
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<PAGE>
(6) Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
(7) Purchase, hold or deal in real estate, including limited partnership
interests, or oil and gas interests, although the Fund may purchase and sell
securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
by the Fund as a result of the ownership of securities.
(8) Invest in commodities, except that the Fund may (a) purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on any such futures contracts or currencies, and (b)
purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
(9) Lend any funds or other assets except through the purchase of all or
a portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may lend portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f)
of the Act), except as permitted in Investment Restriction Nos. (1), (4), (5)
and (9).
In addition, as non-fundamental policies, Global Income Fund may not:
(a) Invest in the securities of other investment companies, provided
that the Fund may make such an investment as part of a merger, consolidation,
or acquisition of assets, and provided further that the Fund may make such an
investment in the open market where no commission or profit to a sponsor or
dealer results from the purchase other than customary brokers' commissions and
then only to the extent permitted by the Act.
(b) Purchase warrants of any issuer, except on a limited basis, if, as a
result, more than 2% of the value of its total assets would be invested in
warrants which are not listed on the New York Stock Exchange and more than 5%
of the value of its total assets would be invested in warrants, whether or not
so listed, such warrants in each case to be valued at the lesser of cost or
market, but assigning no value to warrants acquired by the Fund in shares or
attached to debt securities.
(c) Invest (a) more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or
(b) more than 10% of its total assets in restricted securities (including those
eligible for resale under Rule 144A).
B-69
<PAGE>
(d) Purchase additional securities if the amount of the Fund's borrowings
exceeds 5% of the Fund's net assets.
(e) Invest more than 5% of the Fund's total assets in the securities of
issuers which, together with predecessors, have a record of less than three
years of continuous operation.
MANAGEMENT
TRUSTEES AND OFFICERS
- ---------------------
Information pertaining to the Trustees and officers of the Trust is set
forth below together with their respective positions and a brief statement of
their principal occupations during the past five years. Trustees deemed to be
"interested persons" of the Trust for purposes of the Act are indicated by an
asterisk.
Ashok N. Bakhru, Age 53, 1325 Avenue of the Americas, 34th Floor, New York, New
York 10019. Chairman of the Board of Trustees. Executive Vice
---------------------------------
President-Finance and Administration and Chief Financial Officer, Coty Inc.
(since April 1996); President, ABN Associates, Inc. (since June 1994).
Retired, Senior Vice President, Scott Paper Company (until June 1994);
Director, Arkwright Mutual Insurance Company; Trustee, International House of
Philadelphia; Member of Cornell University Council; Trustee of Walnut Street
Theater.
David B. Ford,* Age 51, One New York Plaza, New York, New York 10004.
Trustee. Managing Director, Goldman Sachs (since 1996); General Partner,
- -------
Goldman Sachs, (1986-1996); Co-Head of GSAM since December 1994.
Douglas C. Grip,* Age 35, One New York Plaza, New York, New York 10004.
President and Trustee. Vice President, Goldman Sachs since May 1996;
- ---------------------
President, MFS Retirement Services Inc. of Massachusetts Financial Services
prior thereto.
John P. McNulty,* Age 44, One New York Plaza, New York, New York 10004.
Trustee. Managing Director, Goldman Sachs since 1996; General Partner of
- -------
Goldman Sachs from 1990 to 1994 and 1995-1996; Co-Head of GSAM since November
1996; Limited Partner of Goldman Sachs from 1994 to November 1995.
Mary P. McPherson, Age 60, Taylor Hall, Bryn Mawr College, Bryn Mawr, PA 19010.
Trustee. President of Bryn Mawr College since 1978; Director of Josiah
- -------
Mach, Jr. Foundation since 1977; Director of the Philadelphia Contributionship
since 1985; Director of Amherst College since 1986; Director of Dayton Hudson
Corporation since 1988; Director of the Spencer Foundation since 1993; and
member of PNC Avisory Board since 1993.
Alan A. Shuch,* Age 48, One New York Plaza, New York, New York 10004.
Trustee. Limited Partner, Goldman Sachs (since 1994); Director and Vice
- -------
President, Goldman Sachs Funds Management, Inc. from April 1990 to November
1994; President and Chief Operating
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<PAGE>
Officer, GSAM from September 1988 to November 1994; Limited Partner, Goldman
Sachs since December 1994.
Jackson W. Smart, Jr., Age 66, One Northfield Plaza, #218, Northfield, Illinois
60093. Trustee. Chairman, Executive Committee, First Commonwealth, Inc.
-------
(a managed dental care company, since January 1996); Chairman and Chief
Executive Officer, MSP Communications Inc. (a company engaged in radio
broadcasting) since November 1988; Director, Federal Express Corporation since
1976; Evanston Hospital Corporation (since 1980) and First Commonwealth,Inc.
(since 1988) and North American Private Equity Group (a venture capital fund).
William H. Springer, Age 67, 701 Morningside Drive, Lake Forest, Illinois
60045. Trustee. Vice Chairman and Chief Financial and Administrative
-------
Officer, Ameritech (a telecommunications holding company) from February 1987 to
retirement in 1992; Director, American Information Technologies Corporation;
Director, Walgreen Co. (a retail drugstore business); and Baker, Fentress & Co.
(a closed-end non-diversified management investment company).
Richard P. Strubel, Age 57, 70 West Madison Street, Suite 1400, Chicago,
Illinois 60602. Trustee. Managing Director, Tandem Partners, Inc. (since
-------
1990); President and Chief Executive Officer, Microdot, Inc. (a diversified
manufacturer of fastening systems and connectors) from January 1984 to October
1994;
Pauline Taylor,* Age 50, 4900 Sears Tower, Chicago, Illinois 60606. Vice
----
President. Vice President, Goldman Sachs since June 1992; Consultant from
- ---------
1989 to June 1992.
Nancy L. Mucker,* Age 47, 4900 Sears Tower, Chicago, Illinois 60606. Vice
-----
President. Vice President, Goldman Sachs; Manager, Shareholder Services for
- ---------
GSAM (since November 1989).
John W. Mosior,* Age 58, 4900 Sears Tower, Chicago, Illinois 60606. Vice
-----
President. Vice President, Goldman Sachs; Manager, Shareholder Services for
- ---------
GSAM (since 1989).
Scott M. Gilman,* Age 37, One New York Plaza, New York, New York 10004.
Treasurer. Director, Mutual Funds Administration, GSAM since April 1994.
- ---------
Assistant Treasurer of Goldman Sachs Funds Management, Inc. since March 1993.
Vice President, Goldman Sachs since March, 1990; Assistant Treasurer of the
Trust from April 1990 until October 1991.
John Perlowski, Age 32, One New York Plaza, New York, New York 10004.
Assistant Treasurer. Vice President, Goldman, Sachs & Co., July 1995 to
- -------------------
Present. Director/Fund Accounting & Custody, Investors Bank & Trust Co.,
November 1993 to July 1995. Formerly, Manager, Audit Division, Arthur Andersen,
September 1986 to November 1993.
Michael J. Richman,* Age 36, 85 Broad Street, New York, New York 10004.
Secretary. Associate General Counsel of GSAM (since February 1994);
- ---------
Assistant General Counsel and Vice President of
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<PAGE>
Goldman Sachs; Counsel to the Funds Group, GSAM since June 1992; Partner, Hale
and Dorr from September 1991 to June 1992.
Howard B. Surloff,* Age 31, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Vice President and Assistant General Counsel, Goldman
- -------------------
Sachs since November 1993 and May 1994, respectively; Counsel to the Funds
Group, GSAM since November 1993; Associate of Shereff, Friedman, Hoffman &
Goodman (prior thereto).
Steven E. Hartstein*, Age 33, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Legal Products Analyst, Goldman Sachs since June
- -------------------
1993; Funds Compliance Officer, Citibank Global Asset Management (from August
1991 to June 1993); Legal Assistant, Brown & Wood (prior thereto).
Deborah A. Farrell*, Age 25, 85 Broad Street, New York, New York 10004.
Assistant Secretary. Administrative Assistant, Goldman Sachs since January
- -------------------
1994. Formerly at Cleary, Gottlieb, Stein and Hamilton.
Kaysie Uniacke*, Age 35, One New York Plaza, New York, New York 10004.
Assistant Secretary. Vice President and Senior Portfolio Manager, GSAM
- -------------------
1988 to Present.
Elizabeth Alexander*, Age 27, One New York Plaza, New York, New York 10004.
Assistant Secretary. Portfolio Manager, GSAM (since April 1996); Junior
- -------------------
Portfolio Manager, Goldman Sachs 1995-1996. Funds Trading Assistant, GSAM 1993
- - 1995. Formerly, Compliance Analyst, Prudential Insurance, from 1991 to 1993.
The Trustees and officers of the Trust hold comparable positions with
certain other investment companies of which Goldman Sachs, GSAM or GSFM is the
investment adviser, administrator and/or distributor. As of December 31, 1996,
the Trustees and officers as a group owned less than 1% of the outstanding
shares of beneficial interest of each Fund.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended October
31, 1996:
Total
Pension or Compensation
Aggregate Retirement from Goldman
Compensation Benefits Accrued Sachs Mutual
from the as of Part of Funds (including
Trust Trust's Expenses the Trust)/1/
------------ ---------------- ----------------
Name of Trustees
Ashok N. Bakhru $4,109 $0 $77,375
Marcia L. Beck/2/ $0 $0 $0
David B. Ford $0 $0 $0
Douglas C. Grip $0 $0 $0
Paul C. Nagel, Jr./3/ $2,525 $0 $50,500
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<PAGE>
Alan A. Shuch $0 $0 $0
Jackson W. Smart $3,169 $0 $65,750
William H. Springer $3,169 $0 $65,750
Richard P. Strubel $3,169 $0 $65,750
1 The Goldman Sachs Mutual Funds consisted of 29 mutual funds, including the
seven series of the Trust, on October 31, 1996.
2 Resigned as of May 1, 1996.
3 Retired as of June 30, 1996.
INVESTMENT ADVISERS
- -------------------
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, serves as the investment adviser to Municipal Income
Fund, Government Income Fund, Global Income Fund, Short Duration Tax-Free Fund
and Core Fund pursuant to separate investment advisory agreements. FMLP, One
New York Plaza, New York, New York 10004, serves as the investment adviser to
Adjustable Rate Fund and Short Duration Government Fund pursuant to separate
investment advisory agreements. FMLP, a Delaware limited partnership, is an
affiliate of Goldman Sachs. GSAMI, 140 Fleet Street, London EC4A 2BJ, England,
acts as the Global Income Fund's subadviser. As a company with unlimited
liability under the laws of England, GSAMI is regulated by the Investment
Management Regulatory Organization Limited, a United Kingdom self-regulatory
organization, in the conduct of its investment advisory business. GSAM also
serves as administrator to Municipal Income Fund, Government Income Fund and
Global Income Fund. See "MANAGEMENT" in the Funds' Prospectuses for a
description of the applicable Adviser's duties as investment adviser or
subadviser.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is among the principal
market sources for current and thorough information on companies, industrial
sectors, markets, economies and currencies, and trades and makes markets in a
wide range of equity and debt securities 24 hours a day. The firm is
headquartered in New York and has offices throughout the United States and in
Beijing, Brazil, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico,
Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney, Taipei,
Tokyo, Toronto, Vancouver and Zurich. It has trading professionals throughout
the United States, as well as in London, Tokyo, Hong Kong and Singapore. The
active participation of Goldman Sachs in the world's financial markets enhances
its ability to identify attractive investments.
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The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $160
million, Goldman Sachs' Investment Research Department covers approximately
1,700 companies, including approximately 1,000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs'
research analysts are available to the Advisers.
For more than a decade, Goldman Sachs has been among the top-ranked firms
in Institutional Investor's annual "All-America Research Team" survey. In
addition, many of Goldman Sachs' economists, securities analysts, portfolio
strategists and credit analysts have consistently been highly ranked in
respected industry surveys conducted in the U.S. and abroad. Goldman Sachs is
also among the leading investment firms using quantitative analytics (now used
by a growing number of investors) to structure and evaluate portfolios. For
example, Goldman Sachs' options evaluation model analyzes each security's term,
coupon and call option, providing an overall analysis of the security's value
relative to its interest risk.
In planning the Tax Exempt Funds' strategies, the portfolio managers also
evaluate and monitor individual issues by using analytical techniques that have
traditionally been applied to corporate bonds and Mortgage-Backed Securities.
In particular, the Adviser's embedded option valuation model provides a picture
of an individual security's relative value and the portfolio's overall interest
rate risk. By constantly reviewing the positions of securities within the
portfolio, the Adviser looks for opportunities to enhance the Tax Exempt Funds'
yields by fine-tuning the portfolio, using quantitative tools designed for
municipal portfolio management. The Adviser, which managed approximately $3
billion in tax-free securities in 1996, has assembled an experienced team of
professionals for selection of the Tax Exempt Funds' portfolio securities. The
Adviser manages money for some of the world's largest institutional
investors.
In structuring Adjustable Rate Fund's and Short Duration Government
Fund's respective securities portfolio, the Adviser will review the existing
overall economic and mortgage market trends. The Adviser will then study yield
spreads, the implied volatility and the shape of the yield curve. The Adviser
will then apply this analysis to a list of eligible securities that meet the
respective Fund's investment guidelines. With respect to Adjustable Rate Fund,
this analysis is used to plan a two-part portfolio, which will consist of a
"core" portfolio of ARMs and a "relative value" portfolio of other mortgage
assets that can enhance portfolio returns and lower risk (such as investments
in CMO floating-rate tranches and interest only stripped Mortgage-Backed
Securities).
With respect to Adjustable Rate Fund, Government Income Fund, Short
Duration Government Fund and Core Fund, the applicable Adviser expects to
utilize Goldman Sachs' sophisticated option-adjusted analytics to help make
strategic asset allocations
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within the markets for U.S. government, Mortgage-Backed and other securities and
to employ this technology periodically to re-evaluate the Funds' investments as
market conditions change. Goldman Sachs has also developed a prepayment model
designed to estimate mortgage prepayments and cash flows under different
interest rate scenarios. Because a Mortgage-Backed Security incorporates the
borrower's right to prepay the mortgage, the Advisers use a sophisticated
option-adjusted spread (OAS) model to measure expected returns. A security's OAS
is a function of the level and shape of the yield curve, volatility and the
applicable Adviser's expectation of how a change in interest rates will affect
prepayment levels. Since the OAS model assumes a relationship between
prepayments and interest rates, the Advisers consider it a better way to measure
a security's expected return and absolute and relative values than yield to
maturity. In using OAS technology, the Advisers will first evaluate the absolute
level of a security's OAS considering its liquidity and its interest rate,
volatility and prepayment sensitivity. The Advisers will then analyze its value
relative to alternative investments and to its own investments. The Advisers
will also measure a security's interest rate risk by computing an option
adjusted duration (OAD). The Advisers believe a security's OAD is a better
measurement of its price sensitivity than cash flow duration, which
systematically misstates portfolio duration. The Advisers also evaluate returns
for different mortgage market sectors and evaluate the credit risk of individual
securities. This sophisticated technical analysis allows the Advisers to develop
portfolio and trading strategies using Mortgage-Backed Securities that are
believed to be superior investments on a risk-adjusted basis and which provide
the flexibility to meet the respective Fund's duration targets and cash flow
pattern requirements.
Because the OAS is adjusted for the differing characteristics of the
underlying securities, the OAS of different Mortgage-Backed Securities can be
compared directly as an indication of their relative value in the market. The
Advisers also expect to use OAS-based pricing methods to calculate projected
security returns under different, discrete interest rate scenarios, and Goldman
Sachs' proprietary prepayment model to generate yield estimates under these
scenarios. The OAS, scenario returns, expected returns, and yields of
securities in the mortgage market can be combined and analyzed in an optimal
risk-return matching framework.
The Advisers will use OAS analytics to choose what they believe is an
appropriate portfolio of investments for Adjustable Rate Fund, Government
Income Fund, Short Duration Government Fund and Core Fund from a universe of
eligible investments. In connection with initial portfolio selections, in
addition to using OAS analytics as an aid to meeting each Fund's particular
composition and performance targets, the Advisers will also take into account
important market criteria like the available supply and relative liquidity of
various mortgage securities in structuring the portfolio.
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<PAGE>
The Advisers also expect to use OAS analytics to evaluate the mortgage
market on an ongoing basis. Changes in the relative value of various Mortgage-
Backed Securities could suggest tactical trading opportunities for the Funds.
The Advisers will have access to both current market analysis as well as
historical information on the relative value relationships among different
Mortgage-Backed Securities. Current market analysis and historical information
is available in the Goldman Sachs database for most actively traded Mortgage-
Backed Securities.
Goldman Sachs has agreed to provide the Advisers, on a non-exclusive
basis, use of its mortgage prepayment model, OAS model and any other
proprietary services which it now has or may develop, to the extent such
services are made available to other similar customers. Use of these services
by the Advisers with respect to a Fund does not preclude Goldman Sachs from
providing these services to third parties or using such services as a basis for
trading for its own account or the account of others.
The fixed-income research capabilities of Goldman Sachs available to the
Advisers include the Goldman Sachs Fixed Income Research Department and the
Credit Department. The Fixed Income Research Department monitors developments
in U.S. and foreign fixed-income markets, assesses the outlooks for various
sectors of the markets and provides relative value comparisons, as well as
analyzes trading opportunities within and across market sectors. The Fixed
Income Research Department is at the forefront in developing and using
computer-based tools for analyzing fixed-income securities and markets,
developing new fixed income products and structuring portfolio strategies for
investment policy and tactical asset allocation decisions. The Credit
Department tracks specific governments, regions and industries and from time to
time may review the credit quality of a Fund's investments.
In addition to fixed-income research and credit research, the Advisers in
managing Global Income Fund are supported by Goldman Sachs' economics research.
The Economics Research Department, based in London, conducts economic, financial
and currency markets research which analyzes economic trends and interest and
exchange rate movements worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the annual "Extel Financial Survey"
of U.K. investment managers in the following categories: U.K. Economy 1989-1995;
International Economies 1986, 1988-1995; International Government Bond Market
1993-1995; and Currency Movements 1986-1993.
In allocating assets in the Global Income Fund's portfolio among
currencies, the Advisers will have access to the Global Asset Allocation Model.
The model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Advisers will
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estimate the total returns from each currency sector which are consistent with
the average investor holding a portfolio equal to the market capitalization of
the financial assets among those currency sectors. These estimated equilibrium
returns are then combined with Goldman Sachs' research professionals'
expectations to produce an optimal currency and asset allocation for the level
of risk suitable for the Fund's investment objective and criteria.
Each Fund's advisory agreement, and in the case of Global Income Fund,
the Subadvisory Agreement (the "Advisory Agreements"), was most recently
approved by the Trustees of the Trust, including a majority of the Trustees of
the Trust who are not parties to such agreements or "interested persons" (as
such term is defined in the Act) of any party thereto (the "non-interested
Trustees"), on April 24, 1996. The applicable Fund's Advisory Agreement,
including Global Income Fund's Subadvisory Agreement, was approved by the
shareholders of Adjustable Rate Fund on October 30, 1991, the shareholders of
Short Duration Government Fund on March 27, 1989, the shareholders of Global
Income Fund on December 5, 1991, the sole initial shareholder of Short Duration
Tax-Free Fund on September 25, 1992, the sole initial shareholder of Government
Income Fund on January 30, 1993, the sole initial shareholder of Municipal
Income Fund on July 16, 1993 and the sole initial shareholder of Core Fund on
October 29, 1993. Each Advisory Agreement will remain in effect until June 30,
1997 and will continue in effect with respect to the applicable Fund from year
to year thereafter provided such continuance is specifically approved at least
annually by (a) the vote of a majority of the outstanding voting securities of
such Fund or a majority of the Trustees of the Trust, and (b) the vote of a
majority of the non-interested Trustees of the Trust, cast in person at a
meeting called for the purpose of voting on such approval.
Each Advisory Agreement will terminate automatically if assigned (as
defined in the Act). Each Advisory Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of a Fund on 60 days' written notice to the
applicable Adviser or by the Adviser on 60 days' written notice of the
Trust.
The Advisory Agreements provide that GSAM, FMLP and GSAMI, in their
capacity as advisers and subadviser, respectively, may each render similar
services to others so long as the services under the Advisory Agreements are
not impaired thereby. Pursuant to the Advisory Agreements, the Adviser is
entitled to receive the fee set forth below and the Adviser is currently
limiting the fee to the rate set forth below:
Contractual Current
Rate Rate
---- ----
Adjustable Rate Fund 0.40% 0.40%
Short Duration Government Fund 0.50% 0.40%
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Government Income Fund 0.50% 0.25%
Short Duration Tax-Free Fund 0.40% 0.40%
Municipal Income Fund 0.40% 0.40%
Core Fund 0.40% 0.40%
Global Income Fund
Advisory 0.25% 0.12%
Subadvisory 0.50% 0.32%
Such reduction or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser at its
discretion at any time. See "Expenses" for discussion of Global Income Fund's
other expense limitations.
For the fiscal years ended October 31, 1996, 1995 and 1994, the amounts
of the investment advisory fees incurred by each Fund then in existence were as
follows:
1996 1995 1994
---- ---- ----
Adjustable Rate Fund $2,535,709 $2,947,492 $6,798,185
Short Duration Government 411,360 517,091 1,063,867
Fund/(1)/
Short Duration Tax-Free Fund 169,796 260,970 468,868
Core Fund/(2)/ 246,568 137,158 56,255
Global Income Fund/(3)/ 1,117,226 706,460 1,518,814
Government Income Fund/(4)/ 74,060 44,037 0
Municipal Income Fund/(5)/ 211,283 154,707 35,494
_________________________
(1) Had expense limitations not been in effect, Short Duration Government
Fund would have paid advisory fees of $514,200, $646,364 and $1,329,834,
respectively, for such years.
(2) Core Fund commenced operations January 5, 1994.
(3) For the same periods, Global Income Fund paid GSAMI Subadvisory fees of
$837,920, $1,412,921 and $3,037,627, respectively. If expense
limitations had not been in effect, Global Income Fund would have paid
advisory and subadvisory fees of $1,474,204 and $491,401, respectively,
for the year ended October 31, 1996 and $789,127 and $1,578,254,
respectively, for the year ended October 31, 1995.
(4) Had expense limitations not been in effect, Government Income Fund would
have paid advisory fees of $148,120, $101,737 and $65,604, respectively,
for such years.
(5) Had expense limitations not been in effect for the years ended October
31, 1995 and 1994, Municipal Income Fund would have paid advisory fees of
$200,207 and $174,161, respectively, for such years.
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<PAGE>
Each Adviser performs administrative services for the applicable Funds
under the Advisory Agreements, except in the case of Global Income Fund,
Government Income Fund and Municipal Income Fund where GSAM performs
administrative services under a separate Administration Agreement. Such
administrative services include, subject to the general supervision of the
Trustees of the Trust, (a) providing supervision of all aspects of the Funds'
non-investment operations (other than certain operations performed by others
pursuant to agreements with the Funds), (b) providing the Funds, to the extent
not provided pursuant to such agreements, the agreement with the Trust's
custodian, transfer and dividend disbursing agent or agreements with other
institutions, with personnel to perform such executive, administrative and
clerical services as are reasonably necessary to provide effective
administration of the Funds, (c) arranging, to the extent not provided pursuant
to such agreements, for the preparation, at the Funds' expense, of each Fund's
tax returns, reports to shareholders, periodic updating of the Funds'
prospectuses and statements of additional information, and reports filed with
the SEC and other regulatory authorities, (d) providing the Funds, to the extent
not provided pursuant to such agreements, with adequate office space and certain
related office equipment and services, and (e) maintaining all of the Funds'
records other than those maintained pursuant to such agreements.
For the services provided to the Municipal, Government and Global Income
Funds under their respective administration agreements, the Global Income and
Municipal Income Funds each pays GSAM a monthly fee equal to 0.15% of 1% of
such Fund's average daily net assets on an annual basis. GSAM is currently
waiving its entire administration fee with respect to Government Income Fund.
Although it has no current intentions to do so, GSAM may modify or discontinue
such agreement at its discretion at any time.
For the fiscal years ended October 31, 1996, 1995 and 1994, the amounts
of the administration fees incurred by the Funds then in existence were as
follows:
1996 1995 1994
---- ---- ----
Municipal Income Fund/(1)/ 79,231 75,077 55,277
Government Income Fund/(2)/ 0 0 0
Global Income Fund 393,263 473,476 911,288
_____________________
(1) For the fiscal year ended October 31, 1994, GSAM voluntarily agreed not
to impose a portion of its administration fee amounting to $10,229.
(2) For the fiscal years ended October 31, 1996, October 31, 1995 and October
31, 1994, GSAM voluntarily agreed not to impose its administration fees,
which would have amounted to $44,433, $30,521 and $19,681, respectively,
for such periods.
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ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS
------------------------------------------------------------------
MANAGED BY GOLDMAN SACHS. The involvement of the Advisers and Goldman
- ------------------------
Sachs and their affiliates, in the management of, or their interest in, other
accounts and other activities of Goldman Sachs may present conflicts of
interest with respect to the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, Goldman Sachs International ("GSI") and
J. Aron & Co. ("ARON") have proprietary interests in, and may manage or advise
with respect to, accounts or funds (including separate accounts and other funds
and collective investment vehicles) which have investment objectives similar to
those of the Funds and/or which engage in transactions in the same types of
securities, currencies and instruments as the Funds. Goldman Sachs and its
affiliates are major participants in the global currency, equities, swap and
fixed-income markets, in each case on a proprietary basis and for the accounts
of customers. As such, Goldman Sachs and its affiliates are actively engaged in
transactions in the same securities, currencies, and instruments in which the
Funds invest. Such activities could affect the prices and availability of the
securities, currencies, and instruments in which the Funds invest, which could
have an adverse impact on each Fund's performance. Such transactions,
particularly in respect of proprietary accounts or customer accounts other than
those included in the Advisers' and their advisory affiliates' asset management
activities, will be executed independently of the Funds' transactions and thus
at prices or rates that may be more or less favorable. When the Advisers and
their advisory affiliates seek to purchase or sell the same assets for their
managed accounts, including the Funds, the assets actually purchased or sold
may be allocated among the accounts on a basis determined in its good faith
discretion of such entitles to be equitable. In some cases, this system may
adversely affect the size or the price of the assets purchased or sold for the
Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a
result, there may be periods, for example, when the Advisers, and/or their
affiliates, will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which, or in securities of
issuers for which, the Advisers and/or their affiliates are performing services
or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs, ARON and other affiliates. The Advisers will not
be under any obligation, however, to effect transactions on behalf of the Funds
in accordance with such analysis and models. In addition, neither Goldman
Sachs nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for
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<PAGE>
other accounts managed by them, for the benefit of the management of the Funds
and it is not anticipated that the Advisers will have access to such information
for the purpose of managing the Funds. The proprietary activities or portfolio
strategies of Goldman Sachs and its affiliates or the activities or strategies
used for accounts managed by them or other customer accounts could conflict with
the transactions and strategies employed by the Advisers and Subadviser in
managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results
achieved by a Fund. Moreover, it is possible that a Fund will sustain losses
during periods in which Goldman Sachs and its affiliates achieve significant
profits on their trading for proprietary or other accounts. The opposite
result is also possible.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities,
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any such
member of an investment policy committee will have direct or indirect interests
in the activities of Goldman Sachs and its affiliates in securities, currencies
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs, ARON and/or their
affiliated entities. As a result, the performance by these principals and
employees of their obligations to such other entities may be a consideration of
which investors in the Funds should be aware.
The Advisers may enter into transactions and invest in instruments and,
in the case of Global Income Fund and Core Fund, currencies on behalf of the
applicable Funds in which customers of Goldman Sachs serve as the counterparty,
principal or issuer. In such cases, such party's interests in the transaction
will be adverse to the interests of the Funds, and such party may have no
incentive to assure that the Funds obtain the best possible prices or terms in
connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs
or its affiliates, the underlying securities currencies or instruments of which
may be those in which the Funds invest or which may be based on the performance
of a Fund. The Funds may, subject to applicable law,
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<PAGE>
purchase investments which are the subject of an underwriting or other
distribution by Goldman Sachs or its affiliates and may also enter into
transactions with other clients of Goldman Sachs or its affiliates where such
other clients have interests adverse to those of the Funds. At times, these
activities may cause departments of the Firm to give advice to clients that may
cause these clients to take actions adverse to the interest of the client. To
the extent affiliated transactions are permitted, the Funds will deal with
Goldman Sachs and its affiliates on an arm's-length basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce a
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on a Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
DISTRIBUTOR AND TRANSFER AGENT
- ------------------------------
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Trust dated February 1, 1993, as amended as of January 30,
1996. Pursuant to the distribution agreement, after the Funds' Prospectuses
and periodic reports have been prepared, set in type and mailed to
shareholders, Goldman Sachs will pay for the printing and distribution of
copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs has entered into sales agreements with
certain investment dealers and financial service firms (the "Authorized
Dealers") to solicit subscriptions for Class A and Class B Shares of each of
the Funds that offer such classes of shares. Goldman Sachs received a portion
of the sales load imposed on the sale, in the case of Class A Shares, or
redemption in the case of Class B Shares, of such Fund shares. No Class B
Shares were outstanding during the fiscal years ended October 31, 1994 and
1995. Goldman Sachs retained approximately the following commissions on sales
of Class A shares during the following periods:
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<PAGE>
1996 1995 1994
---- ---- ----
Adjustable Rate Fund*
Class A $79,000 $40,000 n/a
Municipal Income Fund
Class A $24,900 48,000 76,000
Government Income Fund
Class A $17,300 22,000 5,000
Global Income Fund
Class A $52,600 15,000 350,000
_____________________
* Prior to May 15, 1995 Adjustable Rate Fund did not offer Class A Shares.
Goldman Sachs serves as the Trust's transfer and dividend disbursing
agent. Under its transfer agency agreement with the Trust, Goldman Sachs has
undertaken with the Trust with respect to each Fund to (i) record the issuance,
transfer and redemption of shares, (ii) provide confirmations of purchases and
redemptions, and quarterly statements, as well as certain other statements,
(iii) provide certain information to the Trust's custodian and the relevant
subcustodian in connection with redemptions, (iv) provide dividend crediting
and certain disbursing agent services, (v) maintain shareholder accounts, (vi)
provide certain state Blue Sky and other information, (vii) provide
shareholders and certain regulatory authorities with tax-related information,
(viii) respond to shareholder inquiries, and (ix) render certain other
miscellaneous services.
As compensation for the services rendered to the Trust by Goldman Sachs
as transfer and dividend disbursing agent and the assumption by Goldman Sachs
of the expenses related thereto, Goldman Sachs is entitled to receive a fee
from the Short Duration Government Fund, Short Duration Tax-Free Fund and Core
Fund equal to (i) 0.04 of 1% (on an annualized basis) of the average daily net
assets attributable to the applicable class of the Fund; (ii) from the
Government Income, Global Income and Municipal Income Funds with respect to
Class A and Class B shares, $12,000 plus $7.50 per account, together with
out-of-pocket and transactions-related expenses (including those out-of-pocket
expenses payable to servicing agents) and (iii) from the Adjustable Rate Fund
equal to each class' proportionate share of the total transfer agency fees
borne by the Fund, which are equal to $12,000 per year plus $7.50 per account,
together with out-of-pocket expenses (including those out-of-pocket expenses
payable to servicing agents) applicable to Class A shares and 0.04% of the
average daily net assets of the other classes of Adjustable Rate Fund. Goldman
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<PAGE>
Sachs is not entitled to receive a fee from the Institutional and Service
Classes of shares of Global Income Fund.
For the fiscal years ended October 31, 1996, 1995 and 1994 the amounts of
transfer agency fees incurred by each Fund then in existence were as follows:
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Fund 1996 1995 1994
- ---- ---- ---- ----
Adjustable Rate Fund 278,337 306,662 679,819
Short Duration Government Fund 0 0 0
Short Duration Tax-Free Fund 16,980 26,098 46,887
Core Fund/(1)/ 24,657 13,716 5,637
Global Income Fund 121,212 106,764 132,123
Municipal Income Fund 90,284 63,695 70,811
Government Income Fund 72,237 94,095 57,960
________________________
(1) Core Fund commenced operations on January 5, 1994.
The foregoing distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the
services each provides thereunder to the Funds are not impaired thereby. Each
such agreement also provides that the Trust will indemnify Goldman Sachs
against certain liabilities.
EXPENSES
- --------
Except as set forth in the Prospectuses under "MANAGEMENT" the Trust, on
behalf of each Fund, is responsible for the payment of each Fund's respective
expenses. The expenses borne by the outstanding classes of each Fund include,
without limitation, the fees payable to the Adviser and Goldman Sachs, the fees
and expenses of the Trust's custodian, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal, tax and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of Goldman Sachs, or its affiliates, with respect to the Trust),
expenses of preparing and setting in type Prospectuses, Additional Statements,
proxy material, reports and notices and the printing and distributing of the
same to the Trust's shareholders and regulatory authorities, fees under any
distribution, authorized dealer service, administration or service plans
applicable to a particular class, any compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer service,
administration or service plans applicable to a particular class and transfer
agency fees all Fund expenses are borne on a non-class specific basis.
The Advisers voluntarily have agreed to reduce or otherwise limit certain
Other Expenses (excluding advisory, subadvisory and
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administration fees, fees payable under administration, distribution, service
and authorized dealer service plans, taxes, interest, brokerage fees and
litigation, indemnification, transfer agency fees (in the case of Global Income
Fund) and other extraordinary expenses) to the following percentage of each
Fund's average daily net assets:
Short Duration Government Fund 0.05%
Adjustable Rate Fund 0.05%
Municipal Income Fund 0.05%
Government Income Fund 0.00%
Short Duration Tax-Free Fund 0.05%
Core Fund 0.05%
Global Income Fund 0.06%
Such reductions or limits are calculated monthly on a cumulative basis.
Although the Advisers have no current intention of modifying or discontinuing
such expense limitation or the limitations on the advisory or subadvisory fees,
described above under "Advisory and Administrative Services -- Investment
Advisers and Administrator," each may do so in the future at its discretion.
For the fiscal year ended October 31, 1996, October 31, 1995 and October 31,
1994, Other Expenses of each Fund were reduced by the Advisers in the following
amounts:
1996 1995 1994
---- ---- ----
Adjustable Rate Fund 386,863 551,405 442,880
Short Duration
Government Fund 169,069 219,994 115,389
Short Duration
Tax-Free Fund 238,097 213,139 192,696
Core Fund* 233,065 176,469 141,815
Municipal Income Fund 238,203 196,265 198,806
Government Income Fund 219,091 242,036 224,285
Global Income Fund** 337,079 70,195 0
______________________
* Core Fund commenced operations on January 5, 1994.
** For the fiscal year ended October 31, 1994, there was no expense
limitation.
As stated in the Prospectuses, each Fund is responsible for the payment
of all expenses other than those assumed by its Adviser or Administrator.
However, each Adviser has agreed that if, in any fiscal year, the sum of a
Fund's expenses otherwise payable (including the fee payable to the Adviser,
but excluding taxes, interest, brokerage and, where permitted, extraordinary
expenses such as for litigation) would exceed the expense limitations
applicable to a Fund imposed by state securities
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administrators, as such limitations may be lowered or raised from time to time,
it will reduce its fee or make other arrangements to limit Fund expenses to the
extent required by such expense limitations. The most restrictive expense
limitation imposed by state securities administrators provides that annual
expenses (as defined) may not exceed 2-1/2% of the first $30 million of the
average value of each Fund's net assets, plus 2% of the next $70 million of such
assets, plus 1-1/2% of such assets in excess of $100 million.
Fees and expenses of legal counsel, registering shares of each Fund,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
Each Fund may also bear an allocable portion of the costs incurred by the
Advisers in performing certain accounting services not being provided by the
Trust's custodian.
CUSTODIAN AND SUB-CUSTODIANS
- ----------------------------
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, is the custodian of the Trust's portfolio
securities and cash. State Street also maintains the Trust's accounting
records. State Street may appoint sub-custodians from time to time to hold
certain securities purchased by the Trust in foreign countries and to hold cash
and currencies for the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------
Arthur Andersen LLP, independent public accountants, One International
Place, Boston, Massachusetts 02110, have been selected as auditors of the
Trust. In addition to audit services, Arthur Andersen LLP prepares the Trust's
federal and state tax returns, and provides consultation and assistance on
accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Funds are generally effected at a net
price without a broker's commission (i.e., a dealer is dealing with a Fund as
principal and receives compensation equal to the spread between the dealer's
cost for a given security and the resale price of such security). In certain
foreign countries, debt securities in which the Global Income Fund and Core
Fund may invest are traded on exchanges at fixed commission rates. In
connection with portfolio transactions, the Advisory and Subadvisory Agreements
provide that the Advisers shall attempt to obtain the best net price and the
most favorable execution. The Advisory Agreements provide that, on occasions
when an Adviser deems the purchase or sale of a security to be in the best
interests of a Fund as well as its other customers (including any other fund or
other investment company or advisory account for which the Advisers or an
affiliate act as investment adviser), a Fund, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution.
In such event, allocation of the securities so purchased or sold, as
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well as the expenses incurred in the transaction, will be made by the applicable
Adviser in the manner it considers to be most equitable and consistent with its
fiduciary obligations to the applicable Fund and such other customers. In some
instances, this procedure may adversely affect the size and price of the
position obtainable for a Fund. To the extent that the execution and price
offered by more than one dealer are comparable, the Advisory and Subadvisory
Agreements permit each Adviser, in its discretion, to purchase and sell
portfolio securities to and from dealers who provide the Trust with brokerage or
research services. Brokerage and research services furnished by firms through
which the Fund's effect their securities transactions may be used by the
advisers in servicing other accounts and not all of these services may be used
by the Adviser in connection with the specific Fund generating the brokerage
credits. The fees received under the Advisory and Subadvisory Agreements are not
reduced by reason of the Adviser or Subadviser receiving such brokerage and
research services.
For the fiscal years ended October 31, 1996, 1995 and 1994, the Funds
then in existence paid no brokerage commissions.
During the fiscal year ended October 31, 1996, the Funds acquired and
sold securities of their regular broker-dealers: Chase Securities, Inc.,
Lehman Brothers, Inc., Salomon Brothers, Inc., Merrill Lynch, Robert W. Baird,
Daiwa Securities, J.P. Morgan & Co., Inc., Donaldson, Lufkin, Jenrette, Nomura
Securities and Morgan Stanley & Co.
At October 31, 1996, Short Duration Tax-Free Fund, Global Income Fund and
Municipal Income Fund held no securities of their regular broker-dealers. As
of the same date, Short Duration Government Fund, Adjustable Rate Fund,
Government Income Fund and Core Fund held the following amounts of securities
of their regular broker-dealers, as defined in Rule 10b-1 under the 1940 Act,
or their parents ($ in thousands): Short Duration Government Fund: Lehman
Brothers, Inc. ($370), Nomura Securities ($280) and Bear Stearns ($280);
Adjustable Rate Fund: Lehman Brothers, Inc. ($4,531), Bear Stearns ($3,430)
and Nomura Securities ($3,430); Government Income Fund: Lehman Brothers, Inc.
($2,774), Nomura Securities (2,774) and Bear Stearns ($2,100); Nomura
Securities (2,774); Core Fund: Lehman Brothers, Inc. ($4,808), Nomura
Securities ($3,640) and Bear Stearns ($3,640).
SHARES OF THE TRUST
The Trust's Agreement and Declaration of Trust dated September 24, 1987,
as amended (the "Trust Agreement"), permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of one or more
separate series, provided each share has a par value of $.001 per share,
represents an equal proportionate interest in that series with each other share
of the same class and is entitled to such dividends out of the income belonging
to such series as are declared by the Trustees.
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The Trustees have authority under the Trust Agreement to create and
classify shares of beneficial interest in separate series of the Trust without
further action by shareholders. As of the date of this Additional Statement, the
Trustees have authorized shares of the Funds. The Trust Agreement further
authorizes the Trustees of the Trust to classify or reclassify any series or
portfolio of shares into one or more classes. Pursuant thereto, the Board of
Trustees has authorized: (i) the issuance of three classes of shares of Short
Duration Government Fund, Short Duration Tax-Free Fund and Core Fund:
Institutional Shares, Administration Shares and Service Shares; (ii) the
issuance of four classes of shares of Adjustable Rate Fund: Institutional
Shares, Administration Shares, Service Shares and Class A Shares; (iii) the
issuance of four classes of shares of Global Income Fund: Institutional Shares,
Service Shares, Class A Shares and Class B Shares; and (iv) the issuance of two
classes of Municipal Income Fund and Government Income Fund: Class A Shares and
Class B Shares. As of October 31, 1996, no Service Shares of the Adjustable Rate
Fund were outstanding;
Each Institutional Share, Administration Share, Service Share, Class A
Share and Class B Share of a Fund represents an equal proportionate interest in
the assets belonging to the applicable class of a Fund. All Fund expenses are
allocated among classes based on a percentage of a Fund's aggregate average net
assets, except that transfer agency fees and fees under distribution,
authorized dealer service, administration and service plans relating to a
particular class will be borne exclusively by that class.
It is contemplated that most Administration Shares and Service Shares
will be held in accounts of which the record owner is a bank or other
institution acting, directly or through an agent, as nominee for its customers
who are the beneficial owners of the shares or another organization designated
by such bank or institution. Administration Shares and Service Shares will each
be marketed only to such investors, at net asset value with no sales load.
Institutional Shares may be purchased for accounts in the name of an investor
or institution that is not compensated by a Fund for services provided to the
institution's customers. Administration Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Administration Shares.
Administration Shares bear the cost of account administration fees at the
annual rate of up to 0.25% of the average daily net assets of such
Administration Shares. Service Shares may be purchased for accounts held in the
name of an institution that provides certain account administration and
shareholder liaison services to its customers, including maintenance of account
records and processing orders to purchase, redeem or exchange Service Shares,
responding to customer inquiries and assisting customers with investment
procedures. Service Shares bear the cost of service fees at the annual rate of
up to 0.50% of the average daily net assets of such Service Shares.
Institutions
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that provide services to holders of Administration Shares or Service Shares are
referred to in this Additional Statement as "Service Organizations".
Class A Shares are sold, with an initial sales charge of up to 1.50%, in
the case of Adjustable Rate Fund, and 4.50%, in the case of Municipal Income
Fund, Government Income Fund and Global Income Fund, through brokers and
dealers who are members of the National Association of Securities Dealers, Inc.
and certain other financial service firms that have sales agreements with
Goldman Sachs. Class A Shares of the Funds bear the cost of distribution (Rule
12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Class A Shares also bear the cost of an
Authorized Dealer Service Plan at an annual rate of up to 0.25% of average
daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
National Association of Securities Dealers, Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class B shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class B shares. Class B
shares also bear the cost of an Authorized Dealer Service Plan at an annual
rate of up to 0.25% of the average daily net assets attributable to Class B
shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration, Service, Class A and
Class B Shares) to its customers and thus receive different compensation with
respect to different classes of shares of each Fund. Shares of each class may
each have certain exclusive voting rights on matters relating to their
respective plans. Shares of each class may be exchanged only for shares of the
same class in another fund and certain money market funds sponsored by Goldman
Sachs. Dividends paid by each Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time on the same day
and will be in the same amount, except for differences caused by the fact that
the respective account administration, service, authorized dealer service plan
and distribution fees relating to a particular class will be borne exclusively
by that class. Similarly, the net asset value per share may differ depending
upon the class of shares purchased.
Certain aspects of the shares may be altered, after advance notice to
shareholders, if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, each Fund's shares are fully paid and non-assessable by the
Trust. In the event of liquidation of a Fund, shareholders of that Fund are
entitled to share pro rata in the net assets of that Fund available for
distribution to such shareholders. All shares entitle their holders to one
vote per
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share, are freely transferable and have no preemptive, subscription or
conversion rights.
As of January 31, 1997, the following entities and persons beneficially
owned 5% or more of the outstanding shares of the following Funds: Adjustable
Rate Fund - Regents of the University of Minnesota, 100 Church St. S.E. (5.06%);
Foundation for the New Era Philanthropy, 1600 Market Street, 36th floor,
Philadelphia, PA 19102 (8.67%); First Trust of New York, N.A., 100 Wall Street,
Ste. 1600, New York, NY 10005 (11.52%); St. Treasurer/Nebr Invest Council, 941
"O" Street, Ste. 500, Lincoln, NE 68508 (6.68%); Fundex Corporation, 1875 S.
Grant Street, Ste. 500, San Mateo, CA 94402 (8.80%); First Security Bank of
Idaho, FBO Idaho Housing Agency, PO box 30007, Salt Lake City, UT 84130 (6.23%);
Short Duration Government Fund -State Street Bank & Trust Co., PO Box 1992,
Boston, MA 02105 (32.49%); Richfield Bank & Trust Co., 6625 Lyndale Avenue
South, Richfield, MN 55423 (12.08%); Central Carolina Bank & Trust Co., PO Box
931, Durham, NC 27702 (7.36%); Norwest Bank Iowa NA, PO Box 1450, Minneapolis,
MN 55480 (7.09%); Berko Accounts, 150 East 69th Street, New York, NY 10021
(6.84%); Short Duration Tax-Free Fund -Donald R. Gant, Goldman, Sachs & Co., 85
Broad Street, 22nd floor, New York, NY 10004 (14.59%); G-K-G, Inc., 166 Oak
Knoll Terrace, Highland Park, IL 60035 (8.61%); Nelda Stark, PO Box 909, Orange
County, TX 77631-0909 (6.35%); Indiana Trust & Investment Mgmt. Co., 3930 Edison
Lakes Parkway, Ste. 250, Mishawaka, IN 46545 (10.77%); First Interstate Bk-
Agent/Amer NB, 3800 Howard Hughes Parkway, Las Vegas, NV 89193-8588 (7.60%);
Lafayette American Bank c/o HUBCO, 1000 Macarthur Blvd., Mahwah, NJ 07430-2035
(6.11%); Robert A. Cenci, 55 Burying Hill Rd., Greenwich, CT 06831 (6.48%);
Local 234 Electric Workers Retirement Fund, 10300 Merritt Street, Castroville,
CA 95012 (7.35%); U.S. Naval Academy Alumni Association, 247 King George Street,
Annapolis, MD 21402-1323 (5.01%); Norwest Bank Iowa NA, PO Box 1450,
Minneapolis, MN 55480-1450 (5.03%); Goldman Sachs Asset Management, 1 New York
Plaza, 42nd Fl, New York, NY 10004-1901 (68.57%).
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Trust Agreement
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or
the Trustees. The Trust Agreement provides for indemnification out of Trust
property of any shareholder charged or held personally liable for obligations
or liabilities of the Trust solely by reason of being or having been a
shareholder of the Trust and not because of such shareholder's acts or
omissions or for some other reason. The Trust Agreement also provides that the
Trust shall, upon proper and timely request, assume the defense of any charge
made against any shareholder as such for any obligation or liability of the
Trust and satisfy any judgment thereon. Thus, the
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risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act, applicable state law or otherwise to
the holders of the outstanding voting securities of an investment company (such
as the Trust) shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class
or series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does
not affect any interest of such class or series. However, Rule 18f-2 exempts
the selection of independent public accountants, the approval of principal
distribution contracts and the election of Trustees from the separate voting
requirements of Rule 18f-2.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining
in good faith the fair value of securities of the Funds. In accordance with
procedures adopted by the Trustees of the Trust, the net asset value per share
of each class of each Fund is calculated by determining the value of the net
assets attributable to each class of that Fund (assets, including securities at
value, minus liabilities) and dividing by the number of outstanding shares of
that class. All securities are valued as of the close of regular trading on
the New York Stock Exchange (normally 4:00 p.m. New York time) on each Business
Day (as defined in each Fund's Prospectus).
For the purpose of calculating the net asset value of the Funds,
investments are valued under valuation procedures established by the Trustees.
Portfolio securities, other than money market instruments, 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. The prices derived by a pricing agent reflect broker/dealer-supplied
valuations and electronic data processing techniques. Options and futures
contracts are valued at the last sale price on the market where any such option
or futures contract is principally traded. Forward foreign currency exchange
contracts are valued at the mean between the last bid and asked quotations
supplied by a dealer in such contracts. Portfolio securities for which accurate
market quotations are not readily available and other assets are valued at fair
value based upon yield equivalents, a pricing matrix or other sources as
determined in good faith pursuant to procedures established by the Board of
Trustees. Money market instruments held by a Fund with a remaining maturity of
sixty days or less will be valued by the amortized cost method, which the
Trustees have determined approximates market value.
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The value of all assets and liabilities expressed in foreign currencies
will be converted into U.S. dollar values at current exchange rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the time the Global Income Fund and Core Fund
calculate their net asset value. Occasionally, events affecting the values of
such securities may occur between the times at which they are determined and
the calculation of net asset value which will not be reflected in the
computation of the Fund's net asset value unless the Trustees deem that such
event would materially affect the net asset value, in which case an adjustment
would be made.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in the Funds. This summary does not address special
tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of investing in the
Funds. This summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
GENERAL
- -------
Each series of the Trust, including each Fund, is a separate taxable
entity. Each Fund has qualified and elected to be treated and intends to
continue to qualify for each taxable year as a regulated investment company
under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derive at least 90% of its annual gross
income (including tax-exempt interest) from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stocks or securities, or foreign currencies or other income (including but not
limited to gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% gross income test"); (b) a Fund derive less than 30% of its annual
gross income from the sale or other disposition of any of the following which
was held for less than three months: (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies) and (iii) foreign currencies and foreign currency
options, futures and forward contracts that are not directly related to the
Fund's principal business of investing in
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stocks or securities or options and futures with respect to such stocks or
securities (the "short-short test"); and (c) a Fund diversify its holdings so
that, at the close of each quarter of its taxable year, (i) at least 50% of the
market value of its total (gross) assets is comprised of cash, cash items,
United States Government Securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to an amount
not greater in value than 5% of the value of the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total (gross) assets is invested in the
securities of any one issuer (other than United States Government Securities and
securities of other regulated investment companies) or two or more issuers
controlled by a Fund and engaged in the same, similar or related trades or
businesses. Gains from the sale or other disposition of foreign currencies (or
options, futures or forward contracts on foreign currencies) that are not
directly related to Core Fund's or Global Income Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities will be treated as gains from the sale of investments held for less
than three months under the short-short test (even though characterized as
ordinary income for some purposes) if such currencies or instruments were held
for less than three months. In addition, future Treasury regulations could
provide that qualifying income under the 90% gross income test will not include
gains from foreign currency transactions that are not directly related to Core
Fund's or Global Income Fund's principal business of investing in stock or
securities or options and futures with respect to stock or securities. Using
foreign currency positions or entering into foreign currency options, futures
and forward contracts for purposes other than hedging currency risk with respect
to securities in Core Fund's or Global Income Fund's portfolio or anticipated to
be acquired may not qualify as "directly related" under these tests.
As a regulated investment company, a Fund will not be subject to U.S.
federal income tax on the portion of its income and capital gains that it
distributes to its shareholders in any taxable year for which it distributes,
in compliance with the Code's timing and other requirements, at least 90% of
its "investment company taxable income" (which includes dividends, taxable
interest, taxable original issue discount income, market discount income,
income from securities lending, net short-term capital gain in excess of net
long-term capital loss, and any other taxable income other than "net capital
gain" as defined below and is reduced by deductible expenses) and at least 90%
of the excess of its gross tax-exempt interest income over certain disallowed
deductions ("net tax-exempt interest"). A Fund may retain for investment its
"net capital gain" (which consists of the excess of its net long-term capital
gain over its net short-term capital loss). However, if a Fund retains any
investment company taxable income or net capital gain, it will be subject to
tax at regular corporate rates on the amount retained. If a Fund retains any
net capital gain, that Fund may designate the retained amount as undistributed
net capital gain in a notice to its shareholders who, if subject to U.S.
federal income
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tax on long-term capital gains, (i) will be required to include in income for
federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by that Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute at least annually to
its shareholders all or substantially all of its investment company taxable
income (if any), net capital gain and any net tax-exempt interest. Exchange
control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as Global Income Fund or Core Fund and may therefore
make it more difficult for Global Income Fund or Core Fund to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, Global Income Fund and Core
Fund generally expect to be able to obtain sufficient cash to satisfy such
requirements from new investors, the sale of securities or other sources. If for
any taxable year a Fund does not qualify as a regulated investment company, it
will be taxed on all of its investment company taxable income and net capital
gain at corporate rates, its net tax-exempt interest may be subject to the
alternative minimum tax, and its distributions to shareholders will be taxable
as ordinary dividends to the extent of its current and accumulated earnings and
profits.
For federal income tax purposes, each Fund is permitted to carry forward
a net capital loss in any year to offset its own capital gains, if any, during
the eight years following the year of the loss. At October 31, 1996, the Funds
had approximately the following amounts of capital loss carry forwards:
Years of
Amount Expiration
----------- ----------
Adjustable Rate Fund $47,923,000 2000-2003
Short Duration
Government Fund $13,272,000 2002-2003
Short Duration
Tax-Free Fund $4,271,000 2002-2003
Core Fixed Income Fund $ 77,000 2004
Global Income Fund $4,472,000 2002
Municipal Income Fund $1,535,000 2002
These amounts are available to be carried forward to offset future capital
gains to the extent permitted by the Code and applicable tax regulations.
In order to avoid a 4% federal excise tax, each Fund must distribute or
be deemed to have distributed by December 31 of each
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calendar year at least 98% of its taxable ordinary income for such year, at
least 98% of the excess of its realized capital gains over its realized capital
losses (generally computed on the basis of the one-year period ending on October
31 of such year) and 100% of any taxable ordinary income and the excess of
realized capital gains over realized capital losses for the prior year that was
not distributed during such year and on which the Fund did not pay federal
income tax. The Funds anticipate that they will generally make timely
distributions of income and capital gains in compliance with these requirements
so that they will generally not be required to pay the excise tax.
For federal income tax purposes, dividends declared by a Fund in October,
November or December as of a record date in such a month which are actually
paid in January of the following year will be treated as if they were paid by
the Fund and received by shareholders on December 31 of the year declared.
The Tax Exempt Funds may purchase Municipal Securities together with the
right to resell the securities to the seller at an agreed-upon price or yield
within a specified period prior to the maturity date of the securities. Such
a right to resell is commonly known as a "put" and is also referred to as a
"standby commitment." The Tax Exempt Funds may pay for a standby commitment
either separately, in cash, or in the form of a higher price for the securities
which are acquired subject to the standby commitment, thus increasing the cost
of securities and reducing the yield otherwise available. Additionally, the
Tax Exempt Funds may purchase beneficial interests in Municipal Securities held
by trusts, custodial arrangements or partnerships and/or combined with
third-party puts and other types of features such as interest rate swaps; those
investments may require the Fund to pay "tender fees" or other fees for the
various features provided.
The Internal Revenue Service (the "Service") has issued a revenue ruling
to the effect that, under specified circumstances, a registered investment
company will be the owner of tax-exempt municipal obligations acquired subject
to a put option. The Service has also issued private letter rulings to certain
taxpayers (which do not serve as precedent for other taxpayers) to the effect
that tax-exempt interest received by a regulated investment company with
respect to such obligations will be tax-exempt in the hands of the company and
may be distributed to its shareholders as exempt-interest dividends. The
Service has subsequently announced that it will not ordinarily issue advance
ruling letters as to the identity of the true owner of property in cases
involving the sale of securities or participation interests therein if the
purchaser has the right to cause the security, or the participation interest
therein, to be purchased by either the seller or a third party. Each of the Tax
Exempt Funds intends to take the position that it is the owner of any municipal
obligations acquired subject to a standby commitment or other third party put
and that tax-exempt interest earned with respect to such municipal obligations
will be tax-exempt in its hands. There is no assurance that the Service will
agree with such position in any particular case.
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Additionally, the federal income tax treatment of certain other aspects of these
investments, including the treatment of tender fees paid by these Funds, in
relation to various regulated investment company tax provisions is unclear.
However, the Adviser intends to manage the Tax Exempt Funds' portfolios in a
manner designed to minimize any adverse impact from the tax rules applicable to
these investments.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gain and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts or options will (except for certain foreign
currency options, forward contracts, and futures contracts) be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. As a
result of certain hedging transactions entered into by a Fund, that Fund may be
required to defer the recognition of losses on futures or forward contracts and
options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions held by the Fund and the
characterization of gains or losses as long-term or short-term may be changed.
The short-short test described above may limit each Fund's ability to use
options, futures and forward transactions as well as its ability to engage in
short sales. The tax provisions described above applicable to options, futures
and forward contracts may affect the amount, timing, and character of a Fund's
distributions to shareholders. Certain tax elections may be available to the
Funds to mitigate some of the unfavorable consequences described in this
paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by Core Fund and Global Income Fund. Under
these rules, foreign exchange gain or loss realized by Core Fund or Global
Income Fund with respect to foreign currencies and certain futures and options
thereon, foreign currency-denominated debt instruments, foreign currency
forward contracts, and foreign currency-denominated payables and receivables
will generally be treated as ordinary income or loss, although in some cases
elections may be available that would alter this treatment. If a net foreign
exchange loss treated as ordinary loss under Section 988 of the Code were to
exceed a Fund's investment company taxable income (computed without regard to
such loss) for a taxable year, the resulting loss would not be deductible by
the Fund or its shareholders in future years. Net loss, if any, from certain
foreign currency transactions or instruments could exceed net investment income
otherwise calculated for accounting purposes with the result being either no
dividends
B-97
<PAGE>
being paid or a portion of Core Fund's or Global Income Fund's dividends being
treated as a return of capital for tax purposes, nontaxable to the extent of a
shareholder's tax basis in his shares and, once such basis is exhausted,
generally giving rise to capital gains.
Core Fund and Global Income Fund may be subject to foreign taxes on
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. Because more than 50% of Global Income
Fund's total assets at the close of any taxable year will generally consist of
stock or securities of foreign corporations, Global Income Fund will generally
qualify to file an election with the Internal Revenue Service pursuant to which
shareholders of Global Income Fund would be required to (i) include in ordinary
gross income (in addition to taxable dividends actually received) their pro
rata shares of foreign income taxes paid by Global Income Fund that are treated
as income taxes under U.S. tax regulations (which excludes, for example, stamp
taxes, securities transaction taxes, and similar taxes) even though not
actually received, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them. Global Income Fund may or may not make this
election for any particular taxable year. Core Fund will not satisfy the 50%
requirement described above and, therefore, will not make this election. Core
Fund and, if it does not make the election, Global Income Fund will, however,
be entitled to deduct such taxes in computing investment company taxable
income.
If Global Income Fund makes this election, its shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not,
however, be able to deduct their pro rata portion of qualified foreign taxes
paid by Global Income Fund, although such shareholders will be required to
include their shares of such taxes in gross income if Global Income Fund makes
the election referred to above.
If a shareholder chooses to take a credit for the foreign taxes deemed
paid by such shareholder as a result of any such election by Global Income
Fund, the amount of the credit that may be claimed in any year may not exceed
the same proportion of the U.S. tax against which such credit is taken which
the shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his entire taxable income. For
this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by Global Income Fund will generally not be treated as
income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of Global Income Fund may not be
B-98
<PAGE>
able to claim a credit for the full amount of their proportionate shares of the
foreign taxes paid by the Fund.
Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that Global Income Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of qualified foreign income taxes paid by Global Income Fund and (ii) the
portion of Fund dividends which represents income from each foreign country.
If Core Fund or Global Income Fund acquires stock (including, under
proposed regulations, an option to acquire stock such as is inherent in a
convertible bond) in certain non-U.S. corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends,
rents, royalties or capital gain) or hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies") Core Fund or Global Income Fund could be subject to federal income
tax and additional interest charges on "excess distributions" received from
such companies or gain from the sale of such stock in such companies, even if
all income or gain actually received by Core Fund or Global Income Fund is
timely distributed to its shareholders. Core Fund or Global Income Fund would
not be able to pass through to its shareholders any credit or deduction for
such a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require Core Fund or Global Income
Fund to recognize taxable income or gain without the concurrent receipt of
cash. Core Fund or Global Income Fund may limit and/or manage its holdings in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
A Fund's investment in zero coupon securities, deferred interest
securities, capital appreciation bonds or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with
respect to these securities or contracts. In order to distribute this income
or gain, maintain its qualification as a regulated investment company and avoid
federal income or excise taxes, a Fund may be required to liquidate portfolio
securities that it might otherwise have continued to hold.
The federal income tax rules applicable to mortgage dollar rolls and
interest rate and currency swaps, floors, caps and collars are unclear in
certain respects, and a Fund may also be required to account for these
instruments under tax rules in a manner that, under certain circumstances, may
limit its transactions in these instruments.
TAXABLE U.S. SHAREHOLDERS -- DISTRIBUTIONS
B-99
<PAGE>
TAX EXEMPT FUNDS. Each Tax Exempt Fund expects to qualify to pay "exempt-
interest dividends," as defined in the Code. To qualify to pay exempt-interest
dividends, the Fund must, at the close of each quarter of its taxable year, have
at least 50% of the value of its total assets invested in Municipal Securities
whose interest is excluded from gross income under Section 103(a) of the Code.
In purchasing Municipal Securities, each Tax Exempt Fund intends to rely on
opinions of nationally recognized bond counsel for each issue as to the
excludability of interest on such obligations from gross income for federal
income tax purposes. A Tax Exempt Fund will not undertake independent
investigations concerning the tax-exempt status of such obligations, nor does it
guarantee or represent that bond counsels' opinions are correct. Bond counsels'
opinions will generally be based in part upon covenants by the issuers and
related parties regarding continuing compliance with federal tax requirements.
Tax laws not only limit the purposes for which tax-exempt bonds may be issued
and the supply of such bonds, but also contain numerous and complex requirements
that must be satisfied on a continuing basis in order for bonds to be and remain
tax-exempt. If the issuer of a bond or a user of a bond-financed facility fails
to comply with such requirements at any time, interest on the bond could become
taxable, retroactive to the date the obligation was issued. In that event, a
portion of a Tax Exempt Fund's distributions attributable to interest the Fund
received on such bond for the current year and for prior years could be
characterized or recharacterized as taxable income. The availability of tax-
exempt obligations and the value of a Tax Exempt Fund's portfolio may be
affected by restrictive federal income tax legislation enacted in recent years
or by similar, future legislation. If a Tax Exempt Fund satisfies the applicable
requirements, dividends paid by the Fund which are attributable to tax exempt
interest on Municipal Securities and designated by the Fund as exempt-interest
dividends in a written notice mailed to its shareholders within sixty days after
the close of its taxable year may be treated by shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code.
Exempt-interest dividends a Tax Exempt Fund receives from other regulated
investment companies, including exempt-interest dividends on auction rate
preferred securities of such companies held by a Fund, are treated as interest
on Municipal Securities and may be distributed by a Tax Exempt Fund as exempt-
interest dividends. The recipient of tax-exempt income is required to report
such income on his federal income tax return. However, a shareholder is advised
to consult his tax adviser with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a) if such shareholder would be treated
as a "substantial user" under Section 147(a)(1) with respect to some or all of
the tax-exempt obligations held by a Tax Exempt Fund. The Code provides that
interest on indebtedness incurred or continued to purchase or carry shares of a
Tax Exempt Fund is not deductible to the extent attributable to exempt-interest
dividends.
Although all or a substantial portion of the dividends paid by a Tax
Exempt Fund may be excluded by shareholders of such Fund from their gross
income for federal income tax purposes, each Tax
B-100
<PAGE>
Exempt Fund may purchase specified private activity bonds, the interest from
which (including a Fund's distributions attributable to such interest) may be a
preference item for purposes of the federal alternative minimum tax (both
individual and corporate). All exempt-interest dividends from a Tax Exempt Fund,
whether or not attributable to private activity bond interest, may increase a
corporate shareholder's liability, if any, for corporate alternative minimum
tax, and will be taken into account in determining the extent to which a
shareholder's Social Security or certain railroad retirement benefits are
taxable.
ALL FUNDS. Distributions from investment company taxable income, as
defined above, are taxable to shareholders who are subject to tax as ordinary
income whether paid in cash or reinvested in additional shares. Taxable
distributions include distributions from any Fund, including Short Duration
Tax-Free Fund and Municipal Income Fund, that are attributable to (i) taxable
income, including but not limited to dividends, taxable bond interest,
recognized market discount income, original issue discount income accrued with
respect to taxable bonds, income from repurchase agreements, income from
securities lending, income from dollar rolls, income from interest rate or
currency swaps, caps, floors and collars, and a portion of the discount from
certain stripped tax-exempt obligations or their coupons or (ii) capital gains
from the sale of securities or other investments (including from the
disposition of rights to when-issued securities prior to issuance) or from
options, futures or certain forward contracts. Any portion of such taxable
distributions that is attributable to a Fund's net capital gain, as defined
above, may be designated by the Fund as a "capital gain dividend," taxable to
shareholders as long-term capital gain whether received in cash or additional
shares and regardless of the length of time their shares of a Fund have been
held.
It is expected that distributions made by the Funds will ordinarily not
qualify for the dividends-received deduction for corporations because
qualifying distributions may be made only from a Fund's dividend income that it
receives from stock in U.S. domestic corporations. The Funds do not intend to
purchase stock of domestic corporations other than in limited instances,
including investments in investment companies, distributions from which may in
rare cases qualify as dividends for this purpose. The dividends-received
deduction, if available, is reduced to the extent the shares with respect to
which the dividends are received are treated as debt-financed under the federal
income tax law and is eliminated if the shares are deemed to have been held for
less than a minimum period, generally 46 days. Receipt of certain
distributions qualifying for the deduction may result in reduction of the tax
basis of the corporate shareholder's shares and may give rise to or increase
its liability for federal corporate alternative minimum tax.
Distributions in excess of a Fund's current and accumulated earnings and
profits, as computed for federal income tax purposes,
B-101
<PAGE>
will first reduce a shareholder's basis in his shares and, after the
shareholder's basis is reduced to zero, will generally constitute capital gains
to a shareholder who holds his shares as capital assets. Amounts that are not
allowable as a deduction in computing taxable income, including expenses
associated with earning tax-exempt interest income, do not reduce a Fund's
current earnings and profits for these purposes. Consequently, the portion, if
any, of Short Duration Tax-Free Fund's or Municipal Income Fund's distributions
from gross tax-exempt interest income that exceeds its net tax-exempt interest
would be taxable as ordinary income to the extent of such disallowed deductions
even though such excess portion may represent an economic return of capital.
Shareholders receiving a distribution in the form of newly issued shares
will be treated for U.S. federal income tax purposes as receiving a
distribution in an amount equal to the amount of cash that they would have
received had they elected to receive cash and will have a cost basis in the
shares received equal to such amount.
TAXABLE U.S. SHAREHOLDERS -- SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of,
the shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or
fair market value of any property, received. Assuming the shareholder holds
the shares as a capital asset at the time of such sale or other disposition,
such gain or loss should be capital in character, and long-term if the
shareholder has a tax holding period for the shares of more than one year,
otherwise short-term. All or a portion of a sales charge paid in purchasing
Class A shares of Adjustable Rate Fund or Global Income Fund cannot be taken
into account for purposes of determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent
shares of that Fund or another fund are subsequently acquired without payment
of a sales charge pursuant to the reinvestment or exchange privilege. Any
disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. If a shareholder
received a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of the sale or redemption,
then any loss the shareholder realizes on the sale or redemption will be
treated as a long-term capital loss to the extent of such capital gain
dividend. Also, any losses realized by shareholders who dispose of shares of
Short Duration Fund or Municipal Income Fund with a tax holding period of six
months or less are disallowed to the extent of any exempt-interest dividends
received with respect to such shares. Additionally, any loss realized on a sale
or redemption of shares of a Fund may be disallowed under "wash sale" rules to
the extent the shares disposed of are replaced with other shares of the same
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a dividend reinvestment
in shares of the Fund.
B-102
<PAGE>
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
After the close of each calendar year, each of Short Duration Tax-Free
Fund and Municipal Income Fund will inform shareholders of the federal income
tax status of its dividends and distributions for such year, including the
portion of such dividends that qualifies as tax-exempt and the portion, if any,
that should be treated as a tax preference item for purposes of the federal
alternative minimum tax. Shareholders who have not held shares of Short
Duration Tax-Free Fund or Municipal Income Fund for such Fund's full taxable
year may have designated as tax-exempt or as a tax preference item a percentage
of distributions which is not equal to the actual amount of tax-exempt income
or tax preference item income earned by Short Duration Tax-Free Fund or
Municipal Income Fund during the period of their investment in Short Duration
Tax-Free Fund or Municipal Income Fund, as the case may be.
All distributions, whether received in shares or in cash, as well as
redemptions and exchanges, must be reported by each shareholder who is required
to file a U.S. Federal income tax return.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
BACKUP WITHHOLDING
Each Fund will be required to report to the Service all taxable
distributions, as well as gross proceeds from the redemption or exchange of Fund
shares, except in the case of certain exempt recipients, i.e., corporations and
certain other investors distributions to which are exempt from the information
reporting provisions of the Code. Under the backup withholding provisions of
Code Section 3406 and applicable Treasury regulations, all such reportable
distributions and proceeds may be subject to backup withholding of federal
income tax at the rate of 31% in the case of non-exempt shareholders who fail to
furnish the Funds with their correct taxpayer identification number and with
certain required certifications or if the Service or a broker notifies the Funds
that the number furnished by the shareholder is incorrect or that the
shareholder is subject to backup withholding as a result of failure to report
interest or dividend income. However, any taxable distributions from Short
Duration Tax-Free Fund or Municipal Income Fund will not be subject to backup
withholding if the applicable Fund reasonably estimates that at least 95% of its
distributions will be exempt-interest dividends. A Fund may refuse to accept an
application that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds,
B-103
<PAGE>
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
NON-U.S. SHAREHOLDERS
The foregoing discussion relates solely to U.S. federal income tax law as
it applies to "U.S. persons" (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates) subject to tax under
such law. Dividends from investment company taxable income distributed by a
Fund to a shareholder who is not a U.S. person will be subject to U.S.
withholding tax at the rate of 30% (or a lower rate provided by an applicable
tax treaty) unless the dividends are effectively connected with a U.S. trade or
business of the shareholder, in which case the dividends will be subject to tax
on a net income basis at the graduated rates applicable to U.S. individuals or
domestic corporations. Distributions of net capital gain, including amounts
retained by a Fund which are designated as undistributed capital gains, to a
shareholder who is not a U.S. person will not be subject to U.S. federal income
or withholding tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the shareholder is present
in the United States for 183 days or more during the taxable year and certain
other conditions are met. Non-U.S. shareholders may also be subject to U.S.
withholding tax on deemed income resulting from any election by Global Income
Fund to treat qualified foreign taxes it pays as passed through to shareholders
(as described above), but they may not be able to claim a U.S. tax credit or
deduction with respect to such taxes.
Any gain realized by a shareholder who is not a U.S. person upon a sale
or redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the United States, or in the case of a shareholder who is
a nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or
acceptable substitute may be subject to backup withholding at the rate of 31%
on capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from a Fund.
STATE AND LOCAL TAXES
A Fund may be subject to state or local taxes in certain jurisdictions in
which a Fund may be deemed to be doing business.
B-104
<PAGE>
In addition, in those states or localities which have income tax laws, the
treatment of a Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws, and investment in a Fund may have tax
consequences for shareholders different from those of a direct investment in
such Fund's portfolio securities. Shareholders should consult their own tax
advisers concerning these matters.
PERFORMANCE INFORMATION
Each Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Thirty-day yield and average annual total return values are computed pursuant
to formulas specified by the SEC. Each Fund may also from time to time quote
distribution rates in reports to shareholders and in sales literature.
Thirty-day yield is derived by dividing net investment income per share
earned during the period by the maximum public offering price per share on the
last day of such period. Yield is then annualized by assuming that yield is
realized each month for twelve months and is reinvested every six months. Net
investment income per share is equal to the dividends and interest earned
during the period, reduced by accrued expenses for the period. The calculation
of net investment income for these purposes may differ from the net investment
income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn
to equal, after taxes, a Tax Exempt Fund's tax-free yield. Tax equivalent
yield is calculated by dividing a Tax Exempt Fund's tax-exempt yield by one
minus a stated federal and/or state tax rate.
Distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share on the last day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and in the case
of Class B Shares payment of any contingent deferred sales charge) at the end
of the period. This calculation assumes a complete redemption of the
investment. It also assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum
B-105
<PAGE>
public offering price per share with all distributions reinvested) at the
beginning of such period equal to the actual total value of such investment at
the end of such period.
The following table presents thirty-day yield, tax equivalent yield
(Short Duration Tax-Free and Municipal Income Funds only), distribution rate
and average annual total return (capital plus reinvestment of all
distributions) for each class of shares outstanding for the periods indicated.
Thirty-day yield, tax equivalent yield (Short Duration Tax-Free and
Municipal Income Funds only), distribution rate and average annual total return
are calculated separately for each class of shares in existence of each Fund.
Each class of shares of each Fund is subject to different fees and expenses and
may have different returns for the same period. Any performance data for Class
A or Class B Shares which is based upon a Fund's net asset value per share
would be reduced if a sales charge were taken into account.
B-106
<PAGE>
YIELD
Investment SEC 30-Day Pro-Forma
Fund Period Yield Yield/1/
- ---- ---------- ---------- ---------
30-Days
ended
10/31/96
ADJUSTABLE RATE FUND
Institutional Shares 6.00% 5.94%
Administration Shares 5.75% 5.69%
Service Shares/2/
Class A Shares
- Assumes 1.5% sales charge 5.66% 5.35%
SHORT DURATION GOVERNMENT FUND
Institutional Shares 6.43% 6.16%
Administration Shares 6.19% 5.93%
Service Shares 5.96% 5.71%
SHORT DURATION TAX-FREE FUND
Institutional Shares 4.34% 3.71%
Administration Shares 4.09% 3.42%
Service Shares 3.84% 3.22%
CORE FUND
Institutional Shares 6.60% 6.25%
Administration Shares 6.37% 6.03%
Service Shares 6.12% 5.78%
GLOBAL INCOME FUND
Institutional Shares 5.20% 4.76%
Service Shares/2/
Class A Shares
(Assumes 4.5% sales charge) 4.54% 4.08%
Class B Shares 4.23% 3.80%
MUNICIPAL INCOME FUND
Class A Shares 4.21% 3.56%
Class B Shares 3.68% 3.25%
GOVERNMENT INCOME FUND
Class A Shares 6.04% 4.76%
Class B Shares 5.57% 4.48%
B-107
<PAGE>
DISTRIBUTION RATE
30 Day Pro-Forma
Investment Distribution Distribution
Fund Period Rate Rate/1/
- ---- ---------- ------------ ------------
30-Days
ended
10/31/96
ADJUSTABLE RATE FUND
Institutional Shares 5.87% 5.81%
Administration Shares 5.62% 5.56%
Service Shares/2/
Class A Shares
- Assumes no sales charge 5.62% 5.31%
SHORT DURATION GOVERNMENT FUND
Institutional Shares 6.24% 5.97%
Administration Shares 6.00% 5.72%
Service Shares/2/ 5.78% 5.49%
SHORT DURATION TAX-FREE FUND
Institutional Shares 4.19% 3.56%
Administration Shares 3.94% 3.28%
Service Shares 3.69% 3.06%
MUNICIPAL INCOME FUND
Class A Shares 4.27% 3.59%
-assumes no sales charge
Class B Shares 3.53% 3.09%
GOVERNMENT INCOME FUND
Class A Shares 6.33% 5.00%
-assumes no sales charge
Class B Shares 5.58% 4.50%
CORE FUND
Institutional Shares 6.46% 6.12%
Administration Shares 6.23% 5.89%
Service Shares 5.98% 5.63%
GLOBAL INCOME FUND
Institutional Fund 5.95% 6.18%
Service Shares2
Class A Shares
- Assumes no sales charge 5.44% 4.96%
Class B Shares 5.02% 4.59%
B-108
<PAGE>
TAX-EQUIVALENT YIELD6
Pro-Forma
Investment Tax-Equivalent Tax-Equivalent
Fund Period Rate Yield/1/
- ---- ---------- -------------- --------------
30-Days
ended
10/31/96
SHORT DURATION
TAX-FREE FUND/3/
Institutional Shares 6.94% 5.89%
Administration Shares 6.52% 5.43%
Service Shares 6.11% 5.07%
MUNCIPAL INCOME FUND/3/
Class A Shares 7.07% 5.94%
-assumes no sales charge
Class B Shares 5.84% 5.12%
_______________________________
1 Yield, tax equivalent yield and distribution rate if the applicable Adviser
had not voluntarily agreed to limit its advisory fees and to maintain
expenses at a specified level.
2 There were no Service Shares outstanding during the periods indicated.
3 The tax-equivalent rate of Short Duration Tax-Free Fund and Municipal
Income Fund is computed based on the 39.6% federal income tax rate.
The above tables should not be considered a representation of future
performance.
B-109
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE FUND
Institutional Shares 7/17/91/1a/ ended 10/31/96 5.32% 5.19%
11/1/95 one year ended
10/31/96 6.86% 6.80%
11/1/91 five years ended 5.13% 5.05%
10/31/96
Administration Shares 4/15/93/1b/ ended 10/31/96 4.69% 4.64%
11/1/95 one year ended
10/31/96 6.60% 6.53%
Service Shares1c N/A N/A
Class A Shares 5/12/95/1d/ ended 10/31/96
Assumes 1.5% Sales Charge 5.29% 4.96%
Assumes No Sales Charge 6.40% 6.07%
11/1/95 one year ended
Assumes 1.5% Sales Charge 10/31/96 4.99% 4.66%
Assumes No Sales Charge 6.60% 6.27%
SHORT DURATION GOVERNMENT FUND
Institutional Shares 8/15/88/2a/ ended 10/31/96 7.24% 6.84%
11/1/95 one year ended
10/31/96 6.75% 6.47%
11/1/91 five years
ended 10/31/96 5.67% 5.44%
Administration Shares 2/28/96/2b/ ended 10/31/96 4.00% 3.82%
Service Shares 4/10/96/2b/ ended 10/31/96 4.35% 4.20%
</TABLE>
B-110
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
-----------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- -----------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT DURATION TAX-FREE FUND
Institutional Shares 10/1/9/23a/ ended 10/31/96 4.21% 3.71%
11/1/95 one year ended
10/31/96 4.50% 3.92%
Administration Shares 5/20/93/3b/ ended 10/31/96 3.51% 3.15%
11/1/95 one year ended
10/31/96 4.24% 3.66%
Service Shares 9/20/94/3c/ ended 10/31/96 4.36% 3.92%
11/1/95 one year ended
10/31/96 3.98% 3.40%
CORE FUND
Institutional Shares 1/15/94/4a/ 10/31/96 6.34% 5.70%
11/1/95 one year ended
10/31/96 5.98% 5.58%
Administration Shares 2/28/96/4b/ ended
10/31/96 3.56% 3.29%
Service Shares 3/13/96/4b/ ended
10/31/96 4.90% 4.69%
</TABLE>
B-111
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
------------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- ------------------------------------------------------------
<S> <C> <C> <C> <C>
GLOBAL INCOME FUND5C
Class A Shares 8/2/91/5a/ ended 10/31/96
Assumes 4.5% Sales Charge 7.08% 6.76%
Assumes No Sales Charge 8.02% 7.71%
Assumes 4.5% Sales Charge 11/1/95 one year 6.08% 5.57%
Assumes No Sales Charge ended 10/31/96 11.05% 10.53%
Assumes 4.5% Sales Charge 11/1/91 five years 7.02% 6.73%
Assumes No Sales Charge ended 10/31/96 8.01% 7.69%
Class B Shares5b 5/1/96 ended 10/31/965d 6.24% 6.01%
Institutional Shares 8/1/95/5e/ ended 10/31/96 12.95% 12.45%
11/1/95 one year
ended 10/31/96 11.55% 11.05%
Service Shares5f
MUNICIPAL INCOME FUND
Class A Shares 7/20/93/6a/ ended 10/31/96
Assumes 4.5% Sales Charge 3.80% 2.78%
Assumes No Sales Charge 5.27% 4.23%
11/1/95 ended 10/31/96
Assumes 4.5% Sales Charge 1.35% 0.65%
Assumes No Sales Charge 6.13% 5.40%
Class B Shares6b 5/1/96 ended 10/31/96 4.40% 4.07%
</TABLE>
B-112
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
------------------------------------------------------------
With Fee Without Fee
Reductions Reductions
and/or and/or
Investment Investment Expense Expense
Fund Date Period Limitations Limitations
- ---- ------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
Class A Shares 2/10/93/7a/ ended 10/31/96
Assumes 4.5% Sales Charge 5.41% 2.92%
Assumes No Sales Charge 6.72% 4.21%
11/1/95 ended 10/31/96
Assumes 4.5% Sales Charge 1.06% -0.33%
Assumes No Sales Charge 5.80% 4.35%
Class B Shares7b 5/1/96 ended 10/31/96 4.85% 4.17%
</TABLE>
________________
1a Institutional Shares of Adjustable Rate Fund commenced operations on July
17, 1991.
1b Administration Shares of Adjustable Rate Fund commended operations on April
15, 1993.
1c No Service Shares of Adjustable Rate Fund were outstanding during the
periods indicated.
1d Class A shares of Adjustable Rate Fund commenced operations on May 12, 1995.
2a Institutional Shares of Short Duration Government Fund commenced operations
on August 15, 1988.
2b Administration Shares of Short Duration Government Fund commenced operations
on February 28, 1996. Service Shares of Short Duration Government Fund
commenced operations on April 10, 1996.
3a Institutional Shares of Short Duration Tax-Free Fund commenced operations on
October 1, 1992.
3b Administration Shares of Short Duration Tax-Free Fund commenced operations
on May 20, 1993.
3c Service Shares of Short Duration Tax-Free Fund commenced operations on
September 20, 1994.
4a Institutional Shares of Core Fund commenced operations on January 5, 1994.
4b Administration Shares of Core Fund commenced operations on February 28,
1996. Service Shares of Core Fund commenced operations on March 13,
1996.
5a Class A Shares of Global Income Fund commenced operations on August 2, 1991.
5b Class B Shares of Global Income Fund commenced operations on May 1,
1996.
5c On November 27, 1992, the maximum sales charge was changed from 3% to 4.5%
of the offering price. All performance figures in this table incorporate
the sales charge currently in effect.
5d An aggregate total return (not annualized) is shown instead of an average
annual total return since Class B Shares have not completed a full 12 months
of operation as of October 31, 1996.
5e Institutional Shares of Global Income Fund commenced operations on August 1,
1995.
5f No Service Shares of Global Income Fund were outstanding during the periods
indicated.
6a Class A shares of Municipal Income Fund commenced operations on July 20,
1993.
6b Class B Shares of Municipal Income Fund commenced operations on May 1, 1996.
An aggregate total return (not annualized) is shown instead of an average
annual total return since Class B Shares have not completed a full 12 months
of operation as of October 31, 1996.
7a Class A Shares of Government Income Fund commenced operations on February
10, 1993.
B-113
<PAGE>
7b Class B Shares of Government Income Fund commenced operations on May 1,
1996. An aggregate total return (not annualized) is shown instead of an
average annual total return since Class B Shares have not completed a full
12 months of operation as of October 31, 1996.
The above table should not be considered a representation of future
performance.
B-114
<PAGE>
Occasionally statistics may be used to specify a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
Each Fund may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to,
Lipper Analytical Services, Inc., Donaghues Money Fund Report,
- -------------------------------- ---------------------------
Barron's, The Wall Street Journal, Weisenberger Investment Companies
- -------- ----------------------- ----------------------------------
Service, Business Week, Changing Times, Financial World,
- ------- ------------- -------------- ---------------
Forbes, Fortune, Morningstar Mutual Funds The New York Times,
- ------ ------- ------------------------ ------------------
Personal Investor, Sylvia Porter's Personal Finance and Money.
- ----------------- -------------------------------- -----
In addition, Adjustable Rate Fund, Government Income Fund and Short
Duration Government Fund may from time to time advertise their performance
relative to certain indices and benchmark investments, including: (a) the
Shearson Lehman Government/Corporate (Total) Index, (b) Shearson Lehman
Government Index, (c) Merrill Lynch 1-3 Year Treasury Index, (d) Merrill Lynch
2-Year Treasury Curve Index, (e) the Salomon Brothers Treasury Yield Curve Rate
of Return Index, (f) the Payden & Rygel 2-Year Treasury Note Index, (g) 1
through 3 year U.S. Treasury Notes, (h) constant maturity U.S. Treasury yield
indices, (i) the Consumer Price Index, (j) the London Interbank Offered Rate,
(k) other taxable investments such as certificates of deposit, money market
deposit accounts, checking accounts, savings accounts, money market mutual
funds, repurchase agreements, commercial paper and (l) historical data
concerning the performance of adjustable and fixed-rate mortgage loans.
Short Duration Tax-Free Fund and Municipal Income Fund may from time to
time advertise their performance relative to certain indices, any components of
such indices and benchmark investments, including but not limited to: (a) the
Lipper Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed Income
Analysis and Mutual Fund Indices (which measure total return and average
current yield for the mutual fund industry and rank mutual fund performance);
(b) the Lehman Brothers Municipal Bond Indices; (c) the Merrill Lynch Municipal
Bond Institutional Total Rate of Return Indices; (d) Bond Buyer Indices; (e)
IBC/Donoghue's Money Fund Averages/Institutional Only Tax Free; and constant
maturity U.S. Treasury yield indices.
Core Fund and Global Income Fund may each from time to time advertise its
performance relative to certain indices and benchmark investments, including:
(a) the Lipper Analytical Services, Inc.
B-115
<PAGE>
Mutual Fund Performance Analysis, Fixed Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer
Price Index published by the U.S. Bureau of Labor Statistics (which measures
changes in the price of goods and services); (d) Stocks, Bonds, Bills and
Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); (e) the
Salomon Brothers' World Bond Index (which measures the total return in U.S.
dollar terms of government bonds, Eurobonds and foreign bonds of ten countries,
with all such bonds having a minimum maturity of five years); (f) the Lehman
Brothers Aggregate Bond Index or its component indices; (g) the Standard &
Poor's Bond Indices (which measure yield and price of corporate, municipal and
U.S. government bonds); (h) the J.P. Morgan Global Government Bond Index; (i)
other taxable investments including certificates of deposit (CDs), money market
deposit accounts (MMDAs), checking accounts, savings accounts, money market
mutual funds and repurchase agreements; (j) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers Inc., First
Boston Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson Lufkin and
Jenrette Securities Corporation; and (k) Donoghue's Money Fund Report (which
provides industry averages for 7-day annualized and compounded yields of
taxable, tax-free and U.S. government money funds).
The composition of the investments in the above-referenced indices and
the characteristics of a Fund's benchmark investments are not identical to, and
in some cases may be very different from, those of a Fund's portfolio. These
indices and averages, as well as the averages set forth in the Appendices
hereto, are generally unmanaged and the items included in the calculations of
such indices and averages may not be identical to the formulas used by the a
Fund to calculate its performance figures.
From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of
Goldman Sachs as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
regulated matters believed to be of relevance to a Fund.
In addition, from time to time, advertisements or information may include
a discussion of asset allocation models developed by GSAM and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the Goldman Sachs mutual funds that may be offered as investment
options for the strategic asset allocations. Such advertisements and
information may also include GSAM's current economic outlook and domestic and
international market views to suggest periodic tactical
B-116
<PAGE>
modifications to current asset allocation strategies. Such advertisements and
information may include other material which highlight or summarize the
services provided in support of an asset allocation program.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
a Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein.
Performance data is based on historical results and is not intended to
indicate future performance. Total return, thirty-day yield, tax equivalent
yield and distribution rate will vary based on changes in market conditions,
portfolio expenses, portfolio investments and other factors. The value of a
Fund's shares will fluctuate and an investor's shares may be worth more or less
than their original cost upon redemption. The Trust may also, at its
discretion, from time to time make a list of a Fund's holdings available to
investors upon request.
OTHER INFORMATION
The Trust assumed its current name on March 22, 1991. Prior thereto, the
Trust's name was "Goldman Sachs -- Short-Intermediate Government Fund." Short
Duration Government Fund assumed its current name in March 1996. Prior thereto,
Short Duration Government Fund's name was "GS Short-Intermediate Government
Fund" until May 1991 and "GS Short-Term Government Agency Fund" until March
1996. Adjustable Rate Government Fund assumed its current name in March 1996.
Prior thereto, Adjustable Rate Government Fund's name was "GS Adjustable Rate
Government Agency Fund." Goldman Sachs licensed the name "Goldman Sachs" and
derivatives thereof to the Trust (and Fund) on a royalty-free basis and Goldman
Sachs has reserved to itself the right to grant the non-exclusive right to use
the name "Goldman Sachs" to any other person. At such time as the Advisory
Agreement for a Fund is no longer in effect, the Trust on behalf of that Fund
has agreed that such Fund will (to the extent it lawfully can) cease using the
name "Goldman Sachs."
A Fund will redeem shares solely in cash up to the lesser of $250,000 or
1% of its net asset value of each Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of each respective Fund at the
time of redemption by a distribution in kind of securities (instead of cash)
from such Fund. The securities distributed in kind would be readily marketable
and would be valued for this purpose using the same method employed in
calculating each Fund's net asset value per share. See "Net Asset Value." If
a shareholder receives redemption proceeds in kind, the shareholder should
expect to incur transaction costs upon the disposition of the securities
received in the redemption.
B-117
<PAGE>
The right of a shareholder to redeem shares and the date of payment by a
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for a Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of a Fund.
The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
and this Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen
LLP, indpendent publice acount, for each Fund contained in each Fund's 1996
Annual Report are hereby incorporated by reference and attached hereto. A copy
of the annual reports may be obtained without charge by writing Goldman, Sachs &
Co., 4900 Sears Tower, Chicago, Illinois 60606 or by calling Goldman, Sachs &
Co., at the telephone number on the back cover of each Fund's Prospectus.
B-118
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
We welcome the opportunity to review the performance and the investment
activity of the Goldman Sachs Fixed Income Funds for the 12-month period ended
October 31, 1996. To help put the portfolios' performance in perspective, we
will also provide a brief overview of the U.S. economy and the bond market
during the period.
We are pleased to report that the Goldman Sachs Fixed Income Funds fared
well relative to their peers during the period.
The Bond Market Sold Off Amid Rising Rates, Then Stabilized
The U.S. fixed income market began the 12-month period under review with a
robust rally, fueled by weak economic data and low inflation. However, in
February 1996, the bond market began to come under pressure when stronger than
expected economic and job growth as well as surging commodity prices aroused
fears of higher inflation on the horizon. Bond market conditions significantly
worsened during March and April, when a sharp rise in interest rates triggered a
sell-off and increased volatility. By early May, long-term bond yields had
climbed above the psychologically important 7.0% level for the first time in
nearly a year. At the end of May, interest rates began to stabilize and Treasury
prices remained in a narrow trading range throughout the summer and fall. During
September and October, however, interest rates retreated and the bond market
strengthened. The rebound was primarily due to evidence of a slowing U.S.
economy and strong demand for Treasury bonds from the central banks of China,
Japan and Germany, which accelerated their purchases dramatically toward the end
of the period. By the end of October, prices of 30-year Treasuries broke out of
the trading range that had persisted for over six months.
After a Weak Start, Economic Growth Rebounded, Then Moderated
In late 1995, the economy was anemic, with weak consumer and capital
spending contributing to a fourth-quarter real Gross Domestic Product (GDP)
growth of only 0.3% (annualized). During the first quarter of 1996, harsh winter
weather and the General Motors strike continued to restrain economic growth.
Despite these adverse conditions, the economy advanced faster than expected,
with first-quarter real GDP growth reported at 2.0% (annualized). Momentum
accelerated more dramatically during the second quarter, as industrial activity,
automobile sales and home sales all showed significant improvement. As a result,
second-quarter GDP rose a robust 4.7% (annualized), its highest rate in two
years.
The economy's torrid growth cooled markedly during the third quarter, with
annualized real GDP at a revised 2.0%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. In October some evidence of a
slowdown continued, with housing starts falling to their lowest level in a year
and U.S. capacity utilization also down. However, consumer confidence remained
high against a backdrop of low unemployment and higher household income. These
indicators led some economists to interpret October's retail sales numbers (up a
scant 0.2%) as a "breather" they expected to be followed by stronger holiday
shopping, while others were concerned about a more prolonged period of
restrained spending. Despite investors' earlier fears of increased inflationary
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Table of Contents
Market Overview 1 Financial Statements 24
Goldman Sachs Government Income Fund 4 Notes to Financial Statements 28
Goldman Sachs Global Income Fund 11 Financial Highlights 36
Goldman Sachs Municipal Income Fund 17
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
pressures and the fact that in October the producer and consumer price indexes
were up 0.4% and 0.3%, respectively, inflation remained subdued throughout the
period.
The Fed Remained Neutral After Easing in December and January
In response to generally poor year-end 1995 economic conditions, the U.S.
Federal Reserve cut the Federal funds rate by 25 basis points in December 1995
and an additional 25 basis points in January 1996. The Fed then remained neutral
from February through the end of the period, leaving the Federal funds rate at
5.25% as of October 31, 1996.
During the period under review, the yield curve shifted upward everywhere
but at the shortest end, where it steepened. The yield on six-month Treasury
bills fell from 5.55% on October 31, 1995 to approximately 5.26% on October 31,
1996. For the same time period, the yield on the 30-year U.S. Treasury bond rose
from 6.33% a year ago to 6.64%. For the 12-month period ended October 31, 1996,
the total returns of one-year and 30-year Treasuries were 5.84% and 0.72%,
respectively.
Historical Treasury Yield Curve
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Retail Treasury Bar Chart
<S> <C> <C>
10/31/95 10/31/96
3-Month 5.49% 5.13
6-Month 5.55 5.26
1 5.54 5.4
2 5.61 5.73
3 5.68 5.86
5 5.81 6.07
10 6.02 6.34
30 6.33 6.64
</TABLE>
Source: Bloomberg, L.P.
The yield curve steepened on the short end and shifted upward on the longer
end.
The Dollar's Climb Versus the Mark and the Yen
Continued
During the period under review, the U.S. dollar appreciated against both the
Deutsche mark and Japanese yen, rising more against the yen. The dollar
strengthened relative to the mark as the Bundesbank progressively edged rates
lower during the period to stimulate the sluggish German economy, reaching a 15-
month high against the mark in May. By October, the dollar had retreated
slightly as further Bundesbank cuts became less likely. In contrast, the
dollar's climb against the yen continued through the end of October, when it
reached a three-and-a-half-year high. The yen's weakness was primarily due to
the softness in Japan's economic recovery. However, in November the yen rose
against the dollar as Japanese officials made it clear that they believed the
yen had weakened enough.
Outlook: Moderate Economic Growth for the Near Term
The recent economic weakness and the tame third-quarter labor cost report
increase the likelihood that the Fed will defer any changes in monetary policy
until 1997. Although a more extended slowdown is possible, as of this writing,
Goldman Sachs' economists believe a resumption of growth is likely if consumer
spending rebounds by year-end and the trade deficit does not significantly
widen. On the fiscal front, the bond market environment should benefit from the
recent election results with President Clinton balanced by a Republican-
controlled Congress, which points toward continued budgetary restraint.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
We appreciate your confidence in the Goldman Sachs Fixed Income Funds and we
look forward to continuing to serve your investment needs in the future.
Sincerely,
/s/ David B. Ford
David B. Ford
Co-Head, Goldman Sach Asset Management
/s/ John P. McNulty
John P. McNulty
Co-Head, Goldman Sachs Asset Management
/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
Chief Investment Officer - Fixed Income Investments
Goldman Sachs Asset Management
November 29, 1996
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Government Income Fund seeks to provide shareholders with
a high level of current income consistent with safety of principal. Under normal
conditions, at least 65% of the portfolio's total assets will be invested in
U.S. government securities and in repurchase agreements collateralized by such
securities. The fund may also invest in securities of nongovernmental issuers,
including asset-backed securities, privately issued mortgage-backed securities
and corporate debt obligations. Such securities will be rated triple-A at the
time of investment or, if unrated, deemed to be of comparable quality by Goldman
Sachs Asset Management, the fund's investment adviser. The fund's interest rate
sensitivity is expected to be comparable to that of a five-year bond.
Mortgage-Backed Securities Strengthened Amid Slowing Prepayments
During the 12-month period under review, the performance of mortgage-backed
securities (MBSs) was closely linked to the changing direction of interest
rates. From November 1995 through February 1996, declining interest rates
spurred homeowners to switch to long-term, fixed rate mortgages, resulting in a
high level of refinancing activity and widening spreads between MBSs and
Treasuries. Long-term interest rates began to rise at the end of January and
prepayments peaked in February. Throughout the spring, the mortgage-backed
securities market strengthened due to declining prepayment fears, and adjustable
rate mortgages (ARMs) and fixed rate mortgage pass-throughs continued to do well
when rates stabilized during the summer. However, the direction of interest
rates reversed course beginning in September, and by the end of October, rates
on 30-year mortgages had slipped below 8%. The decline increased some
homeowners' incentive to refinance, but rates continued to be significantly
above their levels of a year earlier and "seasoned" mortgage-backed securities
(securities backed by older mortgages that typically have lower prepayment risk)
continued to do well. In addition, the market's technical balance remained
strong, with prices supported by healthy investor demand coupled with no
significant new issuance.
Performance Review: Fund Performed Well Due to Mortgage-and Asset-Backed
Securities
During the 12-month period ended October 31, the fund's Class A shares
outperformed the benchmark, the Lehman Brothers Government/Mortgage Index (the
"Index") due to favorable results from the fund's positions in collateralized
mortgage obligations (CMOs) and asset-backed securities (ABSs). The fund's Class
B shares, which opened on May 1, 1996 when interest rates were still rising,
also achieved positive returns.
The fund performed well compared with its peers. The fund's Class A shares
ranked eighth out of 124 intermediate U.S. government income funds based on
total return for the 12 months ended October 31, 1996, according to Lipper
Analytical Services, Inc. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results. Class B shares were not ranked for this period because they were in
existence less than 12 months.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary
- --------------------------------------------------------------------------------
Class A Class B*
(10/31/95- (5/1/96-
10/31/96) 10/31/96)
--------- ---------
<S> <C> <C>
Total Return (based on net asset value) 5.80% 4.85%
- --------------------------------------------------------------------------------
Return From Monthly Distributions 6.56% 3.01%
- --------------------------------------------------------------------------------
Return From Price Depreciation/ -0.76% 1.84%
Appreciation
- --------------------------------------------------------------------------------
Total Return of Lehman Brothers
Government/Mortgage Index 5.74% 5.12%
- --------------------------------------------------------------------------------
NAV (as of 10/31/96) $14.36 $14.37
- --------------------------------------------------------------------------------
NAV Change -$0.11 +$0.26
- --------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period.
Portfolio Composition and Investment Strategies
During the period under review, we significantly reduced the portfolio's
holdings of U.S. Treasuries in favor of mortgage-backed and asset-backed
securities.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
- --------------------------------------------------------------------------------
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
Agency Debentures 0.4%
Repos/Cash Equivalents 1.1%
U.S. Treasuries 16.2%
Asset-Backed Securities 19.9%
CMOs 22.0%
Fixed Rate Mortgage Pass-Throughs 40.4%
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
. Fixed Rate Mortgage Pass-Throughs. The fund's single largest position as of
October 31, 1996 was in fixed rate mortgage pass-throughs at 40.4% (nearly
unchanged from a year ago), which was overweighted relative to the Index
allocation of 36.4%. Overall, the fund benefited from the sector's incremental
yield compared with similar-duration Treasury securities. Although pass-throughs
suffered from a high rate of mortgage prepayments when the period began, the
sector improved when interest rates began to rise at the end of January.
During the period, we occasionally used mortgage dollar rolls, which helped
the portfolio to benefit from short-term supply and demand imbalances in the
mortgage settlement process. (Mortgage dollar rolls refer to transactions that
involve selling mortgage securities owned by the fund and simultaneously
contracting to buy back similar mortgage securities with the same coupon on a
specified future date -- usually one month forward.) At all times, we "cover"
the mortgage dollar rolls by keeping cash or high-grade liquid debt securities
equal to the dollar amount of the forward commitment in a segregated account
with the fund's custodian.
. CMOs. As of October 31, the fund's allocation in CMOs was 22.0%, up from
7.7% a year ago. These securities included sequential-pay/support CMOs (13.0%),
a position we initiated in February, which offered relative stability and
attractive spreads compared with Treasuries. We cut the portfolio's allocation
in planned amortization class (PAC) CMOs to 5.5% from 6.3% a year ago in favor
of other sectors that offered greater relative value. We also held very small
positions in inverse floaters, interest-only (IO) and principal-only (PO)
securities, discussed below.
. Asset-Backed Securities. The portfolio's ABS holdings, which were primarily
issues backed by credit card and automobile debt, represented 19.9% of the
portfolio, up from 14.3% a year ago. This position consisted of short-term,
triple-A-rated issues that offered attractive incremental yield over similar-
duration Treasuries. The ABS market began the period on a weak note, as concerns
surrounding credit card delinquencies impacted the sector during November and
December 1995. From January through the end of the period, these uncertainties
faded and the sector strengthened. Spreads between ABSs and Treasuries
tightened, as the ABS market benefited from strong investor demand from a
variety of sources: foreign banks, insurance companies and an increasing number
of corporate and CMO "crossover" accounts. ABS supply was robust as well, with a
wide variety of innovative new issues across a range of maturities, collateral
types and structures, but demand kept pace.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. We reduced the
fund's allocation in U.S. Treasuries and repurchase agreements/cash equivalents
to take advantage of securities in other sectors that offered better relative
value. As of October 31, Treasuries accounted for 16.2% of the portfolio,
significantly
- --------------------------------------------------------------------------------
5
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
- --------------------------------------------------------------------------------
underweighted relative to the Index (55.4%), while cash equivalents were a 1.1%
position.
. Agency Debentures. During the period, we reduced the fund's holdings in
agency debentures (bonds issued by agencies of the U.S. government) to a scant
0.4% because we determined that the sector's tight spreads compared with
Treasuries did not offer attractive return potential.
. Issuer Composition. The breakdown of the portfolio's mortgage-backed
security holdings by issuer was 23.3% in Federal National Mortgage Association
(FNMA) issues, 14.0% in Government National Mortgage Association (GNMA) issues,
9.8% in Federal Home Loan Mortgage Corporation (FHLMC) issues and 15.3% in
private issues.
. Credit Quality. As of October 31, U.S. government and agency securities
accounted for 66.6% of the portfolio, triple-A-rated securities were 32.3% of
the portfolio and cash equivalents were 1.1% of the portfolio.
. Prudent Use of Derivatives. As noted, sequential-pay/ support and PAC CMOs,
which are generally considered to be lower risk derivative instruments,
accounted for 13.0% and 5.5% of the portfolio, respectively. The portfolio also
held inverse floaters (1.3%) for their potential to add incremental yield, as
well as a "combo" consisting of minor positions in interest-only and principal-
only CMOs. When IOs are held along with POs, they can produce a position with a
similar risk profile as a fixed rate mortgage pass-through but with a higher
yield. In addition, we used futures as a tool to help manage the portfolio's
duration.
. Duration. The fund's duration as of October 31 was 4.5 years, in line with
the Index. We carefully manage the fund's duration to approximate that of the
Index rather than attempting to make interest rate predictions. Instead, we seek
excess return over the Index through our sector weightings and specific security
selection.
Fund Outlook
We have a cautiously optimistic view of the mortgage pass-through market in
general. Certain segments continue to be attractively valued, and we believe
that our current seasoned holdings should fare well relative to other sectors if
interest rates continue to fall and prepayments increase. We have a neutral
outlook for the CMO sector in general, which we believe does not offer
significant value over mortgage pass-throughs. However, we continue to identify
specific CMO securities that present attractive investment opportunities. In the
ABS market, significant spread premiums relative to comparably rated corporate
securities are expected to continue to buoy investor demand. In addition, Fed
surveys indicate that banks have been tightening their underwriting standards
over the last three quarters, which should help to allay lingering investor
concerns surrounding consumer credit card delinquencies. During the coming year,
we will continue to actively allocate the portfolio's assets among the various
fixed income sectors as their relative value changes.
Distribution Policy
The fund's Class A shares paid out monthly distributions of approximately
$0.92 per share during the 12-month period ended October 31, 1996. From their
inception on May 1, 1996 through October 31, 1996, the fund's Class B shares
paid out approximately $0.41 per share. Dividends are declared daily and paid on
a monthly basis. The fund distributes substantially all of its taxable income,
as is required for all investment companies.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
- --------------------------------------------------------------------------------
We thank you for your support and look forward to continuing to serve your
investment needs in the future.
Sincerely,
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Erica Adelberg
Erica Adelberg
/s/ James B. Clark
James B. Clark
Portfolio Managers
Goldman Sachs Government Income Fund
November 29, 1996
- --------------------------------------------------------------------------------
7
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the Goldman Sachs Government Income Fund (assuming both the
maximum sales charge of 4.5% and no sales charge for Class A shares and the
maximum redemption fee of 5% and no redemption fee for the Class B shares), is
compared with its benchmarks--the Lehman Brothers Mutual Fund
Government/Mortgage Index ("Lehman Gov't/MBS Index") and the Lehman Brothers
Mutual Fund General U.S. Government Index ("Lehman U.S. Gov't Index"). All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate as market conditions
change. The investment return and principal value of an investment will
fluctuate with changes in market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
HYPOTHETICAL $10,000 INVESTMENT
Class A/(a)/
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares Class A Shares Lehman Lehman
(no sales (w/sales Gov't/MBS U.S. Gov't
Date charge) charge) Index Index
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3/1/93 $10,000 $ 9,550 $10,000 $10,000
10/31/93 10,506 10,033 10,584 10,699
10/31/94 10,192 9,734 10,267 10,220
10/31/95 11,710 11,183 11,819 11,792
10/31/96 12,392 11,834 12,500 12,395
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class B Shares Class B Shares Lehman Lehman
(no redemption (w/redemption Gov't/MBS U.S. Gov't
Date charge) charge) Index Index
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000 $10,000
10/31/96 10,485 9,985 10,512 10,508
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(b)/
- -----------------------------------------------------------------------------
<S> <C> <C>
Class A, excluding sales 5.80% 6.72%
charge
- -----------------------------------------------------------------------------
Class A, including sales 1.06% 5.41%
charge
- -----------------------------------------------------------------------------
Class B, excluding
redemption charge N/A 4.85%/(c)/
- -----------------------------------------------------------------------------
Class B, including
redemption charge N/A (0.15%)/(c)/
- -----------------------------------------------------------------------------
</TABLE>
/a/ For comparative purposes, initial investments are assumed to be made on the
first day of the month following the Fund's commencement of operations.
/b/ Class A and Class B shares commenced operations February 10, 1993 and May 1,
1996, respectively.
/c/ An aggregate total return (not annualized) is shown instead of an average
annual total return since the B Class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
8
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Government Income Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations--55.5%
Federal Home Loan Mortgage Corp.(FHLMC)--10.3%
$ 3,000,000 7.50% TBA 30-Yr/(a)/ $ 3,010,290
- --------------------------------------------------------------------------------
Federal National Mortgage Association (FNMA)--16.5%
$ 989,360 7.00 02/01/26 $ 970,493
831,317 8.50 07/01/26 860,147
168,683 8.50 09/01/26 174,533
1,000,000 7.00 TBA 30-Yr/(a)/ 1,034,680
2,000,000 8.00 TBA 30-Yr/(a)/ 2,040,000
- --------------------------------------------------------------------------------
$ 5,079,853
- --------------------------------------------------------------------------------
Government National Mortgage Association
(GNMA)--14.1%
$ 939,735 7.00% 08/15/23 $ 927,115
353,966 9.00 TBA 30-Yr/(a)/ 377,748
1,363,733 7.50 TBA 30-Yr/(a)/ 995,228
2,000,000 8.00 TBA 30-Yr/(a)/ 2,045,000
- --------------------------------------------------------------------------------
$ 4,345,091
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations--26.4%
Interest Only--0.7%
FNMA Interest-Only Stripped Security, Series 151, Class 2
$ 712,363/(b)/ 9.50% 07/25/22 $ 225,926
- --------------------------------------------------------------------------------
Inverse Floater--1.3%
FNMA Remic Trust, Series 1992-62, Class S
404,038 10.00%/(c)/ 05/25/99 413,699
- --------------------------------------------------------------------------------
Planned Amortization Class (PAC)--5.4%
FNMA Remic Trust, Series 1993-160, Class PG
1,000,000 6.30% 09/25/18 987,500
GE Capital Mortgage Services, Inc. Series 1994-11, Class A1
693,546 6.50 03/25/24 694,191
- --------------------------------------------------------------------------------
$ 1,681,691
- --------------------------------------------------------------------------------
Principal Only--1.4%
FNMA Remic Trust, Series G-35, Class N
575,000/(e)/ 5.28% 10/25/21 415,369
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--2.9%
Citicorp Mortgage Securities Series 1993-11, Class A6
907,177 6.25% 09/25/08 880,207
- --------------------------------------------------------------------------------
Support--13.2%
Bear Stearns Mortgage Securities, Inc., Series 1996-7, Class AD
$ 988,793 6.50% 11/27/23 900,395
GE Capital Mortgage Services, Inc. Series 1994-10, Class A22
996,703 6.50 03/25/24 874,966
Housing Securities, Inc. Series 1994-1, Class A13
1,455,585 6.50 03/25/09 1,370,928
Prudential Securities Series 1995-2, Class A
916,596 5.76 11/15/15 918,243
- --------------------------------------------------------------------------------
$ 4,064,532
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 7,681,424
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $16,959,996) $17,106,368
- --------------------------------------------------------------------------------
Asset-Backed Securities--16.6%
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
$ 720,000 6.23% 06/15/03 $ 717,746
Fingerhut Master Trust, Series 1996-1, Class A
590,000 6.45 02/20/02 593,870
Ford Credit Auto Loan Master Trust, Series 1996-1, Class A
650,000 5.50 02/15/03 629,077
MBNA Master Credit Card Trust, Series 1991-1, Class A
245,000 7.75 10/15/98 245,688
Navistar Financial Corp. Owner Trust, Series 1995-A, Class A2
304,971 6.55 11/20/01 306,780
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
540,182 6.85 06/15/01 544,666
Premier Auto Trust, Series 1993-6, Class A2
403,341 4.65 11/02/99 398,675
Premier Auto Trust, Series 1994-1, Class A3
310,533 4.75 02/02/00 308,592
Sears Credit Account Master Trust, Series 1995-2, Class A
460,000 8.10 06/15/04 483,000
Standard Credit Card Trust, Series 1990-3, Class A
860,000 9.50 07/10/98 875,583
- --------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $5,174,476) $ 5,103,677
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs Government Income Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
===============================================================================
<S> <C> <C> <C>
U.S. Government Agency Obligations--0.4%
Federal Home Loan Mortgage Corp. (FHLMC)
$ 110,000 8.20% 01/16/98 $ 110,636
- -------------------------------------------------------------------------------
Total Government Agency Obligations
(Cost $113,163) $ 110,636
- -------------------------------------------------------------------------------
U.S. Treasury Obligations--15.9%
United States Treasury Bonds/(d)/
$ 360,000 8.75% 05/15/17 $ 440,550
280,000 8.75 08/15/20 345,668
United States Treasury Notes/(d)/
2,210,000 7.38 11/15/97 2,249,360
700,000 5.88 04/30/98 702,184
700,000 6.88 08/31/99 717,500
United States Treasury Principal-Only Stripped Securities/(e)/
230,000 6.41 11/15/04 138,344
1,550,000 6.95 05/15/20 307,570
- -------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $4,910,644) $ 4,901,176
- -------------------------------------------------------------------------------
Repurchase Agreement--27.0%
Joint Repurchase Agreement Account/(d)/
$8,400,000 5.58% 11/01/96 $ 8,400,000
- -------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $8,400,000) $ 8,400,000
- -------------------------------------------------------------------------------
Total Investments
(Cost $38,555,545/(f)/) $38,632,147
===============================================================================
Futures contracts open at October 31, 1996 are as follows:
Number of
Contracts Settlement Unrealized
Type Long(/g/) Month Gain
- -------------------------- ------------- ----------------- -----------
Euro Dollars 3 September 1997 $2,850
5 Year U.S. Treasury Notes 4 December 1996 3,000
10 Year U.S. Treasury Notes 2 December 1996 8,313
U.S. Long Term Bond 14 December 1996 60,437
------------
$74,600
===============================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 260,565
Gross unrealized loss for investments in which cost exceeds
value (195,408)
- -------------------------------------------------------------------------------
Net unrealized gain $ 65,157
===============================================================================
</TABLE>
/(a)/TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally +/-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
/(b)/Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated rate due to
the amortization of related premiums.
/(c)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1996.
/(d)/Portions of these securities are being segregated for open TBA purchases,
open futures contracts and futures margin requirements.
/(e)/The interest rate disclosed for these securities represents effective
yields to maturity.
/(f)/The aggregate cost for federal income tax purposes is $38,566,990.
/(g)/Each 10-Year U.S. Treasury Note, 5-Year Treasury Note and U.S. Treasury
Bond contract represents $100,000 in notional par value. Each Euro Dollar
contract represents $1,000,000 in notional par value. The total notional
amount and market value are $5,000,000 and $2,936,825, respectively. The
determination of notional amounts and market value as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Global Income Fund seeks high total return, composed of
both current income and capital appreciation. The fund is permitted to invest in
government and other high-quality (double-A or better) fixed income securities
issued in the United States and in foreign markets. The fund has the additional
flexibility to invest in sovereign (government) debt rated single-A (or better)
or deemed to be of comparable quality. The maximum duration of the fund is 7.5
years and its approximate interest rate sensitivity is comparable to that of a
six-year bond. Under normal market conditions, the fund's neutral position is to
be fully hedged into U.S. dollars to best serve the needs of U.S. shareholders.
However, the fund may engage in currency transactions, both to hedge exchange
rate risk and to seek to enhance returns.
European Bond Markets Achieved the Strongest Performance While Treasuries Lagged
During the 12 months ended October 31, 1996, global bonds generally
performed well, particularly during the second half of the period, with a number
of markets achieving extremely strong returns. Most international bond markets
have outperformed the United States, thus illustrating the benefits of
diversification.
The European higher yielding bonds (Italy, Spain and Sweden) were the best
performers of all the major bond markets during the period, while most of the
other European bond markets achieved good, albeit more modest, returns (hedged
into U.S. dollars). In general, European bond markets benefited from an
accommodative environment of sluggish economic growth and low inflation.
European bonds were also buoyed by tighter fiscal policies, as several European
countries attempted to reduce their deficits enough to qualify for European
monetary union. To counter less government spending, several countries (notably
Germany) attempted to stimulate economic growth by lowering their interest
rates.
The total return of Japanese Government Bonds (JGBs) during the period
under review was lower than those of most European bond markets but still
favorable (hedged into U.S. dollars). After lackluster performance during the
first half of the period amid fears of accelerating growth, JGBs experienced a
volatile, halting recovery when Japan's economy showed signs of weakening during
the summer and fall of 1996.
U.S. Treasuries underperformed all of the major bond markets. Though
Treasuries performed well in November and December 1995, accelerating economic
growth triggered a sharp correction from January through May 1996. The U.S. bond
market partially recovered when it rallied during September and October, but it
continued to lag. Within the dollar bloc, Canadian bonds did particularly well
during the period, reflecting a continuing easing of monetary policy by the Bank
of Canada, a strong currency and a relatively weak economy.
Performance Review: Favorable Country Allocations Benefited Fund Performance
During the period under review, the Goldman Sachs Global Income Fund's
Class A and Institutional shares outperformed the fund's benchmark, the J.P.
Morgan Global Government Bond Index (hedged into U.S. dollars) (the "Index").
The Index covers 14 major bond markets and reflects their currency exposures.
That favorable performance relative to the benchmark was primarily due to the
fact that during most of the period the fund was overweighted in European bonds
and moderately underweighted in U.S. Treasuries.
The fund's Class B shares, which began operations on May 1, 1996 while U.S.
interest rates were still rising, underperformed the benchmark.
- --------------------------------------------------------------------------------
11
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary
- --------------------------------------------------------------------------------
Class A Class B* Institutional
(10/31/95- (5/1/96- (10/31/95-
10/31/96) 10/31/96) 10/31/96)
-------- -------- --------
<S> <C> <C> <C>
Total Return (based on net asset 11.05% 6.24% 11.55%
value)
- --------------------------------------------------------------------------------
Return From Monthly 10.50% 2.68% 11.07%
Distributions
- --------------------------------------------------------------------------------
Return From Price Appreciation 0.55% 3.56% 0.48%
- --------------------------------------------------------------------------------
Total Return of J.P. Morgan 10.06% 6.53% 10.06%
Global Government Bond Index
- --------------------------------------------------------------------------------
NAV (as of 10/31/96) $14.53 $14.53 $14.52
- --------------------------------------------------------------------------------
NAV Change +$0.08 +$0.50 +$0.07
- --------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period.
Though the portfolio is typically fully hedged into U.S. dollars, we
occasionally employed currency strategies during the period. These included the
initiation of a long position in the U.S. dollar against the yen and European
currencies, which helped the fund's performance when the dollar strengthened
during the period.
Portfolio Composition and Investment Strategies
Portfolio Composition as of October 31, 1996*
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
<S> <C>
Sweden 1.9%
Denmark 2.5%
Spain 2.6%
Netherlands 2.6%
Ireland 2.7%
Italy 5.7%
U.K. 6.3%
Japan 9.0%
Germany 15.0%
Cash 15.4%
U.S. 36.3%
</TABLE>
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
. Dollar Bloc. As of October 31, 1996, U.S. Treasuries were the fund's sole
allocation in the dollar bloc countries. However, during the period, we
intermittently held positions in Canadian and Australian bonds.
U.S. During most of the period, the portfolio was underweighted in U.S.
Treasuries relative to the benchmark, which worked to its advantage when the
U.S. market was impacted by rising interest rates. In September and October, we
raised the fund's Treasury allocation, and the shift helped performance when the
Treasury market rallied during those months. As of October 31, the portfolio
held a 36.3% Treasury allocation, in line with the benchmark.
Other Dollar Bloc. The fund began the period overweighted in Canada (7.7%
as of October 31, 1995). However, we reduced the position in January and
liquidated the remainder in May on the expectation that Canada's current round
of interest rate easing had run its course, which proved not to be the case. In
July, we reestablished an overweighting in Canada, then sold the position the
following month after the market rallied. During September and October, the
Canadian bond market rose again on weaker economic news, but the fund did not
participate. Though the fund was not invested in Australia as of October 31, it
held an overweighted position at times during the period, which contributed to
performance when the market strengthened in anticipation of easing monetary
policy.
. Europe. The fund benefited from being overweighted in Europe during much of
the period. After we sold part of the allocation in the region at a profit, the
fund was slightly underweighted in European bonds relative to the Index, 39.3%
versus 43.9%, as of October 31.
Germany. Germany's economic growth was anemic during the first half of the
period, with real GDP declining during the fourth quarter of 1995 and the first
quarter of 1996. To help stimulate growth amid a tight fiscal policy, the
Bundesbank aggressively cut interest rates, which proved only modestly
successful as high unemployment and weak manufacturing activity continued to
persist. To
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- --------------------------------------------------------------------------------
participate in Germany's favorable bond market environment, we significantly
overweighted our holdings at 15.0% (versus 9.6% for the Index), preferring
Germany over France in the core European markets.
Italy, Spain and Sweden. During the period, we increased the fund's
allocation in the higher yielding European markets, then trimmed its exposure
after these markets became less favorably valued. In January, we initiated a
position in Italy, which was attractive due to its tight fiscal policy, expected
interest rate cuts and better than anticipated inflation data. As of October 31,
Italy was overweighted relative to the benchmark, 5.7% versus 5.2%, and it
significantly benefited the fund as it proved to be the best performing bond
market during the period. Spain, another top-performing bond market, was cut to
a 2.6% position as of October 31 after we determined the market fully reflected
expectations that Spain would meet the criteria for European monetary union. We
also benefited by establishing and maintaining an overweighted position in
Sweden during most of the period, then subsequently reduced the position to
1.9%, nearly in line with the benchmark.
U.K. The U.K.'s economy was sluggish during much of the period, but by
September economic activity began to rebound, particularly in the consumer
sector. In anticipation of renewed inflationary pressures, as well as political
uncertainty related to the forthcoming general election, we sold approximately
half of the portfolio's U.K. position during the period. As of October 31, the
portfolio's 6.3% U.K. weighting was in line with the benchmark.
Ireland, the Netherlands and Denmark. Small, new positions added during the
period included Ireland (2.7%), the Netherlands (2.6%) and Denmark (2.5%). Like
the rest of Europe, these countries had attractive bond market environments, and
they contributed to the fund's performance. We believe Ireland is particularly
attractive as it has an exemption on its debt level, enabling it to join
European monetary union (EMU) on the first round.
France. Over the course of the year we reduced the fund's position in
France, finally liquidating our remaining holdings in July, in favor of German
bonds that we believed were more attractively valued. Unfortunately, this
strategy was not successful when France subsequently outperformed Germany.
Belgium. Belgium, a 3.5% allocation last year, performed well and we
trimmed the position over the course of the year. In October, we sold the fund's
remaining holdings in Belgium in favor of the Netherlands, which our analysis
determined offered greater total return potential.
. Japan. JGBs accounted for 9.0% of the portfolio, significantly
underweighted compared with the benchmark (15.1%), which benefited the fund when
JGBs were weak during the first half of the period, but did not work in its
favor when JGBs rebounded in the second half of the year. However, the fund
partially participated in the Japanese bond rally through a call option on JGBs,
as well as its direct investments.
. Cash Equivalents. The fund's allocation in cash equivalents was 15.4%,
approximately the same as a year ago (16.4%). We anticipate reducing the
position as we identify attractive investment opportunities.
. Credit Quality. The portfolio was 100% invested in triple-A-rated
securities as of the end of the period.
. Duration. As of October 31, the fund's duration of 4.4 years was
approximately a half year lower than that of the benchmark. (Duration is a
measurement of the fund's sensitivity to interest rate movements; the shorter
the duration, the less the fund's net asset value [NAV] should move in relation
to interest rate fluctuations.) The duration difference was primarily due to the
portfolio's cash equivalent position and its underweighting in Japan.
- --------------------------------------------------------------------------------
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund (continued)
- --------------------------------------------------------------------------------
Fund Outlook
Going forward, we expect European bonds to continue to outperform U.S.
Treasuries, in terms of both capital gains and yields. In general, European
economies are weaker than that of the United States, with slow growth, high
unemployment and tight fiscal policies. Germany's economic recovery appears
intact, which makes us somewhat more cautious on German bonds at current low
yield levels. Nevertheless, German bonds still offer excess returns over cash,
provided German monetary policy remains on hold. Longer term, we favor the U.K.
gilt, as we believe the market has overreacted to the U.K.'s lack of
participation in European monetary union and its recent political uncertainty.
We also have a positive longer term view of the higher yielding markets of Italy
and Spain, though they have not offered investors a sufficient risk premium in
recent months. As of this writing, we are neutral on U.S. Treasuries, but we
will be watching for signs that the U.S. Federal Reserve expects to preempt any
potential inflationary pressure with tighter monetary policy in the near future.
Our analysis indicates that after their spectacular run, Canadian bonds do not
offer attractive relative value, but we are considering reestablishing a
position in Australia, which is experiencing slowing growth and waning
inflationary pressures. We expect to remain underweighted in Japan because we
anticipate that its economic recovery will resume despite recent weakness,
opening the possibility for monetary tightening. With JGBs currently yielding
just under 3%, our analysis indicates that we would not be adequately
compensated for their level of risk.
Distribution Policy
During the 12-month period under review, the fund's Class A and
Institutional shares paid out distributions of $1.43 and $1.50 per share,
respectively. From their inception on May 1, 1996 through October 31, 1996, the
fund's Class B shares paid out $0.36 per share. The fund declares and pays
dividends on a monthly basis. The fund distributes substantially all of its
taxable income, as is required for all investment companies.
As always, we will utilize the resources of Goldman, Sachs & Co.'s London-
based Economics Research Group for economic and market trend analysis as we
continue to seek out attractive global bond investment opportunities. We
appreciate your investment in the Goldman Sachs Global Income Fund and look
forward to continuing to help you achieve your investment goals.
Sincerely,
/s/ Stephen C. Fitzgerald
Stephen C. Fitzgerald
Portfolio Manager, Fixed Income Investments
/s/ Andrew F. Wilson
Andrew F. Wilson
Portfolio Manager, Fixed Income Investments
/s/ Gareth I. Evans
Gareth I. Evans
Portfolio Manager, Currency
Goldman Sachs Global Income Fund
London, November 29, 1996
- --------------------------------------------------------------------------------
14
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the Goldman Sachs Global Income Fund (assuming both the maximum
sales charge of 4.5% and no sales charge for the Class A shares, the first year
maximum redemption fee of 5% and no redemption fee for the Class B shares and
net asset value for the Institutional shares) is compared with its benchmark--
the J.P. Morgan Global Government Bond Index hedged to U.S. Dollars ("J.P.
Morgan GGB Index-$ Hedged"). All performance data shown represents past
performance and should not be considered indicative of future performance which
will fluctuate as market conditions change. The investment return and principal
value of an investment will fluctuate with changes in market conditions so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
HYPOTHETICAL $10,000 INVESTMENT
[CHART APPEARS HERE]
Class A Shares (a)
<TABLE>
<CAPTION>
Class A Shares Class A Shares J.P. Morgan GGB Index-
(no sales charge) (w/sales charge) $ Hedged
<S> <C> <C> <C>
09/01/91 $10,000 $9,500 $10,000
10/31/91 $10,145 $9,688 $10,263
10/31/92 $11,034 $10,538 $11,156
10/31/93 $12,220 $11,670 $12,509
10/31/94 $11,672 $11,146 $12,051
10/31/95 $13,432 $12,827 $13,903
10/31/96 $14,921 $14,250 $15,306
</TABLE>
Class B Shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Class B Shares Class B Shares J.P. Morgan GGB
(no redemption charge) (w/redemption charge) Index-$ Hedged
<S> <C> <C> <C>
05/01/96 $10,000 $10,000 $10,000
10/31/96 $10,624 $10,124 $10,653
</TABLE>
Institutional shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Institutional J.P. Morgan GGB
Shares Index-$ Hedged
<S> <C> <C>
08/01/95 $10,000 $10,000
10/31/95 $10,442 $10,351
10/31/96 $11,651 $11,395
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
Average Annual Total Return
----------------------------------------------------
One Year Five Year Since Inception(b)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Class A, excluding
sales charge 11.05% 8.01% 8.02%
- ---------------------------------------------------------------------------
Class A, including
sales charge 6.08% 7.02% 7.08%
- ---------------------------------------------------------------------------
Class B, excluding
redemption charge N/A N/A 6.24%(c)
- ---------------------------------------------------------------------------
Class B, including
redemption charge N/A N/A 1.24%(c)
- ---------------------------------------------------------------------------
Institutional Class 11.55% N/A 12.95%
- ---------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the Fund's commencement of operations of
the Class A shares.
(b) The Class A, Class B and Institutional shares commenced operations August 2,
1991, May 1, 1996 and August 1, 1995, respectively.
(c) An aggregate total return (not annualized) is shown instead of an average
annual total return since the B Class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Global Income Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount (a) Rate Date Value
================================================================================
<S> <C> <C> <C>
Debt Obligations--83.2%
British Pound Sterling--6.2%
United Kingdom Treasury
BPS 9,000,000 8.50% 12/07/05 $ 15,573,120
- --------------------------------------------------------------------------------
Danish Krone--2.5%
Kingdom of Denmark
DKK 33,000,000 9.00% 11/15/00 $ 6,415,484
- --------------------------------------------------------------------------------
Deutschemark--14.8%
Federal Republic of Germany
DEM 8,000,000 7.12% 12/20/02 $ 5,742,980
7,500,000 6.75 07/15/04 5,245,292
33,000,000 6.50 10/14/05 22,549,455
3,500,000 7.38 01/03/05 2,528,510
Treuhandanstalt
2,000,000 6.50 04/23/03 1,388,437
- --------------------------------------------------------------------------------
$ 37,454,674
- --------------------------------------------------------------------------------
Irish Pound--2.7%
Republic of Ireland
IEP 4,000,000 8.00% 10/18/00 $ 6,905,421
- --------------------------------------------------------------------------------
Italian Lira--5.4%
Republic of Italy
ITL 19,000,000,000 10.50% 11/01/00 $ 13,851,419
- --------------------------------------------------------------------------------
Japanese Yen--8.9%
International Bank for Reconstruction &
Development
JPY 700,000,000 6.75% 06/18/01 $ 7,536,474
Japanese Developmental Bank
1,400,000,000 6.50 09/20/01 15,019,116
- --------------------------------------------------------------------------------
$ 22,555,590
- --------------------------------------------------------------------------------
Netherlands Guilder--2.5%
Dutch Government Bond
NLG 10,000,000 7.00% 06/15/05 $ 6,350,937
- --------------------------------------------------------------------------------
Spanish Peseta--2.5%
Government of Spain
ESP 500,000,000 10.30% 06/15/02 $ 4,448,842
Kingdom of Spain
200,000,000 10.15 01/31/06 1,804,930
- --------------------------------------------------------------------------------
$ 6,253,772
- --------------------------------------------------------------------------------
Swedish Krona--1.8%
Kingdom of Sweden
SEK 32,000,000 6.00% 02/09/05 $ 4,489,558
- --------------------------------------------------------------------------------
United States Dollar--35.9%
United States Treasury Notes
USD 10,000,000 6.88% 07/31/99 $ 10,243,700
18,000,000 5.25 01/31/01 17,507,880
17,000,000 6.38 03/31/01 17,196,520
8,200,000 6.25 02/15/03 8,229,438
10,000,000 7.88 11/15/04 10,975,000
12,000,000 6.50 08/15/05 12,125,640
14,000,000 7.00 07/15/06 14,616,840
- --------------------------------------------------------------------------------
$ 90,895,018
- --------------------------------------------------------------------------------
Total Debt Obligations
(Cost $206,293,080) $210,744,993
- --------------------------------------------------------------------------------
Short-Term Obligations--15.4%
Euro-Time Deposit
USD 38,987,507 5.50% 11/01/96 38,987,507
- --------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $38,987,507) $ 38,987,507
- --------------------------------------------------------------------------------
Total Investments
(Cost $245,280,587/(b)/ ) $249,732,500
================================================================================
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $6,414,087
Gross unrealized loss for investments in which cost
exceeds value (2,188,683)
- --------------------------------------------------------------------------------
Net unrealized gain $4,225,404
================================================================================
</TABLE>
/(a)/ The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
BPS = British Pound Sterling ITL = Italian Lira
NLG = Netherlands Guilder JPY = Japanese Yen
DKK = Danish Krone ESP = Spanish Peseta
DEM = Deutschemark SEK = Swedish Krona
IEP = Irish Pound USD = United States Dollar
/(b)/ The aggregate cost for federal income tax purposes is $245,507,096. The
percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The Goldman Sachs Municipal Income Fund seeks to provide a high level of
current income that is exempt from regular federal income tax, consistent with
the preservation of capital. In pursuit of its objective, the fund invests in a
diversified portfolio of municipal securities with a weighted average credit
quality of double-A or better. The fund buys only investment-grade securities
or, if unrated, deemed to be of comparable quality. Under normal interest rate
conditions, the fund's duration is expected to be within one year of its
benchmark, the Lehman Brothers 15-Year Municipal Bond Index. The fund's
approximate interest rate sensitivity is comparable to that of a 15-year bond.
After a Weak Start, the Municipal Bond Market Strengthened
The municipal bond market outperformed Treasuries during the 12-month
period under review, though both markets came under pressure when rates rose
during the first half of 1996. The average price of a 15-year municipal bond (as
calculated from data provided by Municipal Market Data, an independent municipal
market information provider) rose approximately 0.50%, while yields declined
from 5.35% on October 31, 1995 to 5.30% on October 31, 1996.
The municipal bond market began the period under review on a weak note. Tax
reform uncertainty impacted investor demand during November and December 1995,
while municipal bond supply was high due to seasonably heavy year-end issuance
and relatively low interest rates. The market environment improved during
January and February 1996, when fading tax reform concerns helped to revive
investor interest in the sector and issuance declined. From March through the
end of the period, the market's technical balance was generally healthy, though
occasional spikes in supply periodically overwhelmed demand and briefly impacted
performance. The largest of these surges occurred in June when supply rose to
its highest level since late 1995, but subsequently both new issuance and
secondary supply fell dramatically from July through September.
On the demand side, interest in municipal bonds was generally stable until
late summer and early fall. Demand from individual investors (who control
approximately 65% of municipal bond ownership either through mutual funds or
direct investment) began to decline when interest rates declined and municipal
yields fell below the psychologically significant 6% level. In addition,
property/casualty companies (who control approximately 10% of municipal bond
ownership) also dropped out of the market because the sector had become somewhat
unattractive relative to Treasuries. The supply drought finally abated in
October when many issuers sought to take advantage of lower interest rates, and
a continued weakness in demand caused municipals to underperform taxable bonds
for the month.
Municipal Bond Yield Curve
[YIELD CURVE LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year of Maturity 10/31/96 10/31/95
---------------- -------- --------
<S> <C> <C>
1997 3.6 3.9
1998 3.9 4.1
1999 4.15 4.2
2000 4.3 4.3
2001 4.4 4.4
2002 4.5 4.5
2003 4.6 4.6
2004 4.7 4.7
2005 4.8 4.8
2006 4.9 4.95
2007 5 5.05
2008 5.1 5.15
2009 5.2 5.25
2010 5.25 5.35
2011 5.3 5.4
2012 5.35 5.45
2013 5.4 5.5
2014 5.4 5.55
2015 5.45 5.55
2016 5.45 5.55
2017 5.45 5.55
2018 5.5 5.55
2019 5.5 5.6
2020 5.5 5.6
2021 5.5 5.6
2022 5.5 5.6
2023 5.5 5.6
2024 5.5 5.6
2025 5.5 5.6
</TABLE>
The yield curve steepened at the short end and shifted downward at the longer
end.
Performance Review: Term Structure, Sector Weightings and Security Selection
Contributed to the Fund's Favorable Performance
During the period under review, the fund's Class A shares outperformed
their benchmark, the Lehman Brothers 15-Year Municipal Bond Index (the "Index").
The fund's Class B shares, which opened on May 1, 1996 while interest rates were
still rising, also performed well but slightly lagged the benchmark.
- --------------------------------------------------------------------------------
17
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
- --------------------------------------------------------------------------------
We are pleased to report that the fund's Class A shares outperformed most of
their peers. For the 12 months ended October 31, 1996, Class A shares ranked in
the top 20% of general municipal debt funds (36 out of 228) based on total
return, according to Lipper Analytical Services, Inc. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results. Class B shares were not included because they
were not in existence during the entire 12-month period.)
- --------------------------------------------------------------------------------
Performance Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B*
(10/31/95- (5/1/96-
10/31/96) 10/31/96)
-------- --------
<S> <C> <C>
Total Return (based on net asset value) 6.13% 4.40%
- --------------------------------------------------------------------------------
Return From Monthly Distributions 4.72% 1.98%
- --------------------------------------------------------------------------------
Return From Price Appreciation 1.41% 2.42%
- --------------------------------------------------------------------------------
Lehman Brothers 15-Year Municipal
Bond Index 5.99% 4.80%
- --------------------------------------------------------------------------------
NAV (as of 10/31/96) $14.37 $14.37
- --------------------------------------------------------------------------------
NAV Change +$0.20 +$0.34
- --------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period.
The fund's positive performance during the period can be attributed to our
term structure management, sector weightings and specific security selections.
. The portfolio's neutral term structure is "credit-barbelled," emphasizing
high-quality bonds with maturities of 20 to 30 years on the long end of the
yield curve and lower quality bonds with four to ten year maturities on the
short end of the curve. However, during the period, we regularly adjusted the
term structure to take advantage of changing market conditions. For example,
when the municipal bond yield curve flattened during September and the beginning
of October, we sold securities in the 20- to 30-year range in favor of 15- to
20-year bonds. In mid-October, the yield curve steepened as we anticipated, and
the fund's 15- to 20-year bonds outperformed 20- to 30-year bonds. By the end of
the month, when longer maturity bonds had become more attractively valued, we
reestablished a more evenly distributed maturity structure.
. In September, we underweighted the fund's municipal bond position relative
to the Index when our analysis indicated that municipal bonds had become
expensive compared with Treasuries. We replaced a small percentage of the fund's
duration with U.S. Treasury bond futures contracts, which we preferred over
buying Treasuries directly because they allowed us to participate in a Treasury
rally without incurring taxable net investment income. This strategy proved
successful when municipal bonds underperformed Treasuries in October, and we
returned the fund to its 100% municipal bond weighting after municipals had
cheapened to an attractive level at the end of the month.
. The fund's performance also benefited from our extensive credit analysis.
Our research helped us identify specific investment opportunities, such as
"story" bonds. These securities are often misunderstood or incorrectly valued,
but can have unique security structures and attractive yield potential.
Portfolio Composition and Investment Strategies:
Revenue Bonds Were Stressed Over GOs
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Variable Rate Demand Notes 7.6%
General Obligations 5.5%
Insured Revenue Bonds 34.7%
Revenue Bonds 27.9%
Insured General Obligations 24.3%
</TABLE>
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
- --------------------------------------------------------------------------------
. Revenue Bonds. We emphasized revenue bonds over general obligation bonds
because the sector offers higher yields and better price appreciation potential.
As of October 31, the fund held a 62.6% position in a combination of insured and
uninsured revenue bonds, overweighted compared with the Index (53.9%). (Revenue
bonds pay interest and principal out of a specific revenue stream, such as sales
taxes, hospital charges, tolls, electric rates and airport fees.)
. General Obligation (GO) Bonds. As of October 31, the fund's GO holdings,
which are backed by the general taxing power of a municipality, were
underweighted relative to the Index, 29.8% versus 45.6%. Though the fund's total
GO allocation was little changed from a year ago, we did increase its weighting
in insured GOs (to 24.3% versus 12.6% last year) and reduced uninsured GOs (to
5.5% versus 16.6% last year) due to security-specific investment opportunities.
. Variable Rate Demand Notes (VRDNs). VRDNs, which are high-quality cash
equivalents, were used to manage the portfolio's excess liquidity. The position
accounted for 7.6% of the portfolio, nearly unchanged from last year.
. Credit Quality. During the period, the fund's average credit quality has
remained double-A. However, in contrast to last year's emphasis on triple-A-
rated bonds, this year the fund's credit quality was structured like a
"barbell," with higher quality securities at the long end of the yield curve and
lower quality securities (but still investment grade) at the short end. As of
October 31, 70.5% of the fund was invested in triple-A-rated securities, nearly
the same as a year ago, while double-A- and single-A-rated securities were
reduced to 9.3% and 1.8%, respectively. In the late spring of 1996, we initiated
a new position in triple-B-rated securities (the lowest credit category for
investment-grade securities), which accounted for 18.4% of the portfolio by the
end of the period. We used extensive credit research to identify specific
securities that offered higher yields than average triple-B-rated securities,
but still were of sound credit quality. The triple-B-rated position benefited
the fund's performance during the period by enabling us to lock in above-market
yields and providing greater price appreciation potential relative to the
market. Each of these positions is monitored carefully, and we will remain
vigilant for any changes in their credit quality.
Market Outlook
We have a bullish long-term outlook for municipal bond supply, since new
money issuance (bonds issued for purposes other than refunding older debt) tends
to be stable and grows at the same rate as GDP. In addition, we do not
anticipate a significant increase in refunding unless interest rates drop
substantially. On the demand side, investor interest is likely to remain
healthy, as we believe that two to four more years of divided government (a
Democratic president and a Republican-controlled Congress) should avert any
significant tax reform that would threaten municipal bonds' tax-exempt status.
Distribution Policy
During the period under review, the fund's Class A shares paid out
distributions of $0.65 per share. The fund's Class B shares, which opened on May
1, 1996, paid out $0.27 per share from their inception through October 31, 1996.
Dividends are declared daily and paid on a monthly basis. The fund intends to
distribute substantially all of its investment company tax-exempt and taxable
income, as required by tax law.
- --------------------------------------------------------------------------------
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
- --------------------------------------------------------------------------------
We value your investment in the Goldman Sachs Municipal Income Fund and we
look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Benjamin S. Thompson
Benjamin S. Thompson
/s/ Elisabeth Schupf Lonsdale
Elisabeth Schupf Lonsdale
Portfolio Managers
Goldman Sachs Municipal Income Fund
November 29, 1996
- --------------------------------------------------------------------------------
20
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the Goldman Sachs Municipal Income Fund (assuming both the
maximum sales charge of 4.5% and no sales charge for Class A shares and the
maximum redemption fee of 5% and no redemption fee for the Class B shares) is
compared with its benchmark--the Lehman Brothers 15-Year Municipal Bond Index
("Lehman 15-Year Muni Index"). All performance data shown represents past
performance and should not be considered indicative of future performance which
will fluctuate as market conditions change. The investment return and principal
value of an investment will fluctuate with changes in market conditions so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
HYPOTHETICAL $10,000 INVESTMENT
Class A /(a)/
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares Class A Shares Lehman 15-year
Date (no sales charge) (w/sales charge) Muni Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
8/1/93 $10,000 $9,550 $10,000
- --------------------------------------------------------------------------------
10/31/93 $10,455 $9,984 $10,385
- --------------------------------------------------------------------------------
10/31/94 $9,878 $9,434 $9,860
- --------------------------------------------------------------------------------
10/31/95 $11,241 $10,735 $11,414
- --------------------------------------------------------------------------------
10/31/96 $11,933 $11,395 $12,100
- --------------------------------------------------------------------------------
</TABLE>
Class B
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares Class A Shares Lehman
(no redemption (w/redemption 15-year
Date charge) charge) Muni Index
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
- --------------------------------------------------------------------------------
Oct 31, 96 10,440 9,940 10,480
- --------------------------------------------------------------------------------
</TABLE>
-----------------------------------
Average Annual Total Return
-----------------------------------
One Year Since Inception/(b)/
--------------------------------------------------------
Class A, excluding
sales charge 6.13% 5.27%
--------------------------------------------------------
Class A, including
sales charge 1.35% 3.80%
--------------------------------------------------------
Class B, excluding
redemption charge N/A 4.40%/(c)/
--------------------------------------------------------
Class B, including
redemption charge N/A (0.60%)/(c)/
--------------------------------------------------------
/(a)/For comparative purposes, Class A initial investment is assumed to be made
on the first day of the month following the Fund's commencement of
operations.
/(b)/Class A and Class B commenced operations July 20, 1993 and May 1, 1996,
respectively.
/(c)/An aggregate total return (not annualized) is shown instead of an average
annual total return since the B Class has not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund
October 31, 1996
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Debt Obligations--102.2%
Arizona--5.1%
Maricopa County, AZ Unified School District No. 41 GO
(FSA)(AAA/Aaa)
$2,500,000 6.25% 07/01/15 $ 2,653,300
- --------------------------------------------------------------------------------
California--8.1%
Contra Costa, CA Water District Series G RB (MBIA)
(AAA/Aaa)
$2,000,000 5.75% 10/01/14 $ 2,022,980
San Buenaventura, CA Sewer Revenue RB (FGIC)
(AAA/Aaa)
2,255,000 5.50 03/01/15 2,231,435
- --------------------------------------------------------------------------------
$ 4,254,415
- --------------------------------------------------------------------------------
Colorado--4.8%
Englewood MFH RB (BBB)
$2,500,000 6.65% 12/01/26 $ 2,499,750
- --------------------------------------------------------------------------------
Connecticut--3.9%
Mashantucket Western Pequot Tribe RB (BBB/Baa)
$2,000,000 6.50% 09/01/05 $ 2,072,220
- --------------------------------------------------------------------------------
Florida--2.8%
Escambia County, FL Housing Authority, Single Family
(GNMA/FNMA)(Aaa)
$1,390,000 6.80% 10/01/15 $ 1,464,949
- --------------------------------------------------------------------------------
Illinois--19.1%
Chicago, IL GO Series A-2 (AMBAC) (AAA/Aaa) (e)
$1,750,000 6.25% 01/01/14 $ 1,877,873
Cook County, IL GO(FGIC) (AAA/Aaa)
2,000,000 5.75 11/15/12 2,015,720
Lake County, IL Unified School District No. 116 GO (FSA) (AAA/Aaa)
2,000,000 7.60 02/01/14 2,428,340
1,525,000 6.10 02/01/16 1,588,089
O'Hare International Airport RB (MBIA)(AAA/Aaa)
2,000,000 6.38 01/01/15 2,109,780
- --------------------------------------------------------------------------------
$10,019,802
- --------------------------------------------------------------------------------
Indiana--9.5%
East Allen, IN Elementary School Building Corp. RB (FSA)
(AAA/Aaa)
$3,115,000 5.88% 07/01/12 $ 3,178,079
Indiana Transportation Finance Authority RB Series A
(MBIA) (AAA/Aaa)
1,500,000 7.25 06/01/15 1,789,305
- --------------------------------------------------------------------------------
$ 4,967,384
================================================================================
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Kentucky--2.0%
Nelson County, KY Industrial Building RB for Mabex
Universal Corp. Project AMT (A3)
$1,000,000 6.50% 04/01/05 $ 1,066,790
- --------------------------------------------------------------------------------
Maine--1.5%
Maine Educational Loan Authority RB Series A-1 (Aaa)
$ 725,000 6.80% 12/01/07 $ 765,462
- --------------------------------------------------------------------------------
Michigan--3.6%
Detroit, MI GO (BBB-)
$1,885,000 5.70% 05/01/02 $ 1,907,714
- --------------------------------------------------------------------------------
New York--9.0%
New York State Municipal Bond Agency RB, Series A (BBB+)
$1,610,000 6.60% 03/15/01 $ 1,699,854
New York State Thruway Authority Highway & Bridges RB
(BBB/Baa1)
1,000,000 5.25 04/01/03 1,004,630
Syracuse, NY IDA RB (AA)
2,000,000 5.13 10/15/02 2,005,600
- --------------------------------------------------------------------------------
$ 4,710,084
- --------------------------------------------------------------------------------
North Dakota--3.8%
Mercer County, ND PCRB for Basin Electric Power 2nd
Series (AMBAC) (AAA/Aaa) (e)
$2,000,000 6.05% 01/01/19 $ 2,055,380
- --------------------------------------------------------------------------------
Ohio--8.9% Akron, OH COPs (a) (BBB) (c)
$2,000,000 6.90% 12/01/16 $ 1,438,500
Kent State University RB (MBIA) (AAA/Aaa)
2,280,000 5.50 05/01/28 2,181,504
Trumbull County, OH GO (AMBAC) (AAA/Aaa)
1,000,000 5.75 12/01/03 1,061,870
- --------------------------------------------------------------------------------
$ 4,681,874
- --------------------------------------------------------------------------------
Texas--8.8%
Denison, TX Waterworks & Sewer RB (AAA/Aaa)
$1,250,000 5.50% 09/01/08 $ 1,258,525
1,250,000 5.40 09/01/09 $ 1,258,475
East Texas Criminal Justice Facilities Financing Corp. RB
(AMBAC) (AAA/Aaa)
$2,000,000 5.75 11/01/09 $ 2,032,560
Fort Bend, TX Independent School District RB (AAA/Aaa)
50,000 5.00 02/15/18 46,226
- --------------------------------------------------------------------------------
$ 4,595,786
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
22
22
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Municipal Income Fund (continued)
October 31, 1996
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Debt Obligations(continued)
Washington--7.1%
Chelan County, WA Public Utility RB (AAA/Aaa)/c/
$2,500,000 6.35% 07/01/28 $ 2,540,125
Washington State Series C GO (AA/Aa)
1,155,000 6.50 07/01/00 1,232,373
- --------------------------------------------------------------------------------
$ 3,772,498
- --------------------------------------------------------------------------------
Wisconsin--4.2%
Wisconsin Housing & Economic Development Authority RB,
Series B (AA/Aa)/e/
$2,060,000 7.10% 09/01/15 $ 2,181,623
- --------------------------------------------------------------------------------
Total Debt Obligations
(Cost $52,677,902) $53,669,031
- --------------------------------------------------------------------------------
Short-Term Obligations--8.4%
Alabama--6.5%
Columbia County, AL IDB/b/ (A/A2)
$1,200,000 3.65% 11/01/96 $ 1,200,000
Parrish, AL IDB/b/ (A/A1)
2,200,000 3.65 11/01/96 2,200,000
- --------------------------------------------------------------------------------
$ 3,400,000
- --------------------------------------------------------------------------------
Wyoming--1.9%
Converse, WY PCRB/b/ (AAA)
$1,000,000 3.65% 11/01/96 $ 1,000,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $4,400,000) $ 4,400,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $57,077,902/d/) $58,069,031
================================================================================
- --------------------------------------------------------------------------------
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which value
exceeds cost $ 1,018,643
Gross unrealized loss for investments in which cost
exceeds value (27,514)
- --------------------------------------------------------------------------------
Net unrealized gain $ 991,129
================================================================================
/a/The interest rate disclosed for these securities represents effective
yields to maturity.
/b/Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
/c/When-issued security.
/d/The amount stated also represents aggregate cost for federal income tax
purposes.
/e/Portions of these securities are being segregated for when-issued securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
================================================================================
Investment Abbreviations:
AMBAC --Insured by American Municipal
Bond Assurance Corp.
COPS --Certificates of Participation
FGIC --Insured by Financial Guaranty
Insurance Co.
FSA --Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
MBIA --Insured by Municipal Bond Investors
Assurance
MFH --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
================================================================================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
23
23
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
========================================
<S> <C> <C> <C>
Assets:
Investments in securities, at value (cost $38,555,545, $245,280,587
and $57,077,902) $38,632,147 $249,732,500 $58,069,031
Receivables:
Investment securities sold 3,011,458 -- --
Interest 255,950 4,572,733 688,717
Forward foreign currency exchange contracts -- 1,073,237 --
Fund shares sold 38,729 23,757 12,145
Foreign tax withheld -- 100,251 --
Cash 17,149 248 48,127
Variation margin 6,788 -- --
Deferred organization expenses, net 23,998 -- 30,090
Other assets 65,284 31,883 29,773
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 42,051,503 255,534,609 58,877,883
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 11,129,422 -- 6,076,685
Forward foreign currency exchange contracts -- 1,816,332 --
Fund shares repurchased 14,381 124,500 128,184
Investment adviser fees 6,423 94,713 18,124
Administration fees -- 32,334 6,857
Authorized dealer service fees 6,166 44,409 9,224
Distribution fees 151 35,488 154
Accrued expenses and other liabilities 57,538 211,388 116,255
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 11,214,081 2,359,164 6,355,483
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets:
Paid in capital 30,678,648 247,410,169 52,495,830
Accumulated undistributed net investment income 53,331 6,704,225 60,331
Accumulated net realized loss on investment transactions (45,759) (4,636,687) (1,024,890)
Accumulated net realized foreign currency gain -- 43,634 --
Net unrealized gain on investments and futures 151,202 4,864,862 991,129
Net unrealized loss on translation of assets and liabilities denominated in foreign
currencies -- (1,210,758) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets $30,837,422 $253,175,445 $52,522,400
==================================================================================================================================
Net asset value, offering /(a)/ and redemption price per share
Class A $14.36 $14.53 $14.37
Class B $14.37 $14.53 $14.37
Institutional -- $14.52 --
==================================================================================================================================
Shares Outstanding
Class A 2,131,467 13,670,270 3,637,437
Class B 16,317 17,603 17,778
Institutional -- 3,735,251 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of shares authorized) 2,147,784 17,423,124 3,655,215
==================================================================================================================================
</TABLE>
/(a)/Maximum public offering price per share (NAV per share x 1.0471) for Class
A shares is $15.04, $15.21 and $15.05 for Government Income, Global Income
and Municipal Income, respectively. At redemption, Class B shares are
subject to a contingent deferred sales charge, assessed on the amount equal
to the lesser of the current net asset value or the original purchase price
of the shares.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
Goldman Sachs Trust
- ------------------------------------------------------------------------------
Statements of Operations
For the Year Ended October 31, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
======================================
<S> <C> <C> <C>
Investment income:
Interest/(a)/ $2,048,891 $18,287,214 $2,869,729
- ------------------------------------------------------------------------------
Total income 2,048,891 18,287,214 2,869,729
- ------------------------------------------------------------------------------
Expenses:
Investment adviser fees 148,120 1,965,605 211,283
Administration fees 44,433 393,263 79,231
Authorized dealer service fees 74,171 549,289 132,051
Distribution fees 74,281 549,538 132,304
Custodian fees 44,987 210,420 36,172
Transfer agent fees 72,237 121,212 90,284
Professional fees 58,897 92,538 60,094
Registration fees 14,992 63,673 32,549
Amortization of deferred organization
expenses 18,848 46,256 17,593
Trustee fees 478 3,073 707
Other 8,763 78,430 27,214
- ------------------------------------------------------------------------------
Total expenses 560,207 4,073,297 819,482
Less--expenses reimbursable and fees
waived by Goldman Sachs (411,644) (1,241,452) (370,128)
- ------------------------------------------------------------------------------
Net expenses 148,563 2,831,845 449,354
- ------------------------------------------------------------------------------
Net investment income 1,900,328 15,455,369 2,420,375
- ------------------------------------------------------------------------------
Realized and unrealized gain (loss)
on investment, options, futures and
foreign currency transactions:
Net realized gain (loss) from:
Investment transactions 115,970 9,268,666 1,390,846
Futures transactions (68,389) -- (151,156)
Foreign currency related transactions -- (2,192,328) --
Net change in unrealized gain (loss) on:
Investments and options (332,205) 54,149 (513,085)
Futures 74,600 -- --
Translation of assets and liabilities
denominated in foreign currencies -- 4,948,769 --
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment, options, futures and
foreign currency transactions (210,024) 12,079,256 726,605
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $1,690,304 $27,534,625 $3,146,980
==============================================================================
</TABLE>
/(a)/Net of $96,252 in foreign withholding tax for the Global Income
Fund.
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
=============================================
<S> <C> <C> <C>
From operations:
Net investment income $ 1,900,328 $ 15,455,369 $ 2,420,375
Net realized gain from investment transactions 47,581 9,268,666 1,239,690
Net realized loss from foreign currency related transactions -- (2,192,328) --
Net change in unrealized gain (loss) on investments, futures and options (257,605) 54,149 (513,085)
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- 4,948,769 --
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,690,304 27,534,625 3,146,980
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class A (1,898,372) (22,455,377) (2,418,570)
Class B (3,324) (3,052) (1,805)
Institutional Class -- (4,050,770) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,901,696) (26,509,199) (2,420,375)
- ------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 8,922,548 39,747,372 6,389,765
Reinvestment of dividends and distributions 1,614,587 16,968,046 1,484,778
Cost of shares repurchased (8,990,920) (82,019,748) (9,875,982)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 1,546,215 (25,304,330) (2,001,439)
- ------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 1,334,823 (24,278,904) (1,274,834)
Net assets:
Beginning of year 29,502,599 277,454,349 53,797,234
- ------------------------------------------------------------------------------------------------------------------------
End of year $ 30,837,422 $ 253,175,445 $ 52,522,400
========================================================================================================================
Accumulated undistributed net investment income $ 53,331 $ 6,704,225 $ 60,331
========================================================================================================================
Summary of share transactions:
Shares sold 624,626 2,811,314 449,496
Reinvestment of dividends and distributions 112,977 1,198,568 104,201
Shares repurchased (628,175) (5,784,097) (694,794)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 109,428 (1,774,215) (141,097)
========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Global Municipal
Income Income Income
Fund Fund Fund
=============================================
<S> <C> <C> <C>
From operations:
Net investment income $ 1,357,262 $ 19,658,884 $ 2,466,930
Net realized gain from investment transactions 603,048 5,556,002 938,332
Net realized gain from foreign currency related transactions -- 18,804,029 --
Net change in unrealized gain on investments 902,391 14,759,004 3,055,111
Net change in unrealized loss on translation of assets and liabilities denominated in
foreign currencies -- (15,288,240) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,862,701 43,489,679 6,460,373
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (1,361,620) (20,883,123)(a) (2,466,930)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,361,620) (20,883,123) (2,466,930)
- ------------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 15,973,014 53,349,100 11,879,853
Reinvestment of dividends and distributions 1,123,498 13,008,610 1,551,121
Cost of shares repurchased (3,546,816) (208,094,050) (11,000,210)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 13,549,696 (141,736,340) 2,430,764
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 15,050,777 (119,129,784) 6,424,207
Net assets:
Beginning of year 14,451,822 396,584,133 47,373,027
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $29,502,599 $ 277,454,349 $ 53,797,234
====================================================================================================================================
Accumulated undistributed net investment income $ 36,251 $ 16,641,827 $ 42,738
====================================================================================================================================
Summary of share transactions:
Shares sold 1,139,008 3,822,903 876,447
Reinvestment of dividends and distributions 80,152 935,191 113,767
Shares repurchased (253,583) (15,079,626) (816,569)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 965,577 (10,321,532) 173,645
====================================================================================================================================
</TABLE>
(a) The Global Income Fund distributed $20,322,640 and $560,483 from net
investment income for the Class A and Institutional class of shares,
respectively.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1996
- --------------------------------------------------------------------------------
1. Organization
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end, management
investment company. Included in this report are the financial statements for the
Goldman Sachs Government Income Fund (Government Income), the Goldman Sachs
Global Income Fund (Global Income) and the Goldman Sachs Municipal Income Fund
(Municipal Income), collectively, "the Funds" or individually a "Fund."
Government Income and Municipal Income are diversified portfolios whereas Global
Income is a non-diversified portfolio. As of October 31, 1996, the Funds offer
Class A and Class B shares. In addition, Global Income offers Institutional and
Service shares. As of October 31, 1996, there outstanding no Service shares.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect the reported amounts.
A. Investment Valuation
- -----------------------
Investments in debt securities, other than money market instruments, held by the
Funds are valued on the basis of dealer-supplied quotations or by a pricing
service approved by the Board of Trustees if such prices are believed by the
investment adviser to accurately represent market value. The prices derived by a
pricing agent reflect broker/dealer-supplied valuations and electronic data
processing techniques. If those prices are not deemed by the Fund's Investment
Adviser to be representative of the market values at the time the net asset
value is calculated, then such securities will be valued at fair value as
described below. Options and futures contracts are valued at the last sale price
on the market where any such option or futures contract is principally traded.
Forward foreign currency exchange contracts are valued at the mean between the
last bid and asked quotations supplied by a dealer in such contracts. All other
securities and other assets, including debt securities, for which prices are
supplied by a pricing agent but are not deemed by the Fund's Investment Adviser
to be representative of market values, restricted securities and securities for
which no market quotation is available, but excluding money market instruments
with a remaining maturity of sixty days or less, are valued at fair value as
determined in good faith pursuant to procedures established by the Board of
Trustees. Money market instruments held by the Fund with a remaining maturity of
sixty days or less will be valued by the amortized cost method, which
approximates market value.
Investments in portfolio securities held by Government Income and Municipal
Income for which accurate market quotations are readily available are valued on
the basis of quotations furnished by a pricing service or provided by dealers in
such securities. Portfolio securities held by Government Income and Municipal
Income, for which accurate market quotations are not readily available are
valued at fair value using methods determined in good faith under procedures
established by the Trust's Board of Trustees and may include yield equivalents
or a pricing matrix. Exchange traded options and futures contracts will be
valued by the investment adviser at the last sale price on the exchange where
such contracts and options are principally traded. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost.
B. Security Transactions and Investment Income
- ----------------------------------------------
Security transactions are recorded on the trade date. Realized gains and losses
on sales of portfolio securities are calculated on the identified cost basis.
Interest income is recorded on the basis of interest accrued. Premiums on
interest-only securities and on collateralized mortgage obligations with nominal
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
principal amounts are amortized, on an effective yield basis, over the expected
lives of the respective securities, taking into account principal prepayment
experience and estimates of future principal prepayments. Certain mortgage
security paydown gains and losses are taxable as ordinary income. Such paydown
gains and losses increase or decrease taxable ordinary income available for
distribution and are classified as interest income in the accompanying
Statements of Operations. Original issue discounts ("OID") on debt securities
are amortized to interest income over the life of the security with a
corresponding increase in the cost basis of that security. OID amortization on
mortgage backed REMIC securities is initially recorded based on estimates of
principal paydowns using the most recent OID factors available from the issuer.
Recorded amortization amounts are adjusted when actual OID factors are received.
For Municipal Income, market premiums on other long-term debt securities are
amortized to interest income while for Global Income, market discounts on other
long-term debt securities are accreted to interest income.
C. Foreign Currency Translations
- --------------------------------
Amounts denominated in foreign currencies are translated into U.S. dollars on
the following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date and
settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
interest recorded and the amounts actually received.
D. Forward Foreign Currency Exchange Contracts
- ----------------------------------------------
Global Income may enter into forward foreign exchange contracts for the purchase
or sale of a specific foreign currency at a fixed price on a future date as a
hedge or cross-hedge against either specific transactions or portfolio
positions. Global Income may also purchase and sell forward contracts to seek to
increase total return. All commitments are "marked-to-market" daily at the
applicable translation rates and any resulting unrealized gains or losses are
recorded in the Fund's financial statements. The Fund records realized gains or
losses at the time the forward contract is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
E. Mortgage Dollar Rolls
- ------------------------
Government Income and Global Income may enter into mortgage "dollar rolls" in
which the Fund sells securities in the current month for delivery and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund loses the right to receive principal and interest paid on the
securities sold but benefits to the extent of any price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. The Fund will hold and maintain in a segregated account, until the
settlement date, cash or liquid, high grade debt securities in an amount equal
to the forward purchase price. For financial reporting and tax reporting
purposes, the Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving a
sale.
- --------------------------------------------------------------------------------
29
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
F. Option Accounting Principles
- -------------------------------
When call or put options are written, an amount equal to the premium received is
recorded as an asset and as an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current market value of the
option written. When a written option expires on its stipulated expiration date,
or a closing purchase transaction has been entered into, a gain or loss is
realized without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished.
Upon the purchase of a call option or a protective put option, the premium paid
is recorded as an investment, and subsequently marked-to-market to reflect the
current market value of the option. If an option which has been purchased
expires on the stipulated expiration date, a loss is realized in the amount of
the cost of the option. If a closing sale transaction has been entered into, a
gain or loss is realized, depending on whether the sale proceeds from the
closing sale transaction are greater or less than the cost of the option.
G. Futures Contracts
- --------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices, currency exchange rates in the case of
Global Income or to seek to increase total return. A Fund will engage in futures
transactions only for bona fide hedging purposes as defined in regulations of
the CFTC or to seek to increase total return to the extent permitted by such
regulations. The use of futures contracts involve, to varying degrees, elements
of market risk which may exceed the amounts recognized in the Statements of
Assets and Liabilities.
Payments for futures contracts ("variation margin") are made or received by the
Funds each day, dependent on the daily fluctuations in the value of the
contract, and are recorded for financial reporting purposes, as unrealized gains
or losses. When entering into a closing transaction, the Funds will realize a
gain or loss equal to the difference between the value of the futures contract
to sell and the futures contract to buy. Futures contracts are valued at the
most recent settlement price, unless such price does not reflect the fair market
value of the contract, in which case the position will be valued using methods
as approved by the Funds' Board of Trustees.
Certain risks may arise upon entering into futures contracts. The predominant
risk is that changes in the value of the futures contract that may not directly
correlate with changes in the value of the underlying securities. The risk may
decrease the effectiveness of the Funds' hedging strategies and may also result
in a loss to the Funds.
H. Federal Taxes
- ----------------
It is each Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all investment company tax-exempt and taxable income to its
shareholders. Accordingly, no federal tax provisions are required.
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of a portfolio's distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from paid-in capital, depending on the type
of book/tax differences that may exist.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At October 31, 1996, the Funds had approximately the following amounts of
capital loss carryforward for U.S. Federal tax purposes:
<TABLE>
<CAPTION>
Year of
Fund Amount Expiration
- ----------------------------------- ------------ ----------------
<S> <C> <C>
Global Income $4,471,734 2002
Municipal Income $1,534,884 2002
</TABLE>
I. Deferred Organization Expenses
- ---------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
J. Expenses
- -----------
Expenses incurred by the Trust that do not specifically relate to an individual
portfolio of the Trust are allocated to the portfolios based on each portfolio's
relative average net assets for the period.
Class A and Class B shareholders of the Funds bear all expenses and fees
relating to their respective distribution and authorized dealer service plans as
well as other expenses which are directly attributable to such shares. Transfer
agent fees are subject to separate arrangements for each class.
3. Agreements
- -------------
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment adviser
pursuant to Investment Advisory Agreements. Goldman Sachs Asset Management
International ("GSAM International"), an affiliate of Goldman Sachs, acts as
subadviser under a Subadvisory Agreement for Global Income. Under the Investment
Advisory and Subadvisory Agreements, GSAM and GSAM International, subject to the
general supervision of the Trust's Board of Trustees, manage the Funds'
portfolios. As compensation for the services rendered pursuant to the Investment
Advisory Agreements and the assumption of the expenses related thereto, GSAM is
entitled to a fee, computed daily and payable monthly at an annual rate equal to
.50%, .25% and .40% of average daily net assets of Government Income, Global
Income and Municipal Income, respectively. As compensation for the services
rendered pursuant to the Subadvisory Agreement, GSAM International is entitled
to a subadvisory fee from Global Income of .50% of the average daily net assets.
GSAM serves as each Fund's administrator pursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreement, GSAM is entitled to
a fee, computed daily and payable monthly at an annual rate equal to .15% of
each Fund's average daily net assets.
GSAM has voluntarily agreed to limit certain of the Funds' expenses (excluding
advisory, administration, distribution and authorized dealer service fees,
taxes, interest, brokerage, litigation, indemnification and other extraordinary
expenses and with respect to Global Income, transfer agent fees) to the extent
such expenses exceed .00%, .06% and .05% per annum of Government Income, Global
Income and Municipal Income, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to a
Distribution Agreement and as such may receive a portion of the sales load
imposed on the sale of Fund shares. During the year ended October 31, 1996,
Goldman Sachs retained approximately $17,300, $52,600 and $24,900 of sales loads
related to Government Income, Global Income and Municipal Income, respectively.
The Trust, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% and .75% of each Fund's average
daily net assets attributable to Class A and Class B shares, respectively.
- --------------------------------------------------------------------------------
31
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
The Trust, on behalf of each Fund, has adopted an Authorized Dealer Service Plan
(the "Service Plan") pursuant to which Goldman Sachs and Authorized Dealers are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Service Plan equal, on an annual basis, up to .25% of the
average daily net assets attributable to the Class A and Class B shares. Goldman
Sachs also serves as the Transfer Agent of the Funds for a fee.
For the year ended October 31, 1996, the advisors, administrators and
distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
<TABLE>
<CAPTION>
Waivers
--------------------------------------
Reimburse-
Admin- Class A Reimburse- ment
Fund Advisor istrator 12b-1 ment Outstanding
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Government
Income 74 44 74 220 27
Global
Income 848 -- 56 337 7
Municipal
Income -- -- 132 238 30
</TABLE>
The Investment Advisors and Administrator may discontinue or modify such waivers
and limitations in the future at their discretion.
For the year ended October 31, 1996, Government Income and Municipal Income
incurred commissions expense of approximately $1,200 and $2,750 respectively, in
connection with futures contracts entered into with Goldman Sachs. At October
31, 1996, Goldman Sachs owes approximately $7,000 to Government Income related
to variation margin on futures contracts.
4. Line of Credit Facility
The Funds participate in a $100,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, Global Income participates in a $50,000,000
committed, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restrictive
arrangement, each Fund must own securities having a market value in excess of
300% of the total bank borrowings. The interest rate on borrowings is based on
the federal funds rate. The committed facility also requires a fee to be paid
based on the amount of the commitment which has not been utilized. For the year
ended October 31, 1996, the Funds did not have any borrowings under these
facilities.
5. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1996, were as follows:
<TABLE>
<CAPTION>
================================================================================
Government Global Municipal
Fund Income Income Income
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases of U.S.
Government and
agency obligations $133,097,699 $117,740,548 $ --
- --------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) 9,741,716 410,144,747 184,788,273
- --------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 136,922,990 102,151,633 --
- --------------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) 3,909,735 446,269,068 189,391,870
================================================================================
</TABLE>
For the year ended October 31, 1996, option transactions in Global Income were
as follows:
<TABLE>
<CAPTION>
Options Purchased Cost
- --------------------------------------------------------------------------------
<S> <C>
Balance outstanding, beginning of period $ --
Options purchased 202,160
Options expired (202,160)
- --------------------------------------------------------------------------------
Balance outstanding, end of period $ --
================================================================================
</TABLE>
32
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
At October 31, 1996, Global Income had outstanding forward foreign currency
exchange contracts to sell foreign currencies as follows:
<TABLE>
<CAPTION>
===============================================================================
Value on
Foreign Currency Settlement Current Unrealized
Sale Contracts Date Value Gain/(Loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Danish Krone
Expiring 1/22/97 $ 6,348,652 $ 6,443,676 $ (95,024)
Deutschemark
Expiring 11/27/96 37,735,809 38,044,516 (308,707)
Expiring 2/27/97 12,671,000 12,775,513 (104,513)
British Pound Sterling
Expiring 11/14/96 15,423,575 16,184,359 (760,784)
Irish Pound
Expiring 1/8/97 6,842,743 6,964,425 (121,682)
Italian Lira
Expiring 1/29/97 1,326,853 1,335,737 (8,884)
Japanese Yen
Expiring 1/24/97 23,059,781 22,755,697 304,084
Netherlands Guilder
Expiring 1/9/97 6,442,727 6,510,658 (67,931)
Spanish Peseta
Expiring 1/16/97 6,543,897 6,612,046 (68,149)
Swedish Krona
Expiring 1/28/97 4,708,899 4,736,457 (27,558)
Swiss Franc
Expiring 1/29/97 12,952,107 12,453,735 498,372
Expiring 1/29/97 12,083,214 12,109,196 (25,982)
- -------------------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $146,139,257 $146,926,015 $(786,758)
===============================================================================
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
At October 31, 1996, Global Income had sufficient cash and/or securities to
cover any commitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency exchange
contracts" and "Payable for forward foreign currency exchange contracts"
resulting from open and closed but not settled forward foreign currency exchange
contracts of $1,073,237 and $1,816,332 respectively, in the accompanying
Statement of Assets and Liabilities. Included in the "Receivable and Payable for
forward foreign currency exchange contracts" are $270,781 and $227,118
respectively, related to forward contracts closed but not settled as of
October 31, 1996.
6. Summary of Share Transactions
Share activity for the year ended October 31, 1996 is as follows:
<TABLE>
<CAPTION>
Government Income Fund Dollars Shares
===============================================================================
<S> <C> <C>
Class A Shares:
Shares sold $8,675,868 607,156
Reinvestment of dividends and
distributions 1,611,387 112,752
Shares repurchased (8,971,389) (626,797)
----------------------------------
1,315,866 93,111
----------------------------------
Class B Shares
Shares sold 246,680 17,470
Reinvestment of dividends
and distributions 3,200 225
Shares repurchased (19,531) (1,378)
----------------------------------
230,349 16,317
- -------------------------------------------------------------------------------
$1,546,215 109,428
===============================================================================
<CAPTION>
Global Income Fund Dollars Shares
===============================================================================
<S> <C> <C>
Class A Shares:
Shares sold $ 15,545,777 1,089,521
Reinvestment of dividends
and distributions 13,419,614 947,846
Shares repurchased (76,216,894) (5,376,065)
----------------------------------
(47,251,503) (3,338,698)
----------------------------------
Class B Shares
Shares sold 265,053 18,628
Reinvestment of dividends
and distributions 1,708 119
Shares repurchased (16,373) (1,144)
----------------------------------
250,388 17,603
----------------------------------
Institutional Shares:
Shares sold 23,936,542 1,703,165
Reinvestment of dividends
and distributions 3,546,724 250,603
Shares repurchased (5,786,481) (406,888)
----------------------------------
21,696,785 1,546,880
- -------------------------------------------------------------------------------
$(25,304,330) (1,774,215)
================================================================================
</TABLE>
33
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Municipal Income Fund Dollars Shares
================================================================================
<S> <C> <C>
Class A Shares:
Shares sold $ 6,139,212 431,736
Reinvestment of dividends
and distributions 1,482,976 104,074
Shares repurchased (9,874,431) (694,685)
------------------------------------
(2,252,243) (158,875)
------------------------------------
Class B Shares
Shares sold 250,553 17,760
Reinvestment of dividends
and distributions 1,802 127
Shares repurchased (1,551) (109)
------------------------------------
250,804 17,778
- --------------------------------------------------------------------------------
$ (2,001,439) (141,097)
================================================================================
</TABLE>
Share activity for the year ended October 31, 1995 is as follows:
<TABLE>
<CAPTION>
Global Income Fund Dollars Shares
================================================================================
<S> <C> <C>
Class A Shares:
Shares sold $ 22,864,336 1,659,380
Reinvestment of dividends
and distributions 12,448,128 895,996
Shares repurchased (207,889,246) (15,065,279)
-----------------------------------
(172,576,782) (12,509,903)
-----------------------------------
Institutional Shares:
Shares sold 30,484,764 2,163,523
Reinvestment of dividends
and distributions 560,482 39,195
Shares repurchased (204,804) (14,347)
-----------------------------------
30,840,442 2,188,371
- -------------------------------------------------------------------------------
$(141,736,340) (10,321,532)
===============================================================================
</TABLE>
7. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping in the customer-only account of State Street
Bank & Trust Co., the Funds' custodian, or at subcustodians. GSAM monitors the
market value of the underlying securities by pricing them daily.
8. Joint Repurchase Agreement Account
Government Income, together with other registered investment companies having
advisory agreements with GSAM or its affiliates, transfers uninvested cash
balances into a joint account, the daily aggregate balance of which is invested
in one or more repurchase agreements. The underlying securities for the
repurchase agreements are U.S. Treasury obligations and mortgage-related
securities issued by the U.S. Government, its agencies or instrumentalities. As
of October 31, 1996, Government Income had a 0.3% undivided interest in the
repurchase agreement in the joint account which equaled $8,400,000 in principal
amount. As of October 31, 1996, the repurchase agreements in the joint account
along with the corresponding underlying securities (including the type of
security, market value, interest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
===============================================================================
<S> <C> <C> <C>
Bear Stearns & Co., dated 10/31/96, repurchase price $700,108,500 (FNMA:
$555,686,102, 5.50%-8.50%, 2/1/09-6/1/26; FHLMC: $166,359,033, 5.50%-8.50%,
9/1/98-8/1/26)
$700,000,000 5.58% 11/01/96 $700,000,000
Lehman Brothers, Inc. dated 10/31/96, repurchase price $924,843,329 (Treasury
Notes: $942,903,967, 4.38%-8.50%, 11/15/96-8/15/03)
924,700,00 5.58 11/01/96 924,700,000
Nomura Securities International, Inc. dated 10/31/96, repurchase price
$700,108,500 (FNMA: $256,658,433, 5.50%-8.00%, 6/1/03-10/1/26; FHLMC:
$465,441,174, 6.00%-9.00%, 9/1/1-10/1/26)
700,000,000 5.58 11/01/96 700,000,000
Smith Barney, Inc. dated 10/31/96, repurchase price $170,026,161 (U.S
Treasury Interest Only Stripped Securities: $11,653,277, 2/15/98-5/15/02; U.S.
Treasury Notes: $85,997,728, 5.25%-7.75%, 5/15/97-10/15/06; U.S. Treasury
Principal Only Stripped Securities: $33,993,571, 5/15/97-5/15/05; U.S.
Treasury Bills: $41,756,285, 12/12/96-3/20/97)
170,000,000 5.54 11/01/96 170,000,000
Union Bank of Switzerland, Inc. dated 10/31/96, repurchase price $175,026,979
(U.S. Treasury Notes: $178,694,649, 6.88%-7.75%, 8/31/99-1/31/00)
175,000,000 5.55 11/01/96 175,000,000
- -------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $2,669,700,000
===============================================================================
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
9. Certain Reclassifications
In accordance with Statement of Position 93-2, the Government Income, Global
Income and Municipal Income Funds have reclassified $18,448, $46,256 and
$17,593, respectively, from paid-in capital to accumulated undistributed net
investment income. Additionally, the Global Income Fund has reclassified
$862,007, $207,585 and $380 from accumulated net realized gain, accumulated net
realized foreign currency gain and paid in capital, respectively to accumulated
undistributed net investment income. These reclassifications have no impact on
net asset values of the Funds and are designed to present the Funds' capital
accounts on a tax basis.
10. Other
As of October 31, 1996, the Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 14% of the
outstanding shares of Global Income.
- --------------------------------------------------------------------------------
35
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations/(a)/ Distributions to shareholders
============================================================== ========================================
====================================================================================================================================
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option and of net
beginning investment futures related investment investment futures investment
of period income transactions transactions operations income transactions income
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended October 31,
=========================================================
1996-Class A shares $14.47 $0.92 $(0.11) -- $0.81 $(0.92) -- --
1996-Class B shares/(c)/ 14.11 0.41 0.26 -- 0.67 (0.41) -- --
1995-Class A shares 13.47 0.94 1.00 -- 1.94 (0.94) -- --
1994-Class A shares 14.90 0.85 (1.28) -- (0.43) (0.85) (0.12) (0.02)
For the Period February 10, 1993/(d)/ through October 31,
=========================================================
1993-Class A shares 14.32 0.56 0.58 -- 1.14 (0.56) -- --
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended October 31,
=========================================================
1996-Class A shares $14.45 $0.71 $0.62 $0.18 $1.51 $(1.43) -- --
1996-Class B shares/(c)/ 14.03 0.34 0.41 0.11 0.86 (0.36) -- --
1996-Institutional
shares 14.45 1.15 0.32 0.10 1.57 (1.50) -- --
1995-Class A shares 13.43 0.89 0.92 0.15 1.96 (0.94) -- --
1995- Institutional
shares/(f)/ 14.09 0.22 0.34 0.06 0.62 (0.26) -- --
1994-Class A shares 15.07 0.84 (1.37) (0.12) (0.65) (0.22) (0.16) --
1993-Class A shares 14.69 0.85 1.07 (0.42) 1.50 (0.85) (0.27) --
1992-Class A shares 14.60 1.14 0.45 (0.36) 1.23 (1.14) -- --
For the Period August 2, 1991/(d)/ through October 31,
=========================================================
1991-Class A shares 14.55 0.25 0.23 (0.19) 0.29 (0.24) -- --
<CAPTION>
In excess of
net realized Net
gain on increase
investment, From Total (decrease) Net asset
option and paid distributions in net value at
futures in to asset end of
transactions capital shareholders value period
- -----------------------------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended October 31,
=========================================================
1996-Class A shares -- -- $(0.92) $(0.11) $14.36
1996-Class B shares/(c)/ -- -- (0.41) 0.26 14.37
1995-Class A shares -- -- (0.94) 1.00 14.47
1994-Class A shares (0.01) -- (1.00) (1.43) 13.47
For the Period February 10, 1993 /(d)/ through October 31,
==========================================================
1993-Class A shares -- -- (0.56) 0.58 14.90
GLOBAL INCOME FUND
- -----------------------------------------------------------------------------------------------------
For the Years Ended October 31,
===========================================================
1996-Class A shares -- -- $(1.43) $0.08 $14.53
1996-Class B shares/(c)/ -- -- (0.36) 0.50 14.53
1996-Institutional
shares -- -- (1.50) 0.07 14.52
1995-Class A shares -- -- (0.94) 1.02 14.45
1995-Institutional
shares/(f)/ -- -- (0.26) 0.36 14.45
1994-Class A shares -- (0.61) (0.99) (1.64) 13.43
1993-Class A shares -- -- (1.12) 0.38 15.07
1992-Class A shares -- -- (1.14) 0.09 14.69
For the Period August 2, 1991 (d) through October 31,
============================================================
1991-Class A shares -- -- (0.24) 0.05 14.60
<CAPTION>
Ratio of Net
Ratio of net assets
net investment at end
expenses income Portfolio of
Total to average to average turnover period
return /(b/) net assets net assets rate /(h)/ (in 000s)
===================================================================================================
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended October 31,
=========================================================
1996-Class A shares 5.80% 0.50% 6.42% 485.09% $30,603
1996-Class B shares/(c)/ 4.85/(g)/ 1.25/(e)/ 5.65/(e)/ 485.09 234
1995-Class A shares 14.90 0.47 6.67 449.53 29,503
1994-Class A shares (2.98) 0.11 6.06 654.90 14,452
For the Period February 10, 1993/(d)/ through October 31,
=========================================================
1993-Class A shares 8.03/(g)/ 0.00/(e)/ 4.87/(e)/ 725.41/(g/ 12,860
- ---------------------------------------------------------------------------------------------------
For the Years Ended October 31,
=========================================================
1996-Class A shares 11.05% 1.16% 5.81% 232.15% $198,665
1996-Class B shares/(c)/ 6.24/(g)/ 1.70/(e)/ 5.16/(e)/ 232.15 256
1996-Institutional
shares 11.55 0.65 6.35 232.15 54,254
1995-Class A shares 15.08 1.29 6.23 265.86 245,835
1995-Institutional
shares/(f)/ 4.42/(g)/ 0.65/(e)/ 6.01/(e)/ 265.86 31,619
1994-Class A shares (4.49) 1.28 5.73 343.74 396,584
1993-Class A shares 10.75 1.30 5.78 313.88 675,662
1992-Class A shares 8.77 1.37 7.85 270.75 588,893
For the Period August 2, 1991 (d) through October 31,
=========================================================
1991- Class A shares 2.00 0.38 /(g)/ 1.72 /(g)/ 34.22 /(g)/ 388,744
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
------------------------------
Ratio of
net
Ratio of investment
expenses income
to average to average
net assets net assets
==============================================================
- --------------------------------------------------------------
<S> <C> <C>
For the Years Ended October 31,
==========================================================
1996-Class A shares 1.89% 5.03%
1996-Class B shares/(c)/ 2.39/(e)/ 4 .51/(e)/
1995-Class A shares 2.34 4.80
1994-Class A shares 2.86 3.31
For the Period February 10, 1993 /(d)/ through October 31,
==========================================================
1993-Class A shares 4.00/(e)/ 0.87/(e)/
- ------------------------------------------------------------
For the Years Ended October 31,
==========================================================
1996-Class A shares 1.64% 5.33%
1996-Class B shares/(c)/ 2.14 /(e)/ 4.72/(e)/
1996-Institutional
shares 1.11 5.89
1995-Class A shares 1.58 5.94
1995-Institutional
shares/(f)/ 1.08/(e)/ 5.58/(e)/
1994-Class A shares 1.53 5.48
1993-Class A shares 1.55 5.53
1992-Class A shares 1.62 7.60
For the Period August 2, 1991 (d) through October 31,
==========================================================
1991-Class A shares 0.44/(g)/ 1.66/(g)/
- ------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations (a) Distributions to shareholders
-------------------------------------------- -----------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option and of net
beginning investment futures related investment investment futures investment
of period income transactions transactions operations income transactions income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
For the Years Ended October 31,
1996- Class A shares $14.17 $0.65 $0.20 -- $0.85 $(0.65) -- --
1996- Class B shares /(c)/ 14.03 0.27 0.34 -- 0.61 (0.27) -- --
1995- Class A shares 13.08 0.67 1.09 -- 1.76 (0.67) -- --
1994- Class A shares 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05) --
For the Period July 20, 1993 (d) through October 31,
1993- Class A shares 14.32 0.22 0.32 -- 0.54 (0.22) -- --
<CAPTION>
Distributions to shareholders
----------------------------------------
In excess of
net realized Net
gain on increase
investment, From Total (decrease) Net asset
option and paid distributions in net value at
futures in to asset end of
transactions capital shareholders value period
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
For the Years Ended October 31,
1996- Class A shares -- -- $(0.65) $0.20 $14.37
1996- Class B shares /(c)/ -- -- (0.27) 0.34 14.37
1995- Class A shares -- -- (0.67) 1.09 14.17
1994- Class A shares -- -- (0.78) (1.56) 13.08
For the Period July 20, 1993
1993- Class A shares -- -- (0.22) 0.32 14.64
<CAPTION>
Ratio of
Ratio of net
net investment
expenses income Portfolio
Total to average to average turnover
return /(b/) net assets net assets rate /(h)/
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
For the Years Ended October 31,
1996- Class A shares 6.13% 0.85% 4.58% 344.13%
1996- Class B shares /(c)/ 4.40 /(g)/ 1.60 /(e)/ 3.55 /(e)/ 344.13
1995- Class A shares 13.79 0.76 4.93 335.55
1994- Class A shares (5.51) 0.45 5.28 357.54
For the Period July 20, 1993 (d) through October 31,
1993- Class A shares 3.73 /(g)/ 0.00 /(e)/ 5.15 /(e)/ 99.99 /(g)/
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Net Ratio of
assets net
at end Ratio of investment
of expenses income
period to average to average
(in 000s) net assets net assets
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
MUNICIPAL INCOME FUND
For the Years Ended October 31,
1996- Class A shares $52,267 1.55% 3.88%
1996- Class B shares /(c)/ 255 2.05 /(e)/ 3.10 /(e)/
1995- Class A shares 53,797 1.49 4.20
1994- Class A shares 47,373 1.55 4.18
For the Period July 20, 1993 (d) through October 31,
1993- Class A shares 30,166 2.42 /(e)/ 2.73 /(e)/
</TABLE>
- ---------------
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales charge for Class A shares or a contingent
deferred sales charge for Class B shares were taken into account.
(c) Class B shares commenced operations on May 1, 1996.
(d) Commencement of operations.
(e) Annualized.
(f) Institutional shares commenced operations on June 1, 1995.
(g) Not annualized.
(h) Includes the effect of mortgage dollar roll transactions for the Government
Income Fund.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Goldman Sachs Government Income
Fund, Goldman Sachs Global Income Fund and Goldman Sachs Municipal Income Fund:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and
Goldman Sachs Municipal Income Fund (portfolios of Goldman Sachs Trust, a
Massachusetts Business Trust), including the statements of investments, as of
October 31, 1996, and the related statements of operations, the statements of
changes in net assets and the financial highlights for each of the periods
presented. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
Goldman Sachs Government Income Fund, Goldman Sachs Global Income Fund and
Goldman Sachs Municipal Income Fund as of October 31, 1996, the results of their
operations and the changes in their net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
December 12, 1996
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Prospectus which contains
facts concerning the Fund's objectives and policies, management, expenses and
other information.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Goldman Sachs
1 New York Plaza
New York, NY 10004
Trustees
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
Officers
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Goldman Sachs
Investment Adviser, Administrator,
Distributor and Transfer Agent
The Goldman Sachs
Fixed Income Funds
- -------------------------------------
Annual Report
October 31, 1996
Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund
[LOGO OF GOLDMAN SACHS APPEARS HERE]
================================================================================
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 10004
Trustees
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
Officers
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Goldman Sachs
Investment Adviser, Administrator,
Distributor and Transfer Agent
The Goldman Sachs
Fixed Income Funds
- -------------------------
Annual Report
October 31, 1996
Goldman Sachs Government Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Municipal Income Fund
[GOLDMAN SACHS LOGO APPEARS HERE]
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
We welcome the opportunity to review the performance and the investment
activity of the Goldman Sachs Fixed Income Funds for the 12-month period ended
October 31, 1996. To help put the portfolios' performance in perspective, we
will also provide a brief overview of the U.S. economy and the bond market
during the period.
We are pleased to report that the Goldman Sachs Fixed Income Funds fared
well relative to their peers during the period.
The Bond Market Sold Off Amid Rising Rates, Then Stabilized
The U.S. fixed income market began the 12-month period under review with
a robust rally, fueled by weak economic data and low inflation. However, in
February 1996, the bond market began to come under pressure when stronger than
expected economic and job growth as well as surging commodity prices aroused
fears of higher inflation on the horizon. Bond market conditions significantly
worsened during March and April, when a sharp rise in interest rates triggered a
sell-off and increased volatility. By early May, long-term bond yields had
climbed above the psychologically important 7.0% level for the first time in
nearly a year. At the end of May, interest rates began to stabilize and
Treasury prices remained in a narrow trading range throughout the summer and
fall. During September and October, however, interest rates retreated and the
bond market strengthened. The rebound was primarily due to evidence of a
slowing U.S. economy and strong demand for Treasury bonds from the central banks
of China, Japan and Germany, which accelerated their purchases dramatically
toward the end of the period. By the end of October, prices of 30-year
Treasuries broke out of the trading range that had persisted for over six
months.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Table of Contents
Market Overview 1 GS Core Fixed Income Fund 22
GS Adjustable Rate Government Fund 3 Financial Statements 30
GS Short Duration Government Fund 9 Notes to Financial Statements 34
GS Short Duration Tax-Free Fund 15 Financial Highlights 42
- ---------------------------------------------------------------------------------------------------------
</TABLE>
After a Weak Start, Economic Growth Rebounded, Then Moderated
In late 1995, the economy was anemic, with weak consumer and capital
spending contributing to a fourth-quarter real Gross Domestic Product (GDP)
growth of only 0.3% (annualized). During the first quarter of 1996, harsh winter
weather and the General Motors strike continued to restrain economic growth.
Despite these adverse conditions, the economy advanced faster than expected,
with first-quarter real GDP growth reported at 2.0% (annualized). Momentum
accelerated more dramatically during the second quarter, as industrial activity,
automobile sales and home sales all showed significant improvement. As a result,
second-quarter GDP rose a robust 4.7% (annualized), its highest rate in two
years.
The economy's torrid growth cooled markedly during the third quarter,
with annualized real GDP at a revised 2.0%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. In October some evidence of a
slowdown continued, with housing starts falling to their lowest level in a year
and U.S. capacity utilization also down. However, consumer confidence remained
high against a backdrop of low unemployment and higher household income. These
indicators led some economists to interpret October's retail sales numbers (up a
scant 0.2%) as a "breather" they expected to be followed by stronger holiday
shopping, while others were concerned about a more prolonged period of
restrained spending. Despite investors' earlier fears of increased inflationary
pressures and the fact that in October the producer and consumer price indexes
were up 0.4% and 0.3%, respectively, inflation remained subdued throughout the
period.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
- --------------------------------------------------------------------------------
The Fed Remained Neutral After Easing in December and January
In response to generally poor year-end 1995 economic conditions, the U.S.
Federal Reserve cut the Federal funds rate by 25 basis points in December 1995
and an additional 25 basis points in January 1996. The Fed then remained neutral
from February through the end of the period, leaving the Federal funds rate at
5.25% as of October 31, 1996.
During the period under review, the yield curve shifted upward everywhere
but at the shortest end, where it steepened. The yield on six-month Treasury
bills fell from 5.55% on October 31, 1995 to approximately 5.26% on October 31,
1996. For the same time period, the yield on the 30-year U.S. Treasury bond rose
from 6.33% a year ago to 6.64%. For the 12-month period ended October 31, 1996,
the total returns of one-year and 30-year Tresuries were 5.84% and 0.72%,
respectively.
Historical Treasury Yield Curve
[GRAPH APPEARS HERE]
The yield curve steepened on the short end and shifted upward on the longer end.
Outlook: Moderate Economic Growth for the Near Term
The recent economic weakness and the tame third-quarter labor cost report
increase the likelihood that the Fed will defer any changes in monetary policy
until 1997. Although a more extended slowdown is possible, as of this writing,
Goldman Sachs' economists believe a resumption of growth is likely if consumer
spending rebounds by year-end and the trade deficit does not significiantly
widen. On the fiscal front, the bond market environment should benefit from the
recent election results with President Clinton balanced by a
Republican-controlled Congress, which points toward continued budgetary
restraint.
We appreciate your confidence in the Goldman Sachs Fixed Income Funds and
we look forward to continuing to serve your investment needs in the future.
Sincerely,
/s/ David B. Ford
David B. Ford
Co-Head,
Goldman Sachs Asset Management
/s/ John P. McNulty
John P. McNulty
Co-Head,
Goldman Sachs Asset Management
/s/ Sharmin Mossavar-Rahmani
Sharmin Mossavar-Rahmani
Chief Investment Officer - Fixed Income Investments
Goldman Sachs Asset Management
November 29, 1996
- --------------------------------------------------------------------------------
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Adjustable Rate Government Fund seeks a high level of current income
consistent with low volatility of principal. The portfolio ordinarily invests
substantially all of its assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, with primary emphasis on
adjustable rate mortgage securities (ARMs). 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.
The ARM Market Began Weak but Improved as Prepayments Slowed and Demand
Increased
The key factors affecting ARM performance during the 12 months under review
were the changing direction of interest rates and, consequently, the pace of
mortgage prepayments. From November 1995 through early February 1996, declining
interest rates spurred homeowners to switch from ARMs to fixed rate mortgages to
lock in attractive rates. The high level of refinancing activity depressed the
ARM market and caused yield spreads between ARMs and Treasuries to widen until
the end of January 1996, when long-term interest rates began to rise. Throughout
the spring, the ARM market strengthened as interest rates climbed sharply.
Spreads between ARMs and Treasuries continued to tighten even after rates
stabilized from the end of May through August, partly due to strong demand from
"crossover" investors from other short-duration fixed income sectors. Although
interest rates declined in September and October, mortgage prepayment fears
remained subdued as rates were still relatively high compared with their levels
a year earlier. Investor demand for seasoned one-year Constant Maturity Treasury
(CMT) ARMs, which our fund stresses, remained especially strong due to their
relative prepayment stability in a falling rate environment.
Performance Review
During the period under review, the fund's Institutional, Administration
and Class A shares all significantly outperformed both the six-month U.S.
Treasury bill and the one-year U.S. Treasury bill. (As of October 31, the fund's
duration was 0.7 years, in between that of the six-month and the one-year U.S.
Treasury bill.) The fund's positive performance can be attributed to the
incremental yield its ARM holdings delivered over similar-duration Treasuries
and tightening spreads between ARMs and Treasuries.
- ------------------------------------------------------------------------
Performance Summary: October 31, 1995 - October 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-
Month One-Year
Institu- Adminis- Class Treasury Treasury
tional tration A Bill Bill
------ ------- - ---- ----
<S> <C> <C> <C> <C> <C>
Total Return (based 6.86% 6.60% 6.60% 5.48% 5.82%
on net asset value)
- ------------------------------------------------------------------------
Return From 6.25% 5.99% 5.99% NA NA
Monthly
Distributions
- ------------------------------------------------------------------------
Return From Price 0.61% 0.61% 0.61% NA NA
Appreciation
- ------------------------------------------------------------------------
NAV (10/31/96) $9.83 $9.83 $9.83 NA NA
- ------------------------------------------------------------------------
NAV Change +$0.06 +$0.06 +$0.06 NA NA
- ------------------------------------------------------------------------
</TABLE>
We are also pleased to note that the fund outperformed most of its peers.
For the 12 months ended October 31, 1996, the fund's Institutional shares ranked
fourth out of 53 adjustable rate mortgage funds based on total return, as
tracked by Lipper Analytical Services, Inc. (Lipper does not rank the fund's
Administration and Class A shares. Please note that Lipper rankings do not take
sales charges into account and that past performance is not a guarantee of
future results.) As of October 31, 1996, the
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)
- --------------------------------------------------------------------------------
fund's Institutional shares were ranked "four stars" by Morningstar, Inc., an
independent rating agency.\1\
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Repos/Cash Equivalents 3.4%
CMOs 3.5%
SBA Floaters 7.8%
ARMs 85.3%
</TABLE>
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
- ---------------------------------------------
/1/ Source (C) 1996 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 10/31/96.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Institutional shares received five
and four stars for the three- and five-year periods, respectively. The
Institutional shares were rated among 1,054 and 572 fixed income funds for the
three- and five-year periods, respectively. For the one-year period, the
Institutional shares were rated among 1,654 fixed income funds. 22.5% of the
funds receive the four-star rating. The Morningstar rating applies only to the
fund's Institutional shares; the fund's Class A and Administration shares have
not been rated. Class A and Administration shares are subject to additional fees
that may have the effect of lowering performance and may affect and future
Morningstar rating. Morningstar rates funds against their peers in the same
category. In all, there are five Morningstar categories (domestic equity,
international equity, fixed income, municipal and hybrid). Morningstar ratings
range from five stars (highest) to one star (lowest). Funds with five-star
ratings are in the top 10% of their category, four-star ratings in the next
22.5%, three stars the next 35%, two stars the next 22.5% and one star the
lowest 10% of their categories.
Portfolio Composition and Investment Strategies
During the period under review, the portfolio's sector allocation shifted
slightly, with reductions in collateralized mortgage obligations (CMOs) and
Small Business Administration (SBA) loans in favor of ARMs.
. ARMs. As of October 31, 1996, ARMs accounted for 85.3% of the portfolio, up
from 80.2% a year ago. We emphasized seasoned, one-year CMT issues that offered
relative prepayment and duration stability as well as incremental yield over
Treasuries. The position significantly contributed to the fund's performance
during the period.
. SBA Floaters. The portfolio held a 7.8% allocation in securities backed by
Small Business Administration loans, which traded at attractive spreads relative
to Treasuries. We trimmed the portfolio's holdings in the sector slightly from
8.9% a year ago to take profits after the position performed well.
. CMOs. CMOs accounted for 3.5% of the portfolio as of October 31,
approximately half their weighting a year ago (7.7%). This position provided
relatively stable cash flows and a greater number of opportunities to take
advantage of potential mispricing than comparable fixed income sectors. During
December 1995 and January 1996, the sector became expensive versus
similar-duration Treasuries, and we subsequently sold part of the fund's
holdings at a profit. The fund's CMO position included 1.4% in floaters, which
added incremental yield, and 0.4% in sequential-pay CMOs. In addition, the fund
held CMO super floaters, discussed below.
. Prudent Use of Derivatives. We used higher risk derivatives very sparingly to
enhance the fund's performance without taking on additional undue risk. As of
October 31, 1996, the fund held a 1.5% position in super floaters, which
contributed to its performance during the year. (Super floaters are floating
rate securities whose coupons reset higher and more quickly than regular
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Agency Fund (continued)
- --------------------------------------------------------------------------------
ARMs in a rising interest rate environment.) The portfolio also included minor
positions in interest-only (IO) and inverse IO securities.
. Duration. As of October 31, the duration of the fund was 0.7 years, unchanged
from a year earlier. Rather than attempting to make interest rate predictions,
we seek to provide excess returns over a similar-duration U.S. Treasury security
through sector weightings and security selection. During the period, we used
financial futures as a tool to help manage the portfolio's duration.
. Credit Quality. The fund invests exclusively in securities issued by the U.S.
government and its agencies or instrumentalities, which are considered to be of
the highest credit quality.
ARM Outlook: Seasoned ARMs Are Expected to Perform Well Relative to Other
Sectors
Our outlook for the ARM sector is moderately constructive. Although spreads
have tightened over the course of the year, we expect them to remain stable for
the near term due to strong investor demand and limited supply. In addition, we
believe that our core holding of seasoned ARMs should fare well relative to less
seasoned issues if rates continue to decline and prepayments increase.
Distribution Policy
During the 12-month period ended October 31, 1996, the fund's Institutional,
Administration and Class A shares distributed $0.59, $0.57 and $0.57 per
share, respectively.
The fund distributes substantially all of its investment company taxable
income. The dividend is set at the start of each month, based on the income the
fund is expected to generate. However, because the fund invests primarily in
mortgage securities that are subject to prepayments, we cannot precisely predict
the amount of principal and interest that a portfolio will receive. Therefore,
at times a portfolio may distribute amounts above or below current income
levels. To date, however, our dividend policy has not affected the management of
the fund nor significantly affected its net asset value (NAV) per share.
In conclusion, we appreciate your investment in the GS Adjustable Rate
Government Fund and will continue to seek attractive fixed income investments in
the months ahead.
Sincerely,
/s/ Jonathan A. Beinner
Jonathan A. Beinner
/s/ Peter D. Dion
Peter D. Dion
/s/ James P. McCarthy
James P. McCarthy
Portfolio Managers
GS Adjustable Rate Government Fund
November 29, 1996
- --------------------------------------------------------------------------------
5
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Adjustable Rate Government Fund based on a normal minimum
initial investment, for each class, is compared to its benchmarks--the Lehman
Brothers Mutual Fund Short (1-2) U.S. Government Index ("Lehman 1-2 Index") and
the six month and one year U.S. Treasury Bills ("6-Month T-Bill / 1-Year T-
Bill"). All performance data shown represents past performance and should not be
considered indicative of future performance which will fluctuate as market
conditions change. The investment return and principal value of an investment
will fluctuate with changes in market conditions so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
HYPOTHETICAL INVESTMENTS/(a)/
Institutional Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Lehman Short (1-2) One Year Six Month
Shares Gov't Index T-Bill T-Bill
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8/1/91 50,000 50,000 50,000 50,000
- --------------------------------------------------------------------------------
10/31/91 51,047 51,581 51,179 50,870
- --------------------------------------------------------------------------------
10/31/92 54,176 55,506 54,161 53,376
- --------------------------------------------------------------------------------
10/31/93 56,414 58,368 56,198 55,197
- --------------------------------------------------------------------------------
10/31/94 57,475 59,511 57,744 57,257
- --------------------------------------------------------------------------------
10/31/95 61,355 64,343 61,766 60,819
- --------------------------------------------------------------------------------
10/31/96 65,576 68,197 65,373 64,158
- --------------------------------------------------------------------------------
</TABLE>
Administration Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Administration Lehman Short (1-2) One Year Six Month
Shares Gov't Index T-Bill T-Bill
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/1/93 50,000 50,000 50,000 50,000
- --------------------------------------------------------------------------------
10/31/93 50,917 50,931 50,785 50,780
- --------------------------------------------------------------------------------
10/31/94 51,747 51,931 52,182 52,675
- --------------------------------------------------------------------------------
10/31/95 55,100 56,148 55,835 55,951
- --------------------------------------------------------------------------------
10/31/96 58,742 59,511 59,096 59,023
- --------------------------------------------------------------------------------
</TABLE>
Class A Shares
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Class A Shares Class A Shares Lehman Short (1-2) One Year Six Month
(no sales charge) (w/ sales charge) Gov't Index T-Bill T-Bill
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/1/95 10,000 9,850 10,000 10,000 10,000
- ---------------------------------------------------------------------------------------------------
10/31/95 10,222 10,069 10,277 10,260 10,246
- ---------------------------------------------------------------------------------------------------
10/31/96 10,898 10,735 10,893 10,859 10,809
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
Average Annual Total Return
--------------------------------------------------
One Year Five Year Since Inception/(b)/
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Institutional Shares 6.86% 5.13% 5.32%
- --------------------------------------------------------------------------------
Administration Shares 6.60% N/A 4.69%
- --------------------------------------------------------------------------------
Class A Shares
excluding sales charge 6.60% N/A 6.40%
- --------------------------------------------------------------------------------
Class A Shares
including sales charge 4.99% N/A 5.29%
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ For comparative purposes, initial investments are assumed to be made on
the first day of the month following the commencement of operations.
/(b)/ The Institutional, Administration and Class A shares commenced operations
July 17, 1991, April 15, 1993 and May 15, 1995, respectively.
- --------------------------------------------------------------------------------
6
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations--96.3%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(d)--25.6%
<S> <C> <C> <C>
$ 409,475 7.33% 11/01/17 $ 422,849
1,443,341 7.54 12/01/18 1,482,297
2,695,805 7.40 07/01/18 2,793,527
1,799,007 7.69 01/01/19 1,857,314
10,670,041 7.38 05/01/19 11,021,833
20,341,589 7.58 11/01/19 21,218,921
5,280,731 7.70 05/01/20 5,464,395
19,004,192 7.42 06/01/20 19,698,985
37,238,927 7.73 02/01/22/(a)/ 38,845,042
4,072,603 7.39 08/01/22 4,215,145
2,234,941 7.56 08/01/22 2,331,334
6,804,200 7.53 09/01/22 7,067,182
17,808,242 7.61 11/01/22 18,565,092
10,195,026 7.63 06/01/24 10,506,892
3,045,972 7.31 12/01/24 3,122,121
3,495,056 7.20 02/01/28 3,604,835
4,584,605 7.09 07/01/29 4,671,987
1,815,464 7.62 07/01/30 1,892,059
2,055,859 7.39 05/01/31 2,110,462
- --------------------------------------------------------------------------------
$160,892,272
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)(d)--55.4%
$ 1,138,394 7.80% 11/01/14 $ 1,187,493
6,190,161 6.54 03/01/17 6,277,194
3,662,002 7.56 03/01/17 3,799,511
4,221,326 6.21 03/01/18 4,247,709
6,778,125 7.66 04/01/18 7,046,064
874,932 7.63 05/01/18 901,180
7,405,181 7.34 07/01/18 7,724,566
5,249,737 7.41 07/01/18 5,456,472
6,398,858 7.08 08/01/18 6,609,828
3,972,504 7.64 08/01/18 4,143,838
3,746,795 7.42 10/01/18 3,896,068
6,780,326 7.41 11/01/18 7,009,162
2,068,449 7.29 12/01/18 2,138,591
13,495,001 7.67 12/01/18/(a)/ 14,077,040
3,484,080 7.27 06/01/19 3,597,870
4,440,531 7.31 07/01/19 4,579,297
1,698,502 7.34 07/01/19 1,755,826
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations(continued)
Adjustable Rate Federal National Mortgage Association
(FNMA)(d)(continued)
<S> <C> <C> <C>
$ 2,849,462 7.46% 01/01/20 $ 2,942,526
3,037,915 7.70 03/01/20 3,168,940
8,771,533 7.40 07/01/20 9,055,204
4,563,057 7.48 09/01/20 4,746,994
4,953,382 7.53 02/01/21 5,167,022
5,289,644 7.28 04/01/21 5,464,044
74,489,219 7.51 09/01/21/(a)/ 77,678,102
4,088,820 7.95 11/01/21 4,210,095
22,090,964 7.56 02/01/22 23,043,747
14,611,569 7.68 06/01/22 15,112,892
6,682,461 7.47 08/01/22 6,893,894
759,290 7.48 08/01/22 776,511
38,116,807 7.56 09/01/22/(a)/ 39,760,785
1,934,079 7.53 02/01/23 1,968,235
277,701 6.22 12/01/23 276,574
18,079,861 7.48 09/01/25 18,856,752
2,565,500 7.33 10/01/27 2,653,702
1,177,401 7.04 07/01/29 1,205,729
3,288,252 7.59 04/01/30 3,376,640
8,565,310 7.58 01/01/31 8,934,732
28,276,177 6.09 02/01/31 28,161,376
- --------------------------------------------------------------------------------
$ 347,902,205
- --------------------------------------------------------------------------------
Adjustable Rate Government National Mortgage Association
(GNMA)(d) -- 2.2%
$ 1,527,707 6.50% 03/20/16 $ 1,551,096
1,806,135 7.12 08/20/17 1,839,711
1,026,294 7.12 08/20/18 1,046,984
8,886,125 6.00 11/20/25 9,040,211
- --------------------------------------------------------------------------------
$ 13,478,002
- --------------------------------------------------------------------------------
Adjustable Rate Small Business Administration (SBA)(d)--7.8%
$ 1,416,469 6.75% 10/25/14 $ 1,449,883
2,562,866 6.75 02/25/15 2,624,144
3,684,715 6.75 03/25/15 3,773,370
2,839,268 6.75 04/25/15 2,907,581
2,057,142 6.75 05/25/15 2,106,637
1,036,764 6.75 08/25/15 1,062,040
1,684,161 6.75 09/25/15 1,725,220
2,069,161 6.75 10/25/15 2,119,917
1,110,382 6.37 09/25/16 1,125,305
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations (continued)
Adjustable Rate Small Business Administration
(SBA)(d)(continued)
$ 4,125,881 6.37% 07/25/17 $ 4,181,333
9,019,837 6.37 08/25/17 9,141,062
4,040,857 6.37 09/25/17 4,095,166
3,577,478 6.37 10/25/17 3,625,559
8,937,943 6.37 02/25/18 9,058,069
- --------------------------------------------------------------------------------
$ 48,995,286
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations-5.3%
Adjustable Rate CMOs(d)-1.8%
FNMA Remic Trust 1990-145, Class A
$ 11,024,778 6.51% 12/25/20 $ 11,025,439
- --------------------------------------------------------------------------------
Inverse Floater(d)-0.0%
FNMA Remic Trust 1991-91, Class S
$ 164,490 17.66% 07/25/98 $ 174,261
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(d)-0.0%
FNMA Remic Trust 1992-157, Class SA
$2,002,645/(b)/ 14.10% 03/25/04 $ 168,743
- --------------------------------------------------------------------------------
Inverse IOette-0.1%
FHLMC Series 1164, Class O
$ 36,128/(b)/ 29.44% 11/15/06 $ 489,372
- --------------------------------------------------------------------------------
IOette-0.1%
FNMA Remic Trust 1990-145, Class B
$ 27,091/(b)/ 10.00% 12/25/20 $ 657,906
- --------------------------------------------------------------------------------
Regular Floater CMOs(d)-1.4%
FHLMC Series 1011, Class F
$ 8,872,813 6.34% 11/15/20 $ 9,069,612
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs-0.4%
FNMA Remic Trust 1990-65, Class U
$ 616,589 9.50% 11/25/06 $ 619,475
FNMA Remic Trust 1991-37, Class E
1,664,339 8.50% 04/25/05 1,679,418
- --------------------------------------------------------------------------------
$ 2,298,893
- --------------------------------------------------------------------------------
Super Floater CMOs(d)-1.5%
FNMA Remic Trust 1992-157, Class FA
$ 9,859,177(b) 1.22% 03/25/04 $ 9,631,134
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 33,515,360
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $605,544,961) $604,783,125
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Repurchase Agreement-2.1%
Joint Repurchase Agreement Account
$ 13,000,000 5.58% 11/01/96/(a)/$ 13,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $13,000,000) $ 13,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $618,544,961/(c)/) $617,783,125
================================================================================
Futures contracts open at October 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
Number of
Contracts
Long Settlement Unrealized
Type (Short)(e) Month Gain (Loss)
- --------------------------------- ------------- ------------------- ----------------
<S> <C> <C> <C>
1-Month Libor 45 November 1996 $4,500
Euro Dollars 365 December 1996 309,500
Euro Dollars 280 March 1997 95,000
Euro Dollars 55 June 1997 28,000
5-Year U.S. Treasury Notes 67 December 1996 9,766
10-Year U.S. Treasury Notes (270) December 1996 (302,812)
----------------
$143,954
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Federal Income Tax Information:
<S> <C>
Gross unrealized gain for investments in which value
exceeds cost $ 2,404,589
Gross unrealized loss for investments in which cost
exceeds value (3,318,600)
- --------------------------------------------------------------------------------------
Net unrealized gain $ (914,011)
======================================================================================
</TABLE>
(a) Portions of these securities are being segregated for futures margin
requirements.
(b) Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated rate due to
the amortization of related premiums.
(c) The aggregate costs for federal income tax purposes is $618,697,136.
(d) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1996.
(e) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each Libor contract represents $3,000,000 in notional par value. Each
5-Year and 10-Year U.S. Treasury Note and U.S. Treasury Bond contract
represents $100,000 in notional par value. The total notional amount and
market value are $879,000,000 and $200,909,125, respectively. The
determination of notional amounts and market value as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Short Duration Government Fund's primary objective is to provide a
high level of current income by investing in a portfolio that consists of
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including mortgage-backed securities as well as repurchase
agreements collateralized by such instruments. Under normal interest rate
conditions, the fund's duration is expected to be within one-half year of its
benchmark, the two-year U.S. Treasury security.
Performance Review
During the period under review, the fund's Institutional, Administration
and Service shares all outperformed the two-year U.S. Treasury security,
primarily due to our emphasis on and the favorable performance of
mortgage-backed security investments, as well as our ability to identify
relative value within the sector. In addition, the portfolio's term structure,
which overweighted one- and three-year maturity securities, also contributed to
performance when the yield curve steepened.
During the period, the net asset values (NAVs) of the fund's Institutional
and Administration shares (which opened February 28, 1996) were nearly unchanged
while the NAV of the fund's Service shares (which opened April 10, 1996) rose
$0.10 as interest rates stabilized and subsequently declined.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary
- --------------------------------------------------------------------------------
Institutional Administration* Service*
(10/31/95- (2/28/96- (4/10/96-
10/31/96) 10/31/96) 10/31/96)
-------- -------- --------
<S> <C> <C> <C>
Total Return (based on net 6.75% 4.00% 4.35%
asset value
- --------------------------------------------------------------------------------
Return From Monthly 6.65% 4.10% 3.32%
Distributions
- --------------------------------------------------------------------------------
Return From Price 0.10% -0.10% 1.03%
Depreciation/
Appreciation
- --------------------------------------------------------------------------------
Total Return of Two-Year 5.64% 3.61% 3.71%
U.S. Treasury
- --------------------------------------------------------------------------------
NAV (10/31/96) $9.83 $9.85 $9.82
- --------------------------------------------------------------------------------
NAV Change +$0.01 -$0.01 +$0.10
- --------------------------------------------------------------------------------
</TABLE>
* New share class opened during the period.
The fund performed well compared with its peers. The Institutional shares
ranked in the top 10% of short-intermediate U.S. government funds (fifth out of
88) based on total return for the 12-month period ended October 31, 1996,
according to Lipper Analytical Services, Inc. (The Administration and Service
shares were not ranked for this period because they were in existence less than
12 months. Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results.)
Portfolio Composition and Investment Strategies
The fund significantly reduced its allocation in U.S. Treasuries in favor
of collateralized mortgage obligations (CMOs), which offered more attractive
return potential according to our analysis. This strategy proved successful as
mortgage-backed securities outperformed comparable-duration Treasuries.
Portfolio Composition as of October 31, 1996*
<TABLE>
<CAPTION>
[PIE CHART APPEARS HERE]
<S> <C>
Repos/Cash Equivalents 1.1%
Fixed Rate Mortgage
Pass-Throughs 7.2%
U.S. Treasuries 15.8%
ARMs 19.0%
CMOs 56.9%
</TABLE>
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
- --------------------------------------------------------------------------------
9
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
- --------------------------------------------------------------------------------
. CMOs. During the period, we more than doubled the portfolio's allocation in
collateralized mortgage obligations, with most of the increase occurring from
February through April. As of October 31, 56.9% of the portfolio was invested in
CMOs, of which 24.7% were sequential-pay CMOs (up from 10.4% last year) and
17.0% were planned amortization class (PAC) CMOs (up from 1.9% last year).
These sectors were favored for their relatively stable cash flows and
incremental yields over Treasuries, and they performed well during the period.
Though the CMO sector was fairly valued relative to equal-duration Treasuries
from January through the end of the period, our extensive research enabled us to
identify specific securities that presented attractive investment opportunities.
. ARMs. Adjustable rate mortgage securities (ARMs) accounted for 19.0% of the
portfolio as of October 31, down from 23.7% last year. We focused on seasoned
securities indexed to the one-year Constant Maturity Treasury (CMT), which
offered attractive income stability and low relative prepayment risk. A high
level of mortgage refinancing adversely impacted the sector in November and
December of 1995 when rates had eased, but ARMs strengthened when rates started
to rise during the first quarter of 1996 and prepayment fears faded.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The portfolio's
position in U.S. Treasuries was cut to 15.8%, down from 37.1% a year ago, as we
identified securities in other sectors that offered higher incremental yield. In
addition, repurchase agreements/cash equivalents were reduced to 1.1% from 4.7%
a year ago.
. Fixed Rate Mortgage Pass-Throughs. Fixed rate pass-throughs, a 7.2%
allocation, offered more attractive yield spreads than most of the other
high-credit quality fixed income sectors. During the period under review, the
technical balance of the pass-through market strengthened, with investor demand
improving as prepayments and supply slowed from the high levels experienced last
November. We continued to emphasize seasoned premium mortgages because they
typically have lower prepayment risk than recently issued mortgages.
. Issuer Composition. The breakdown of the portfolio's mortgage-backed security
holdings by issuer was 37.8% in Federal National Mortgage Association (FNMA)
issues, 36.0% in Federal Home Loan Mortgage Corporation (FHLMC) issues and 9.2%
in Government National Mortgage Association (GNMA) issues.
. Credit Quality. The fund invests exclusively in issues of the U.S. government
and its agencies or instrumentalities.
. Prudent Use of Derivatives. Sequential-pay CMOs and PAC CMOs, which are
typically considered to be lower risk derivatives, represented 24.7% and 17.0%
of the portfolio, respectively, as noted earlier. Other derivative investments
included CMO floaters (10.0%), which are securities whose coupons reset upward
as interest rates rise, and inverse floaters (3.2%), which have coupons that
reset in the opposite direction from interest rates. When floaters are held
along with inverse floaters, they can produce a position with a similar risk
profile as a fixed rate pass-through but provide a higher yield. The fund also
held a small position (1.3%) in PAC interest-only securities (IOs). We invest in
such higher risk derivatives very sparingly in an effort to enhance returns
without taking undue risk. In addition, we used futures as a tool to help manage
the portfolio's duration.
Market Outlook
In general, we have a cautiously optimistic view of the mortgage-backed
securities market in the near term. In the ARM sector, we expect spreads to
remain stable due to strong investor demand and limited supply. Given the
environment of declining rates for the past few months, we will continue to
emphasize seasoned one-year CMT
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
- -------------------------------------------------------------------------------
ARMs due to the relative prepayment stability that these securities offer.
Though we have a neutral outlook for the CMO market, we continue to find areas
that offer attractive investment opportunities. In the mortgage pass-through
market, we believe the recent widening of yield spreads during September and
October has been somewhat overdone, but we will remain vigilant to an increase
in prepayments that may result from a further decline in interest rates. We will
continue to actively allocate the portfolio's assets among the various fixed
income sectors as their relative value changes throughout the coming year.
Distribution Policy
During the period under review, the fund's Institutional shares paid out
distributions of $0.63 per share. From their inceptions through October 31,
1996, the fund's Administration and Service shares distributed $0.39 per share
and $0.32 per share, respectively. (The Administration shares opened on February
28, 1996 and the Service shares opened on April 10, 1996.) The fund distributes
substantially all of its investment company taxable income, as required by tax
law.
We thank you for your support and look forward to continuing to meet your
investment needs in the future.
Sincerely,
/s/Jonathan A. Beinner
Jonathan A. Beinner
/s/James B. Clark
James B. Clark
Portfolio Managers
GS Short Duration Government Fund
November 29, 1996
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Short-Term Government Fund based on the Fund's normal
minimum initial investment of $50,000, is compared to its benchmarks, the U.S.
2-Year Treasury Bill ("2-Year T-Bill") and the Lehman Brothers Mutual Fund Short
(1-3) U.S. Government Index ("Lehman Short (1-3) Gov't Index"). All performance
data shown represents past performance and should not be considered indicative
of future performance which will fluctuate as market conditions change. The
investment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Shares(a)
Institutional Shares 2-Year\r T-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
9/1/88 50,000 50,000 50,000
10/31/88 51,283 51,057 51,091
10/21/89 55,940 55,412 55,919
10/31/90 60,543 59,876 60,861
10/31/91 67,161 66,615 67,699
10/31/92 71,365 72,161 73,208
10/31/93 75,326 76,335 77,446
10/31/94 76,072 77,058 78,339
10/31/95 82,895 84,009 85,256
10/31/96 88,507 88,756 90,346
</TABLE>
Administration Shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Administration Shares 2-Year\rT-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
2/28/96 50,000 50,000 50,000
10/31/96 52,000 51,805 51,760
</TABLE>
Service Shares
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Service Shares 2-Year\rT-Bill Lehman Short (1-3)rGov't
<S> <C> <C> <C>
4/10/96 50,000 50,000 50,000
10/31/96 52,175 51,855 52,110
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Average Annual Total Return
-----------------------------------------------------------
One Year Five Year Since Inception(b)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional shares 6.75% 5.6% 7.24%
- --------------------------------------------------------------------------------
Administrative shares N/A N/A 4.00(c)
- --------------------------------------------------------------------------------
Service shares N/A N/A 4.35(c)
- --------------------------------------------------------------------------------
</TABLE>
/a/ For comparative purposes, initial investments are assumed to be made on the
first day of the month following the Fund's commencement of operations.
/b/ The Institutional, Administration and Service shares commenced operations
August 15, 1988, February 28, 1996 and April 10, 1996, respectively.
/c/ An aggregate total return (not annualized) is shown instead of an average
annual total return since the Administration and Service shares have not
completed a full twelve months of operations.
- --------------------------------------------------------------------------------
12
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Government Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations--82.4%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)(a)--14.2%
$ 1,208,677 6.00% 11/15/16 $ 1,198,196
1,941,838 7.54 12/01/18/(b)/ 1,994,248
8,544,958 7.73 02/01/22/(b)/ 8,913,502
2,234,941 7.56 08/01/22 2,331,334
- --------------------------------------------------------------------------------
$ 14,437,280
- --------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)(a)--6.2%
$ 389,769 9.00% 12/01/97 $ 402,558
2,732,146 7.80 11/01/14/(b)/ 2,849,984
3,025,230 7.48 08/01/22/(b)/ 3,093,842
- --------------------------------------------------------------------------------
$ 6,346,384
- --------------------------------------------------------------------------------
Fixed Rate Federal National Mortgage Association (GNMA)--3.5%
$ 1,093,610 6.00% 06/01/09/(b)/ $ 1,065,244
2,058,384 6.00 10/01/09/(b)/ 2,004,994
540,970 6.00 10/01/08/(b)/ 526,938
- --------------------------------------------------------------------------------
$ 3,597,176
- --------------------------------------------------------------------------------
Fixed Rate Government National Mortgage Association--3.3%
$ 3,040,068 10.00% 12/15/17/(b)/ $ 3,338,359
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations (CMOs)--55.3%
Inverse Floater(a)--5.7%
FHLMC Series 1296, Class J
$ 890,613 11.93% 07/15/99/(b)/ $ 948,502
FHLMC Series 1325, Class B
2,416,565 6.06 07/15/97/(b)/ 2,421,833
FHLMC Series 1325, Class C
1,028,325 7.56 07/15/97/(b)/ 1,034,598
FNMA Remic Trust 1991-127, Class S
144,496 12.98 09/25/98 153,084
FNMA Remic Trust, Series 1992-62, Class S
1,212,115 10.00 05/25/99 1,241,097
- --------------------------------------------------------------------------------
$ 5,799,114
- --------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only(a)--0.3%
FHLMC Series 1684, Class JD
$ 2,801,277(c) 3.66% 08/15/20/(b)/ $ 199,759
FNMA Remic Trust 1993-110, Class SC
2,597,458(c) 3.46 04/25/19/(b)/ 126,990
- --------------------------------------------------------------------------------
$ 326,749
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
Mortgage Backed Obligations (continued)
Collateralized Mortgage Obligations (continued)
Planned Amortization Class (PAC CMOs)--11.1%
FHLMC Series 1584, Class E
$ 3,000,000 5.75% 10/15/16/(b)/ $ 2,954,040
FNMA Remic Trust 1992-138, Class C
2,350,000 6.00 12/25/18/(b)/ 2,325,020
GNMA Remic Trust 1996-6, Class PB
6,000,000 6.50 06/16/09 6,038,400
- --------------------------------------------------------------------------------
$ 11,317,460
- --------------------------------------------------------------------------------
Planned Amortization Class Interest-Only (PAC IO) CMOs--0.6%
FHLMC Series 1552, Class JE
$ 10,552,245/(c)/ 7.00% 02/15/14/(b)/ $ 590,926
- --------------------------------------------------------------------------------
Planned Amortization Class Ioette CMOs--0.5%
FNMA Remic Trust 1992-198, Class K
$ 42,908/(c)/ 16.00% 12/25/15 $ 547,555
- --------------------------------------------------------------------------------
Regular Floater (a)--9.9%
FHLMC Series 1684, Class F
$ 5,000,000 5.75% 08/15/20/(b)/ $ 4,818,750
FHLMC Series 1684, Class JC
2,801,277 5.34 08/15/20/(b)/ 2,737,352
FNMA Remic Trust 1993-110, Class FC
2,597,459 5.54 04/25/19/(b)/ 2,565,796
- --------------------------------------------------------------------------------
$ 10,121,898
- --------------------------------------------------------------------------------
Sequential Fixed Rate CMOs--27.1%
FHLMC Series 1033, Class G
$ 2,000,000 8.00% 01/15/06/(b)/ $ 2,095,620
FHLMC Series 1296, Class I
2,493,715 5.24 07/15/99/(b)/ 2,481,546
FHLMC Series 174, Class Z
3,757,885 10.00 08/15/21 4,189,703
FNMA Remic Trust 1988-12, Class A
4,076,171 10.00 02/25/18/(b)/ 4,350,090
FNMA Remic Trust 1988-12, Class B
3,218,030 4.47 02/25/18/(b)/ 3,081,585
FNMA Remic Trust 1989-12, Class X
1,955,861 10.00 12/25/14/(b)/ 2,021,246
FNMA Remic Trust 1989-18, Class B
1,312,493 9.50 01/25/04 1,359,730
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Government Fund (continued)
October 31, 1996
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
Mortgage Backed Obligations(continued)
Collateralized Mortgage Obligations(continued)
Sequential Fixed Rate CMOs (continued)
$ 4,628,657 7.75% 10/25/18 (b) $ 4,699,707
FNMA Remic Trust 1992-44, Class CA
3,000,000 12.00 08/25/20/(b)/ 3,394,800
- --------------------------------------------------------------------------------
$ 27,674,027
- --------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $ 56,377,729
- --------------------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $83,545,715) $ 84,096,928
- --------------------------------------------------------------------------------
U.S. Treasury Obligations--15.7%
United States Treasury Notes
$ 5,150,000 5.88% 04/30/98 $ 5,166,068
10,900,000 5.13 06/30/98/(b)/ 10,804,620
- --------------------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $15,894,705) $ 15,970,688
- --------------------------------------------------------------------------------
Repurchase Agreement--1.0%
Joint Repurchase Agreement Account
$ 1,000,000 5.58% 11/01/96/(b)/ $ 1,000,000
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,000,000) $ 1,000,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $100,440,420(d)) $ 101,067,616
================================================================================
Futures contracts open at October 31, 1996 are as follows:
Number of
Contracts
Long Settlement Unrealized
Type (Short)(e) Month Gain (Loss)
- ------------------------- -------------- ------------------ ----------------
Euro Dollars 40 December 1996 $28,000
Euro Dollars 29 March 1997 34,650
Euro Dollars 37 June 1997 38,950
Euro Dollars 47 September 1997 68,625
Euro Dollars 45 December 1997 80,375
Euro Dollars 35 March 1998 25,250
Euro Dollars 20 June 1998 9,000
2 Year U.S. Treasury Notes 71 December 1996 87,859
5 Year U.S. Treasury Notes (89) December 1996 (173,203)
10 Year U.S. Treasury Notes (44) December 1996 (131,781)
20 Year U.S. Treasury Notes (7) December 1996 (34,844)
--------------
$32,881
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 826,961
Gross unrealized loss for investments in which
cost exceeds value (213,881)
- --------------------------------------------------------------------------------
Net unrealized gain $ 613,080
================================================================================
/(a)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1996.
/(b)/Portions of these securities are being segregated for futures margin
requirements.
/(c)/Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated rate due to
the amortization of related premiums.
/(d)/The aggregate cost for federal income tax purposes is $100,454,536.
/(e)/Each Euro Dollar contract represents $1,000,000 in notional par value. Each
2-Year U.S. Treasury Note contract represents $200,000 in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year U.S. Treasury Note, and 20-
Year U.S. Treasury Note contract represents $100,000 in notional par value.
The total notional amount and market value are $253,200,000 and
$89,469,788, respectively. The determination of notional amounts and market
value as presented here are indicative only of volume of activity and not a
measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Short Duration Tax-Free Fund seeks to provide a high level of
current income exempt from regular federal income tax, consistent with
relatively low principal volatility, through investments in municipal securities
rated single-A or better or deemed to be of comparable quality. Under normal
interest rate conditions, the fund's duration will be within one-half year of
its benchmark, the Lehman Brothers Three-Year Municipal Bond Index. The fund's
approximate interest rate sensitivity is comparable to that of a three-year
bond.
After a Weak Start, the Municipal Bond Market Strengthened
The municipal bond market outperformed Treasuries during the 12-month
period under review, though both markets came under pressure when rates rose
during the first half of 1996. The average price of a three-year municipal bond
(as calculated from data provided by Municipal Market Data, an independent
municipal market information provider) fell slightly (0.14%), while yields rose
from 4.10% on October 31, 1995 to 4.15% on October 31, 1996.
The municipal bond market began the period under review on a weak note.
Tax reform uncertainty impacted investor demand during November and December
1995, while municipal bond supply was high due to seasonably heavy year-end
issuance. The market environment improved during January and February 1996, when
fading tax reform concerns helped to revive investor interest in the sector and
issuance declined. From March through the end of the period, the market's
technical balance was generally healthy, though occasional spikes in supply
periodically overwhelmed demand and briefly impacted performance. The largest of
these surges occurred in June when supply rose to its highest level since late
1995, but subsequently both new issuance and secondary supply fell dramatically
from July through September.
On the demand side, interest in municipal bonds was generally stable until
late summer and early fall. Demand from individual investors (who control
approximately 65% of municipal bond ownership either through mutual funds or
direct investment) began to decline when interest rates declined and municipal
yields fell below the psychologically significant 6% level. In addition,
property/casualty companies (which control approximately 10% of municipal bond
ownership) also dropped out of the market because the sector had become somewhat
unattractive relative to Treasuries. The supply drought finally abated in
October when many issuers sought to take advantage of lower interest rates, and
a continued weakness in demand caused municipals to underperform taxable bonds
for the month.
Municipal Bond Yield Curve
[LINE GRAPH APPEARS HERE]
The yield curve steepened at the short end and shifted downward at the longer
end.
Performance Review
The performance of the fund's Institutional shares was in line with the
benchmark, the Lehman Brothers Three-Year Municipal Bond Index (the "Index"),
for the 12-month period ended October 31, 1996. The Administration and Service
shares also performed well, but slightly lagged the benchmark.
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Summary: October 31, 1995 - October 31, 1996
- --------------------------------------------------------------------------------
Lehman Brothers
Institu- Adminis- 3-Year
tional tration Service Municipal Bond Index
-------- -------- ------- ---------------------
<S> <C> <C> <C> <C>
Total Return (based on net 4.50% 4.24% 3.98% 4.51%
asset value)
- --------------------------------------------------------------------------------
Return From 4.30% 4.04% 3.78% NA
Monthly
Distributions
- --------------------------------------------------------------------------------
Return From Price 0.20% 0.20% 0.20% NA
Appreciation
- --------------------------------------------------------------------------------
NAV (as of 10/31/96) $9.96 $9.96 $9.97 NA
- --------------------------------------------------------------------------------
NAV Change +$0.02 +$0.02 +$0.02 NA
- --------------------------------------------------------------------------------
</TABLE>
The fund's positive performance during the period was primarily due to our
emphasis on higher yielding revenue bonds, as well as successful selection of
specific securities and relative value trades. As always, we did not make any
bets on the direction of interest rates, but rather kept the fund's duration in
line with the Index, occasionally using Treasury futures to actively manage
sector allocation.
In our search for incremental yield, we focused on three types of bonds.
The first category was relatively generic, highly liquid securities; the second
included slightly less liquid issues such as insured hospital bonds and
letter-of-credit-backed debt; and the last area was "story" bonds, such as
uninsured hospital and electric utility issues and multifamily housing revenue
bonds, whose value is often unrecognized by the market because they are unique
or generally not well understood. We identified attractive investment
opportunities for the third category through our extensive credit analysis.
We are pleased to report that the fund's Institutional shares ranked first
out of 26 funds in Lipper Analytical Services, Inc.'s short-intermediate
municipal debt category for the 12-month period ended October 31, 1996 based on
total return. (Lipper did not rank the fund's Administration and Service shares.
Please note that Lipper rankings do not take sales charges into account and that
past performance is not a guarantee of future results.) In addition, as of
October 31, 1996, the fund's Institutional shares were rated "five stars" by
Morningstar, Inc., its highest rating./1/
Portfolio Composition and Investment Strategies:
Revenue Bonds Dramatically Increased
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
General Obligations 3.0%
Variable Rate Demand Notes 4.7%
Insured General Obligations 12.6%
Insured Revenue Bonds 24.2%
Revenue Bonds 55.5%
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
- ----------------------------
1 Source: (C) 1996 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 10/31/96.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five-, and ten-year average annual returns (where applicable) in excess of
90-day Treasury bill returns with appropriate fee and sales charge adjustments
and a risk factor that reflects fund performance below 90-day Treasury bill
returns. The one-year rating is calculated using the same methodology, but is
not a component of the overall rating. The fund's Institutional shares received
five stars and were rated among 1,038 municipal bond funds for the three-year
period. For the one-year period, the Institutional shares received five stars
and were rated among 1,728 municipal bond funds. 10% of the funds receive the
five-star rating. The Morningstar rating applies only to the fund's
Institutional shares; the fund's Administration and Service shares have not been
rated. Administration and Service shares are subject to additional fees that may
have the effect of lowering performance and may affect any future Morningstar
rating. Morningstar rates funds against their peers in the same category. In
all, there are five Morningstar categories (domestic equity, international
equity, fixed income, municipal and hybrid). Morningstar ratings range from five
stars (highest) to one star (lowest). Funds with five-star ratings are in the
top 10% of their category, four-star ratings in the next 22.5%, three stars the
next 35%, two stars the next 22.5% and one star the lowest 10% of their
categories.
- --------------------------------------------------------------------------------
16
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------
. Revenue Bonds. As of October 31, the portfolio's combined position in
insured and uninsured revenue bonds was significantly overweighted compared with
the Index, 79.7% versus 35.8%. We substantially increased the portfolio's total
revenue bond allocation (from 29.2% a year ago) because our emphasis on credit
analysis enabled us to identify attractive revenue bonds that offered higher
incremental yield than was available from general obligation bonds. (Revenue
bonds pay interest and principal out of a specific revenue stream, such as sales
taxes, hospital charges, tolls, electric rates and airport fees.)
. General Obligation (GO) Bonds. The fund's allocation in insured and
uninsured GO bonds was dramatically cut during the period to 15.6% of the
portfolio, down from 51.0% a year ago and significantly underweighted versus the
Index's 55.5%. GOs are backed by the general taxing power of a municipality and
are typically higher credit quality but lower yielding than revenue bonds.
. Variable Rate Demand Notes (VRDNs). VRDNs are high-quality cash
equivalents that we used to manage the portfolio's excess liquidity. VRDNs
were a 4.7% position, down from 10.0% a year ago.
. Pre-refunded Bonds. Over the course of the year, we trimmed the fund's
holdings in pre-refunded bonds (9.8% as of October 31, 1995). In October, we
sold the fund's remaining position in the sector in favor of revenue bonds that
offered more attractive yields.
. Duration. As of October 31, the fund's duration was in line with that of
the Index at 2.7 years.
. Credit Quality. During the year, the fund's credit quality allocations
shifted. We reduced the portfolio's allocation in triple-A-rated GOs in favor of
single-A-rated revenue bonds, which allowed us to maintain the fund's targeted
double-A-rated average credit quality and liquidity while achieving higher
overall yields. We structured the portfolio's credit-quality allocation like a
"barbell," emphasizing higher credit quality securities in the four- to five-
year maturity range and lower relative credit quality securities in the one- to
three-year maturity range. As of October 31, more than half of the portfolio was
invested in triple-A-rated bonds (52.7%), while double-A- and single-A-rated
securities accounted for 20.1% and 27.2%, respectively.
Market Outlook
We have a bullish long-term outlook for municipal bond supply, since new
money issuance (bonds issued for purposes other than refunding older debt) tends
to be stable and grows at the same rate as GDP. In addition, we do not
anticipate a significant increase in refunding unless interest rates drop
substantially. On the demand side, investor interest is likely to remain
healthy, as we believe that two to four more years of divided government (a
Democratic president and a Republican-controlled Congress) should avert any
significant tax reform that would threaten municipal bonds' tax-exempt status.
Distribution Policy
Dividends are declared daily and paid on a monthly basis. During the
12-month period ended October 31, 1996, the fund's Institutional, Administration
and Service shares paid out monthly distributions totaling approximately $0.42,
$0.39 and $0.37 per share, respectively. The fund intends to distribute
substantially all of its investment company tax-exempt income, as required by
tax law.
- --------------------------------------------------------------------------------
17
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
- --------------------------------------------------------------------------------
We value your continued confidence in the GS Short Duration Tax-Free Fund
and look forward to reporting on the fund's progress in the coming year.
Sincerely,
/s/ Benjamin S. Thompson
Benjamin S. Thompson
/s/ Elisabeth Schupf Lonsdale
Elisabeth Schupf Lonsdale
Portfolio Managers
GS Short Duration Tax-Free Fund
November 29, 1996
- --------------------------------------------------------------------------------
18
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Short Duration Tax-Free Fund based on the Fund's normal
minimum initial investment of $50,000, is compared to its benchmark, the Lehman
Brothers 3-Year Municipal Bond Index ("3-Year Bond Index"). All performance data
shown represents past performance and should not be considered indicative of
future performance which will fluctuate as market conditions change. The
investment return and principal value of an investment will fluctuate with
changes in market conditions so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT/(a)/
[GRAPH APPEARS HERE]
Institutional Shares
<TABLE>
<CAPTION>
Institutional Shares 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
10/1/92 50000 50000
- --------------------------------------------------------------------------------
10/31/92 49830 49805
- --------------------------------------------------------------------------------
10/31/93 53333 53102
- --------------------------------------------------------------------------------
10/31/94 53424 53825
- --------------------------------------------------------------------------------
10/31/95 56618 58023
- --------------------------------------------------------------------------------
10/31/96 59172 60646
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
Administration Shares
<TABLE>
<CAPTION>
Admin 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
6/1/93 50000 50000
- --------------------------------------------------------------------------------
10/31/93 51088 51144
- --------------------------------------------------------------------------------
10/31/94 51031 51840
- --------------------------------------------------------------------------------
10/31/95 53971 55884
- --------------------------------------------------------------------------------
10/31/96 56265 58410
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
Service Shares
<TABLE>
<CAPTION>
Service 3yr Bond Index
- --------------------------------------------------------------------------------
<S> <C> <C>
10/1/94 50000 50000
- --------------------------------------------------------------------------------
10/31/94 49810 49880
- --------------------------------------------------------------------------------
10/31/95 52594 53771
- --------------------------------------------------------------------------------
10/31/96 54693 56201
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
Average Annual Total Return
------------------------------------
One Year Since Inception/(b)/
-----------------------------------------------------------
<S> <C> <C>
Institutional Shares 4.50% 4.21%
-----------------------------------------------------------
Administration Shares 4.24% 3.51%
-----------------------------------------------------------
Service Shares 3.98% 4.36%
-----------------------------------------------------------
</TABLE>
/(a)/For comparative purposes, initial investments are assumed to be made on the
first day of the month following the commencement of operations of the
Administration and Service share classes.
/(b)/The Institutional, Administration and Service shares commenced operations
October 1, 1992, May 20, 1993 and September 20, 1994, respectively.
- --------------------------------------------------------------------------------
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Obligation--98.2%
Alabama--2.8%
Selma, AL IDA for International Paper Co. PCRB (A-/A3)
$1,000,000 4.15% 07/15/08 $1,000,000
- --------------------------------------------------------------------------------
Arkansas--3.8%
West Memphis, AR Public Utility System RB (MBIA) (NR/Aaa)
$1,310,000 5.25%(e) 12/01/00 $1,344,388
- --------------------------------------------------------------------------------
Colorado--4.2%
Municipal Sub District of Northern Colorado Water Conservation Co.
RB(AMBAC)(AAA/Aaa)
$1,435,000 5.75% 12/01/01 $1,508,845
- --------------------------------------------------------------------------------
Connecticut--4.3%
Connecticut State Resource Recovery Authority Series A RB (AA-/NR)
$1,500,000 5.60% 11/15/99 $1,546,185
- --------------------------------------------------------------------------------
Illinois--4.4%
Chicago, IL GO (MBIA) (AA/Aaa)
$1,500,000 5.40% 10/31/00 $1,547,670
- --------------------------------------------------------------------------------
Kentucky--7.5%
Jefferson County, KY Trust Certificates (A+/NR)RB
$1,145,000 5.25% 03/01/99 $1,163,904
Pendleton County, KY LOC (Self Insurance)(NR/VMIG1)
1,500,000 4.25 07/01/01 1,503,045
- --------------------------------------------------------------------------------
$2,666,949
- --------------------------------------------------------------------------------
Louisiana--7.4%
Louisiana Offshore Deepwater Part Authority Term B RB (A/Baa1)
$1,000,000 5.85% 09/01/00 $1,040,080
Louisiana State Refunding RB, Series A GO (FGIC) (AAA/Aaa)
1,500,000 6.00 08/01/01 1,583,970
- --------------------------------------------------------------------------------
$2,624,050
- --------------------------------------------------------------------------------
New Jersey--4.0%
West Windsor/Plainsboro, NJ Regional School District (FGIC)
(AAA/Aaa)
$1,400,000 5.25% 12/01/99 $1,436,750
- --------------------------------------------------------------------------------
New York--6.8%
Municipal Assistance Corp. Refunding RB (AMBAC) (AAA/Aaa)
$1,000,000 6.00% 07/01/00 $1,051,690
Syracuse, NY IDA RB (AA/NR)
$1,365,000 4.60% 10/15/98 $1,369,491
- --------------------------------------------------------------------------------
$2,421,181
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oklahoma--13.5%
Enid, OK Hospital Authority RB (Societe Generale LOC) (NR/Aa2)
$2,700,000 6.63%(a) 10/01/15 $2,747,115
Southern Oklahoma Memorial Hospital RB(b) (A/A)
2,000,000 5.60 02/01/00 2,043,680
- -------------------------------------------------------------------------------
$4,790,795
- -------------------------------------------------------------------------------
Oregon--4.2%
Klamath Falls, OR Salt Caves Hydroelectic RB (SP1+/NR)
$1,500,000 4.50% 05/01/23 $1,507,980
- -------------------------------------------------------------------------------
Pennsylvania--9.7%
Pennsylvania Intergovernmental Cooperative Authority Special Tax RB
(FGIC) (AAA/Aaa)
$1,500,000 5.75% 06/15/00 $1,559,730
Philadelphia, PA Gas Works COPS (FSA) (AAA/Aaa)
1,800,000 5.95 04/01/00 1,879,146
- --------------------------------------------------------------------------------
$3,438,876
- --------------------------------------------------------------------------------
Texas--11.4%
Bexar County, TX MFH Finance Corp. RB (CFMG) (NR/A3)
$1,500,000 4.88% 11/01/04 $1,502,220
Houston, TX Water & Sewer RB Series B (A/A)
1,430,000 5.25 12/01/99 1,460,802
Port Neches, TX Independent School District GO (AAA/Aaa)
1,000,000 7.00 02/15/01 1,092,480
- -------------------------------------------------------------------------------
$4,055,502
- -------------------------------------------------------------------------------
Virginia--5.0%
Petersburg, VA Hospital Authority RB (NR/A)
$1,760,000 5.50% 07/01/99 $1,798,157
- -------------------------------------------------------------------------------
Washington--4.6%
Washington State Public Power Supply System RB, Series B (AA-/Aa1)
$1,500,000 7.20% 07/01/02 $1,623,044
- -------------------------------------------------------------------------------
Wyoming--4.6%
Uinta County, WY School District GO, Series A (FSA) (AAA/Aaa)
$1,500,000 6.88% 06/01/00 $1,620,390
- -------------------------------------------------------------------------------
Total Debt Obligations
(Cost $34,727,338) $34,930,762
===============================================================================
</TABLE>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
GS Short Duration Tax-Free Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C>
Short-Term Obligations--4.5%
Illinois--0.6%
Illinois Development Finance Authority RB (AA+/A-1)/(c)/
$200,000 3.55% 01/1/96 $200,000
Louisiana--3.9%
East Baton Rouge Parish PCRB (AAA/Aaa)/(c)/
$1,400,000 3.60% 11/1/96 $1,400,000
- --------------------------------------------------------------------------------
Total Short-Term Obligations
(Cost $1,600,000) $ 1,600,000
- --------------------------------------------------------------------------------
Total Investments
(Cost $36,328,338)/(d)/ $36,530,762
================================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 204,715
Gross unrealized loss for investments in which
cost exceeds value (2,291)
- --------------------------------------------------------------------------------
Net unrealized gain $ 202,424
================================================================================
</TABLE>
/(a)/Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1996.
/(b)/Portions of these securities are being segregated for when-issued
securities.
/(c)/Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next reset interest dates.
/(d)/The amount stated also represents aggregate cost for federal income tax
purposes.
/(e)/When-issued securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
================================================================================
Investment Abbreviations:
AMBAC --Insured by American Municipal Bond Assurance Corp.
CFMG --Credit Lyonnais Line of Credit
COPS --Certificates of Participation
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
NR --Not Rated
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund
- --------------------------------------------------------------------------------
Investment Objective
The GS Core Fixed Income Fund seeks to achieve a total return consisting of
capital appreciation and income that exceeds the total return of its benchmark,
the Lehman Brothers Aggregate Bond Index (the "Index"), through a diversified
portfolio of fixed income securities. The fund may invest in U.S. Treasury,
agency, corporate, mortgage-backed and asset-backed securities, as well as in a
limited amount of non-dollar-denominated fixed income securities. While the
fund's performance will be measured against the Index, the portfolio is not
required to hold the same securities or match the sector weightings of the
Index. Every security in the portfolio must be rated at least investment grade
by an independent rating agency or be considered to be of equivalent quality by
Goldman Sachs Asset Management at the time it is purchased. The fund's
approximate interest rate sensitivity is expected to be comparable to that of a
five-year bond.
Performance Review
During the period under review, the fund's Institutional shares outperformed
the Index. The strong performance was primarily due to its investments in
corporate bonds and emerging market debt. In addition, the fund also benefited
from its mortgage-backed and asset-backed holdings when both sectors
strengthened during the period.
The fund fared well relative to its peers. For the 12-month period ended
October 31, 1996, the fund's Institutional shares ranked in the top quartile
(24th out of 96 funds) in Lipper Analytical Services, Inc.'s "corporate debt -
BBB-rated" category based on total return. (Lipper did not rank the fund's
Administration and Service shares for the period because they were in existence
less than 12 months. Please note that Lipper rankings do not take sales charges
into account and that past performance is not a guarantee of future results.)
The fund's Administration and Service shares, which began operations on
February 28, 1996 and March 13, 1996, respectively, achieved positive returns
since their inceptions.
During the period, the net asset value (NAV) of the fund's Institutional
shares fell $0.15 due to the sharp rise in interest rates during the first half
of 1996. Reflecting the fact that rates had already risen significantly, the NAV
of the fund's Administration shares (which opened in February) also declined but
not as significantly, while the NAV of the fund's Service shares (which opened
in March) rose $0.09.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Performance Summary
- -------------------------------------------------------------------------------
Institutional Administration* Service*
(10/31/95- (2/28/96- (3/13/96-
10/31/96) 10/31/96) 10/31/96)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Return (based on 5.98% 3.56% 4.90%
net asset value)
- -------------------------------------------------------------------------------
Return From Monthly 7.48% 4.27% 3.98%
Distributions
- -------------------------------------------------------------------------------
Return From Price -1.50% -0.71% 0.92%
Depreciation/
Appreciation
- -------------------------------------------------------------------------------
Total Return of Lehman 5.83% 3.74% 4.94%
Brothers Aggregate
Bond Index
- -------------------------------------------------------------------------------
NAV (as of 10/31/96) $9.85 $9.84 $9.86
- -------------------------------------------------------------------------------
NAV Change -$0.15 -$0.07 +$0.09
- -------------------------------------------------------------------------------
</TABLE>
*New share class opened during the period.
Portfolio Composition and Investment Strategies
Portfolio Composition as of October 31, 1996*
[PIE CHART APPEARS HERE]
Corporate Bonds 26.6%
Fixed Rate Mortgage Pass-Throughs 23.9%
U.S. Treasuries 19.5%
ABSs 12.5%
CMOs 9.8%
Emerging Market Debt 4.5%
Repos/Cash Equivalents 1.7%
Agency Debentures 1.5%
* The percentages shown are of total portfolio investments that have settled and
include an offset to cash equivalents relating to unsettled trades. These
percentages may differ from those in the accompanying Statement of Investments,
which reflect portfolio holdings as a percentage of net assets.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
. Corporate Bonds. As of October 31, the fund's largest allocation was in
corporate bonds, overweighted relative to the Index (26.6% versus 17.6%),
which significantly benefited performance. Though corporate bonds began the
period on a weak note due to the economic slowdown during November and December,
the sector improved dramatically when companies reported positive earnings
growth from January 1996 through the end of the period. Within the sector, we
stressed industrial and financial issues. Industrials performed well due to the
strengthening economy, while financials benefited from the relatively steep
yield curve, which enabled issuers to borrow at lower, short-term rates and lend
at higher, long-term rates.
. Fixed Rate Mortgage Pass-Throughs. Fixed rate mortgage pass-throughs, a
23.9% position as of October 31, were underweighted compared with the Index
(29.7%), with the remainder of the fund's mortgage-backed security allocation
invested in collateralized mortgage obligations (CMOs). We emphasized seasoned
premium mortgages, which have lower prepayment risk than recently issued
mortgages. The sector suffered from high prepayments during November and
December 1995, but conditions improved when interest rates rose sharply during
the first half of 1996 and prepayments declined. Over the course of the year,
these securities positively contributed to the fund's performance.
During the period, we occasionally used mortgage dollar rolls to benefit from
short-term supply and demand imbalances in the mortgage settlement process.
(Mortgage dollar rolls refer to transactions that involve selling mortgage
securities owned by the fund and simultaneously contracting to buy back similar
mortgage securities with the same coupon on a specified future date -- usually
one month forward.) At all times, we "cover" the mortgage dollar rolls by
keeping cash or high-grade liquid debt securities equal to the dollar amount of
the forward commitment in a segregated account with the fund's custodian.
. CMOs. During the period, we increased the portfolio's CMO allocation to
9.8%, up from 2.0% a year earlier. Within the sector, we initiated a
position in sequential-pay/support CMOs (5.1% as of October 31) and increased
the portfolio's position in planned amortization class (PAC) CMOs to 3.5% from
0.9%. These securities were favored for their relative stability and attractive
spreads compared with Treasuries, and they benefited performance during the
period. The remaining CMO positions were inverse floaters, discussed below.
. U.S. Treasuries and Repurchase Agreements/Cash Equivalents. The fund's
allocation in U.S. Treasuries was reduced to 19.5% from 24.7% a year ago. We
significantly underweighted Treasuries relative to the benchmark (45.2%) to
focus on other sectors that offered more attractive relative value. In addition,
repurchase agreements/cash equivalents accounted for 1.7% of the portfolio, up
from 0.4% a year ago.
. Asset-Backed Securities (ABSs). We increased the fund's allocation in ABSs to
12.5%, up from 9.9% a year ago. The ABS position consisted of short-term,
high-credit-quality issues primarily backed by credit card loans, as well as
smaller positions in automobile loan debt and other receivables, that offered
incremental yield over similar-duration Treasuries. When the period under review
began, the ABS market was weak due to uncertainty regarding credit card
delinquencies, but those concerns waned and the sector strengthened from January
through October. The supply of ABSs was robust during the period, with a wide
variety of innovative new issues across a range of maturities, collateral types
and structures. Despite the increased issuance, the technical balance of the ABS
market remained favorable due to heavy investor demand from foreign banks,
insurance companies and an increasing number of corporate "crossover" accounts.
- --------------------------------------------------------------------------------
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
. Emerging Market Debt. The portfolio's investments in emerging market debt
(4.5%) performed extremely well during the period. We carefully managed the
fund's exposure in the sector by stressing higher credit-quality, short-duration
bonds. Geographically, we emphasized Latin American countries because we believe
this region has the best risk/reward characteristics. During the period, we
focused on bonds from Chile, Colombia and the Andean region development bank. We
also initiated a new position in investment-grade Mexican bonds.
. Agency Debentures. Agency debentures, a small position (1.5%), added to the
portfolio's diversification and contributed incremental yield. However, we
underweighted the sector relative to the Index (6.5%) because our analysis
indicated that it did not adequately compensate us given its level of risk.
. Duration. As of October 31, the fund's duration matched that of the Index at
4.7 years. Rather than attempting to predict the direction of interest rates, we
manage the fund's duration to approximate that of the Index, partly through the
use of financial futures. We seek to add incremental return over the Index
through sector weighting and individual security selection.
. Credit Quality. More than half of the portfolio was invested in government
and agency securities (51 .1%), with another 12.6% invested in triple-A-rated
securities. The remainder of the portfolio was made up of double-A-rated
securities (2.7%), single-A-rated securities (12.5%), triple-B-rated
securities (19.4%) and cash equivalents
(1.7%).
. Prudent Use of Derivatives. As noted, the portfolio held positions in asset-
backed securities (12.5%), sequential-pay/support CMOs (5.1%) and PAC CMOs
(3.5%), which are all typically considered to be lower risk derivatives. In
addition, we held a 1.2% position in inverse floaters, which are securities
whose coupons reset in the opposite direction from interest rate movements.
These securities performed well during the period, offering incremental yield
over Treasuries.
Market Outlook
We are somewhat cautious on the corporate bond sector as it has become
expensive relative to Treasuries, but expect the sector to continue to benefit
from strong technical and fundamental factors. We intend to continue to
overweight industrial and financial issues and underweight utilities due to
their regulatory and competitive pressures. In the mortgage pass-through market,
certain segments are attractively valued, and we believe that our current
seasoned holdings should fare well relative to other sectors if interest rates
were to continue to fall and increase the level of prepayments. We are
cautiously optimistic on the ABS market, where we expect the sector's
significant spread premiums relative to comparably rated corporate securities to
continue to buoy investor demand. In addition, Fed surveys indicate that banks
have been tightening their underwriting standards over the last three quarters,
which should help to allay lingering investor concerns surrounding consumer
credit card delinquencies. Finally, we remain optimistic on the prospects for
the relative performance of emerging market debt, which continues to offer good
value compared with other asset classes. Overall, the economic trends in
emerging markets appear to be headed in the right direction and the
globalization of financial markets is likely to increase investor interest in
the sector. During the coming year, we will continue to actively allocate the
portfolio's assets among the various fixed income sectors as their relative
value changes.
Distribution Policy
During the 12-month period under review, the fund's Institutional shares
distributed $0.72 per share. From their inceptions through October 31, the
fund's Administration and Service shares paid out $0.41 and $0.38 per share,
respectively. (The Administration shares' inception date was on February 28,
1996, and the Service shares' inception date was on March 13, 1996.) Dividends
are
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
- --------------------------------------------------------------------------------
declared daily and paid on a monthly basis. As required by tax law, the fund
distributes substantially all of its investment company taxable income.
In closing, we appreciate your investment and look forward to serving you in
the future.
Sincerely,
/s/ Jonathan A Beinner
Jonathan A Beinner
/s/ Richard H. Buckholz
Richard H. Buckholz
/s/ C. Richard Lucy
C. Richard Lucy
/s/ Stephen R. Warren
Stephen R. Warren
Portfolio Managers
GS Core Fixed Income Fund
November 29, 1996
- --------------------------------------------------------------------------------
25
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund
- --------------------------------------------------------------------------------
October 31, 1996
- --------------------------------------------------------------------------------
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. The
performance for the GS Core Fixed Income Fund based on the Fund's normal minimum
initial investment of $50,000, is compared to its benchmark, the Lehman Brothers
Aggregate Bond Index ("Lehman Aggregate Index"). All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate as market conditions change. The investment
return and principal value of an investment will fluctuate with changes in
market conditions so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
HYPOTHETICAL $50,000 INVESTMENT
[GRAPH APPEARS HERE] [GRAPH APPEARS HERE] [GRAPH APPEARS HERE]
Institutional Shares/(a)/ Administration Shares Service Shares
1/5/94 50000 2/28/96 50000 3/13/96 50000
10/31/94 48500 10/31/96 51780 10/31/96 52450
10/31/95 56124
10/31/96 59492
Lehman Aggregate Index Lehman Aggregate Index Lehman Aggregate Index
1/5/94 50000 2/28/96 50000 3/13/96 50000
10/31/94 46980 10/31/96 51870 10/31/96 52470
10/31/95 54332
10/31/96 57505
<TABLE>
<CAPTION>
------------------------ -----------------------------------------------------
Average Annual Total Return
------------------------ -----------------------------------------------------
One Year Since Inception/(a)/
<S> <C> <C>
------------------------ ---------------------------- ------------------------
Institutional Shares 5.98% 6.34%
------------------------ ---------------------------- ------------------------
Administration Shares N/A 3.56/(b)/
------------------------ ---------------------------- ------------------------
Service Shares N/A 4.90/(b)/
------------------------ ---------------------------- ------------------------
</TABLE>
(a) The Institutional, Administration and Service shares commenced operations
January 5, 1994, February 28, 1996 and March 13, 1996, respectively
(b) An aggregate total return (not annualized) is shown instead of an average
annual total return since the Administration and Service shares have not
completed a full twelve months of operations.
- --------------------------------------------------------------------------------
26
<PAGE>
Statement of Investments
- ---------------------------------------------------------------------
GS Core Fixed Income Fund
October 31, 1996
- ---------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
=====================================================================
Corporate Bonds--26.8%
Finance Bonds--12.6%
BankAmerica Corp.
$ 20,000 6.03% 05/17/99 $ 201,724
Bear Stearns Mortgage Securities, Inc.
2,045,784 6.50 03/28/09 1,903,048
Capital One Bank
600,000 8.63 01/15/97 603,000
500,000 8.13 02/27/98 511,610
Comdisco Inc.
950,000 9.75 01/15/97 956,717
200,000 7.33 03/06/97 201,112
Conseco Inc.
340,000 10.50 12/15/04 402,688
Continental Bank N.A.
525,000 11.25 07/01/01 565,971
Countrywide Funding Corp.
125,000 6.08 07/14/99 124,166
250,000 8.43 11/16/99 263,653
250,000 7.75 08/10/01 259,800
Ford Capital Corp.
200,000 9.38 01/01/98 207,584
300,000 9.50 07/01/01 333,960
General Motors Acceptance Corp.
275,000 7.63 03/09/98 281,064
200,000 7.13 05/10/00 204,238
375,000 9.63 12/15/01 422,483
Meditrust, Inc.
240,000 7.82 09/10/26 258,144
Security Pacific Corp.
995,000 11.50 11/15/00 1,268,429
Signet Banking Corp.
240,000 9.63 06/01/99 257,527
Washington Real Estate Corp.
120,000 7.13 08/13/03 120,307
- ---------------------------------------------------------------------
$ 9,247,225
- ---------------------------------------------------------------------
Industrial Bonds--13.7%
360 Communications Co.
$ 525,000 7.13% 03/01/03 $ 520,312
Auburn Hills Trust
210,000 12.00 05/01/20 316,730
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
=====================================================================
Corporate Bonds (continued)
Industrial Bonds (continued)
Cablevision Industries Corp.
$ 150,000 10.75% 01/30/02 $ 162,534
Continental Airlines, Inc.
349,679 7.75 07/02/14 364,513
569,776 8.56 07/02/14 620,880
Ford Holdings, Inc.
300,000 9.25 03/01/00 325,581
Mitchell Energy & Development Corp.
400,000 8.00 07/15/99 410,020
News America Holdings, Inc.
350,000 9.13 10/15/99 375,340
150,000 7.50 03/01/00 154,083
Northwest Airlines Corp.
167,795 8.26 03/10/06 179,500
575,000 8.97 01/02/15 605,573
RJR Nabisco Inc.
175,000 8.00 07/15/01 175,334
450,000 8.63 12/01/02 456,467
Tele-Communications, Inc.
50,000 6.46 03/06/00 49,465
300,000 8.25 01/15/03 296,652
1,135,000 6.27 09/15/03 1,132,764
Tenneco Inc.
1,175,000 10.00 08/01/98 1,249,178
Time Warner, Inc.
1,650,000 7.95 02/01/00 1,708,410
400,000 7.98 08/15/04 409,452
U.S. Air Inc.
560,072 6.76 04/15/08 547,711
- ---------------------------------------------------------------------
$10,060,499
- ---------------------------------------------------------------------
Utility Bonds--0.5%
Central Maine Power Co.
$ 330,000 7.45% 08/30/99 $ 329,248
- ---------------------------------------------------------------------
$ 329,248
- ---------------------------------------------------------------------
Total Corporate Bonds
(Cost $19,435,482) $19,636,972
- ---------------------------------------------------------------------
Asset-Backed Securities--12.2%
Airplanes Pass Through Trust Series 1, Class C
$ 155,000 8.15% 03/15/19 $ 159,816
- ---------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
27
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
================================================================================
<S> <C> <C> <C> <C>
Asset-Backed Securities (continued)
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
$ 232,121 5.80% 06/15/02 $ 231,466
Discover Card Master Trust, Series 1996-4, Class A
1,910,000 5.76 10/16/13 1,926,101
Discover Card Master Trust, Series 1996-4, Class B
1,100,000 5.93 10/16/13 1,100,000
General Motors Acceptance Corp. Series 1995, Class A
99,367 7.15 03/15/00 100,546
Navistar Financial Corp. Owner Trust, Series 1995-A, Class A2
291,994 6.55 11/20/01 293,725
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
314,669 6.85 06/15/01 318,757
Premier Auto Trust Series 1995-1, Class A4
360,000 7.85 09/04/98 362,023
Premier Auto Trust Series 1995-1, Class A5
80,000 7.90 05/04/99 81,150
Sears Credit Account Master Trust, Series 1996-1, Class A
680,000 6.20 02/16/06 675,750
Sears Credit Account Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/04 577,500
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/04 306,561
Standard Credit Card Trust, Series 1990-3, Class A
1,120,000 9.50 07/10/98 1,140,294
Standard Credit Card Trust, Series 1990-6, Class B
900,000 9.63 09/10/98 924,183
Standard Credit Card Trust, Series 1994-4, Class A
680,000 8.25 11/07/03 726,111
- --------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $8,987,847) $8,923,983
- --------------------------------------------------------------------------------
Emerging Market Debt--3.9%
Bancoldex
$ 160,000 8.63% 06/02/00 $ 164,731
Corp. Andina de Fomento
200,000 7.25 04/30/98 202,294
40,000 8.38 07/29/01 40,698
Empresa Col Petroleos
900,000 7.25 07/08/98 904,563
Financiera Energy Nacional
530,000 6.63 12/13/96 534,400
160,000 9.38 06/15/06 165,234
- --------------------------------------------------------------------------------
Emerging Market Debt (continued)
Instituto de Fomento Industrial
$ 80,000 8.38% 07/29/01 $ 81,397
Korea Electric Power
266,952 7.40 04/01/16 269,197
YPF Sociedad Anonima
456,886 7.50 10/26/02 463,036
- --------------------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,799,425) $2,825,550
- --------------------------------------------------------------------------------
Government Bonds--0.9%
Province of Quebec
$ 520,000 13.25% 09/15/14 $ 630,058
- --------------------------------------------------------------------------------
Total Government Bonds
(Cost $653,628) $ 630,058
- --------------------------------------------------------------------------------
Mortgage Backed Obligations--31.1%
Federal Home Loan Mortgage Corp. (FHLMC((b)
$4,500,000 7.50% TBA-30 Yr(b) $4,515,435
1,208,677 6.00 TBA-30 Yr(b) 1,198,196
Federal National Mortgage Association (FNMA)
1,000,000 7.00 TBA-30 Yr(b) 980,930
1,000,000 8.00 11/15/16 1,020,000
126,229 8.50 06/01/06 131,790
125,861 8.50 09/01/06 131,406
720,814 8.50 03/01/10 752,213
500,000 6.25 07/25/18 492,810
989,360 7.00 02/01/26 970,493
1,000,001 8.50 07/01/26 1,034,681
FNMA Remic Trust, Series 1993-201G
1,000,000 3.50 05/25/19 871,560
GE Capital Mortgage Services, Inc. Series 1994-17, Class A10
2,000,000 7.00 05/25/24 1,842,500
Government National Mortgage Association (GNMA)
1,000,000 7.00 TBA-30 Yr(b) 980,620
1,000,000 7.50 TBA-30 Yr(b) 1,003,120
3,000,000 8.00 TBA-30 Yr(b) 3,067,500
1,000,000 8.50 TBA-30 Yr(b) 1,038,120
342,966 8.00 02/15/17 356,042
850,876 7.50 03/15/23 857,785
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
- ----------------------------------------------------------------------
GS Core Fixed Income Fund (continued)
October 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
======================================================================
<S> <C> <C> <C>
Mortgage Backed Obligations(continued)
Government National Mortgage Association (GNMA)--(continued)
$ 512,583 7.00% 08/15/23 $ 505,699
124,369 7.50 08/15/23 125,379
Prudential Home Mortgage Securities Corp., Series 1992-39 A8
1,000,000 7.74 12/25/07 892,270
- ----------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $22,482,170) $22,768,549
- ----------------------------------------------------------------------
Sovereign Credit--1.3%
United Mexican States
$ 650,000 7.69% 08/06/01 $ 658,769
State of Israel
300,000 6.38 12/15/05 286,611
- ----------------------------------------------------------------------
Total Sovereign Credit
(Cost $926,260) $ 945,380
- ----------------------------------------------------------------------
U.S. Government Agency Obligations--1.5%
Federal Home Loan Mortgage Corp. (FHLMC)
$ 300,000 8.20% 01/16/98 $ 301,734
250,000 6.83 09/18/02 249,023
Resolution Funding Corp. Principal-Only Stripped Securities/(c)/
1,790,000 7.08 10/15/20 335,392
1,140,000 7.08 01/15/21 210,136
- ----------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $1,058,170) $ 1,096,285
- ----------------------------------------------------------------------
U.S. Treasury Obligations--19.3%
United States Treasury Bonds
$ 3,900,000 8.75% 05/15/17 $ 4,772,625
30,000 8.88 08/15/17 37,153
150,000 8.75 08/15/20 185,180
120,000 7.88 02/15/21 135,900
United States Treasury Interest-Only Stripped Securities/(d)/
2,250,000 6.69 08/15/09 968,063
350,000 6.75 11/15/10 137,736
United States Treasury Notes
1,200,000 5.88 04/30/98 1,203,744
3,250,000 6.88 08/31/99 3,331,250
100,000 6.13 07/31/00 100,375
2,090,000 7.88 11/15/04 2,293,775
United States Treasury Principal-Only Stripped Securities/(c)/
40,000 5.54 11/15/97 37,792
590,000 6.41 11/15/04 354,885
2,920,000 6.95 05/15/20 581,460
- ----------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $13,792,338) $14,139,938
- ----------------------------------------------------------------------
Repurchase Agreements--19.0%
Joint Repurchase Agreement Account/(a)/
$ 13,900,000 5.58% 11/01/96 $13,900,000
- ----------------------------------------------------------------------
Total Repurchase Agreements
(Cost $13,900,000) $13,900,000
- ----------------------------------------------------------------------
Total Investments
(Cost $84,035,320/(e)/) $84,866,715
======================================================================
</TABLE>
Futures contracts open at October 31, 1996 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long (f) Month Gain
- ------------------------- ------------ --------------- ------------
<S> <C> <C> <C>
Euro Dollars 5 December 1996 $5,125
Euro Dollars 5 March 1997 6,875
Euro Dollars 3 September 1997 825
Euro Dollars 5 June 1997 7,500
Euro Dollars 5 June 1998 3,625
5-Year U.S. Treasury
Notes 7 December 1996 8,641
10-Year U.S. Treasury
Notes 18 December 1996 65,625
=====================================================================
$98,216
-----------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 993,383
Gross unrealized loss for investments in
which cost exceeds value (243,229)
=====================================================================
Net unrealized gain $ 750,154
- ---------------------------------------------------------------------
</TABLE>
/(a)/Portions of these securities are being segregated for open TBA purchases,
mortgage dollar rolls and futures.
/(b)/TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + / -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
/(c)/The interest rate disclosed for these securities represents effective
yields to maturity.
/(d)/Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated rate due to
the amortization of related premiums.
/(e)/The aggregate cost for federal income tax purposes is $84,116,561.
/(f)/Each Euro Dollar contract represents $1,000,000 in notional par value. Each
5-Year U.S. Treasury Note and, 10-Year U.S. Treasury Note contract
represents $100,000 in notional par value. The total notional amount and
market value are $25,500,000 and $8,144,325, respectively. The
determination of notional amounts and market value as presented here are
indicative only of volume of activity and not a measure of market risk.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
==============================================================
<S> <C> <C> <C> <C>
Assets:
Investments in securities, at value (cost $618,544,961, $100,440,420,
$36,328,338 and $84,035,320, respectively) $617,783,125 $1O1,067,616 $36,530,762 $84,866,715
Receivables:
Investment securities sold 9,023,710 -- 2,639,947 4,512,122
Interest 6,238,391 962,570 560,207 981,011
Fund shares sold 93,534 9,761 48,407
Variation margin -- -- -- 5,475
Cash 23,482 85,863 133,870 70,206
Deferred organization expenses, net -- -- 20,748 53,352
Other assets 186,057 127,499 66,001 66,089
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 633,348,299 102,253,309 39,999,942 90,554,970
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Dividends 1,479,757 109,402 20,960 23,483
Investment securities purchased 3,134,490 -- 4,336,434 17,313,687
Fund shares repurchased 732,405 55,958 20,916 6,846
Variation margin 20,125 256 -- --
Investment adviser fees 210,539 34,534 11,033 22,677
Transfer agent fees 46,181 -- 5,254 3,058
Authorized dealer service fees 1,675 -- -- --
Accrued expenses and other liabilities 54,249 35,598 48,693 40,800
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,679,421 235,748 4,443,290 17,410,551
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid in capital 680,810,713 115,128,671 39,403,964 72,421,889
Accumulated undistributed (distributions in excess of) net
investment income (3,441,783) 770,624 90,133 33,551
Accumulated net realized loss on investment and futures
transactions (49,082,170) (14,541,811) (4,139,869) (240,632)
Net unrealized gain (loss) on investments and futures (617,882) 660,077 202,424 929,611
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $627,668,878 $102,017,561 $35,556,652 $73,144,419
===================================================================================================================================
Net asset value, offering and redemption price per share
Institutional shares $9.83 $9.83 $9.96 $9.85
Administration shares $9.83 $9.85 $9.96 $9.84
Service shares -- $9.82 $9.97 $9.86
Class A shares(a) $9.83 -- -- --
===================================================================================================================================
Shares Outstanding:
Institutional shares 62,407,407 10,168,881 3,494,408 7,312,322
Administration shares 385,738 25,537 4,845 71,240
Service shares -- 185,492 69,696 38,782
Class A shares 1,091,335 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total shares of beneficial interest outstanding, $.001 par value
(unlimited number of shares authorized) 63,884,480 10,379,910 3,568,949 7,422,344
===================================================================================================================================
</TABLE>
(a) Maximum public offering price per share (NAV per share x 1.0152) for Class A
shares of GS Adjustable Rate Government Fund is $9.97
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Operations
October 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
==========================================================
<S> <C> <C> <C> <C>
Investment income:
Interest, net (a) $39,925,070 $7,068,555 $1,979,825 $4,292,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 39,925,070 7,068,555 1,979,825 4,292,039
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment adviser fees 2,535,709 514,200 169,796 246,568
Distribution fees 30,905 -- -- --
Authorized dealer service fees 30,905 -- -- --
Administration share fees 9,833 107 129 751
Service share fees -- 1,222 2,322 422
Transfer agent fees 278,337 -- 16,980 24,657
Custodian fees 136,975 66,180 53,929 81,841
Professional fees 86,751 56,020 54,712 53,340
Registration fees 72,001 37,210 44,701 48,435
Amortization of deferred organization expenses 20,848 -- 22,735 24,562
Trustees' fees 1,899 1,287 760 915
Other 106,857 59,952 65,554 30,136
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,311,020 736,178 431,618 511,627
Less--Expenses reimbursable and fees waived by Goldman Sachs (417,768) (272,069) (238,097) (233,065)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 2,893,252 464,109 193,521 278,562
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 37,031,818 6,604,446 1,786,304 4,013,477
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and
futures transactions:
Net realized gain (loss) from:
Investment transactions (310,326) (222,458) 367,144 (108,070)
Futures transactions (2,192,298) (345,361) (35,506) (145,350)
Net change in unrealized gain (loss) on:
Investments 6,892,986 661,003 (396,071) (192,910)
Futures 818,120 (41,385) -- 117,560
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment and futures
transactions 5,208,482 51,799 (64,433) (328,770)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $42,240,300 $ 6,656,245 $ 1,721,871 $3,684,707
====================================================================================================================================
(a) Net of $1,314 in foreign withholding tax for the Core Fixed Income Fund.
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
October 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
GS Adjustable GS Short GS Short GS Core
Rate Duration Duration Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
----------------------------------------------------------
<S> <C> <C> <C> <C>
From Operations:
Net investment income $ 37,031,818 $6,604,446 $1,786,304 $4,013,477
Net realized gain (loss) from investment and futures transactions (2,502,624) (567,819) 331,638 (253,420)
Net change in unrealized gain (loss) on investments and futures 7,711,106 619,618 (396,071) (75,350)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 42,240,300 6,656,245 1,721,871 3,684,707
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (36,233,589) (6,561,519) (1,766,892) (4,019,797)
Administration shares (220,450) (2,548) (2,032) (19,144)
Service shares -- (14,792) (17,380) (5,349)
Class A shares (577,779) -- -- --
In excess of net investment income
Institutional shares (1,304,006) -- -- --
Administration shares (7,930) -- -- --
Class A shares (20,794) -- -- --
Net realized gain (loss) on investment, and future transactions
Institutional shares -- -- -- (450,016)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (38,364,548) (6,578,859) (1,786,304) (4,494,306)
- ------------------------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 406,586,374 42,019,441 22,248,684 21,976,567
Reinvestment of dividends and distributions 18,181,648 4,153,816 1,401,492 4,315,748
Cost of shares repurchased (477,107,914) (47,993,112) (46,918,400) (7,840,575)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from shares transactions (52,339,892) (1,819,855) (23,268,224) 18,451,740
- ------------------------------------------------------------------------------------------------------------------------------
Total (decrease) increase (48,464,140) (1,742,469) (23,332,657) 17,642,141
Net Assets:
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of year $676,133,018 $103,760,030 $58,889,309 $55,502,278
- ------------------------------------------------------------------------------------------------------------------------------
End of year $627,668,878 $102,017,561 $35,556,652 $73,144,419
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated (distributions in excess of) undistributed
net investment income $ (3,441,783) $ 770,624 $ 90,133 $ 33,551
- ------------------------------------------------------------------------------------------------------------------------------
Summary of Share Transactions:
Shares sold 41,534,978 4,293,467 2,233,482 2,244,430
Reinvestment of dividends and distributions 1,856,783 424,274 140,950 439,299
Shares repurchased (48,741,470) (4,905,357) (4,727,959) (811,075)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding (5,349,709) (187,616) (2,353,527) 1,872,654
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
32
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GS Adjustable GS Short-Term
Rate Government
Government Agency
Agency Fund Fund
==================================
<S> <C> <C>
From Operations:
Net investment income $ 42,586,453 $ 8,885,667
Net realized gain (loss) from investment and futures transactions (12,000,479) (4,030,174)
Net change in unrealized gain on investments and futures 16,138,367 5,735,691
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 46,724,341 10,591,184
- ----------------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (42,629,917) (8,684,213)
Administration shares (278,448) (11,164)
Service shares -- --
Class A shares (425,863) --
In excess of net investment income
Institutional shares (2,124,188) --
Administration shares (13,875) --
Class A shares (21,220) --
- ----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (45,493,511) (8,695,377)
- ----------------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 456,762,969 49,034,023
Proceeds from reorganizations 37,593,780 --
Reinvestment of dividends and distributions 21,273,685 4,993,443
Cost of shares repurchased (790,211,526) (145,988,674)
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets resulting from share
transactions (274,581,092) (91,961,208)
- ----------------------------------------------------------------------------------------------------------------
Total (decrease) increase (273,350,262) (90,065,401)
Net Assets:
Beginning of year 949,483,280 193,825,431
- ----------------------------------------------------------------------------------------------------------------
End of year $676,133,018 $103,760,030
================================================================================================================
Accumulated (distributions in excess of) undistributed net investment
income $ (2,129,902) $ 708,450
================================================================================================================
Summary of Share Transactions:
Shares sold 46,809,171 5,072,030
Shares exchanged in reorganizations 3,843,169 --
Reinvestment of dividends and distributions 2,181,117 516,178
Shares repurchased (81,125,615) (15,135,663)
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in shares outstanding (28,292,158) (9,547,455)
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GS Short GS Core
Duration Fixed
Tax-Free Income
Fund Fund
============================
<S> <C> <C>
From Operations:
Net investment income $ 2,814,454 $2,248,195
Net realized gain (loss) from investment and futures transactions (472,312) 921,130
Net change in unrealized gain on investments and futures 1,270,197 1,663,176
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,612,339 4,832,501
- ---------------------------------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income
Institutional shares (2,771,793) (2,253,625)
Administration shares (20,584) --
Service shares (22,077) --
Class A shares -- --
In excess of net investment income
Institutional shares -- --
Administration shares -- --
Class A shares -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions to shareholders (2,814,454) (2,253,625)
- ---------------------------------------------------------------------------------------------------------
From Share Transactions:
Net proceeds from sales of shares 36,468,900 30,256,879
Proceeds from reorganizations -- --
Reinvestment of dividends and distributions 1,873,154 2,232,160
Cost of shares repurchased (67,865,169) (4,073,379)
- ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets resulting from share
transactions (29,523,115) 28,415,660
- ---------------------------------------------------------------------------------------------------------
Total (decrease) increase (28,725,230) 30,994,536
Net Assets:
Beginning of year 87,614,539 24,507,742
- ---------------------------------------------------------------------------------------------------------
End of year $58,889,309 $55,502,278
=========================================================================================================
Accumulated (distributions in excess of) undistributed net investment
income $ 67,398 $ 40,202
=========================================================================================================
Summary of Share Transactions:
Shares sold 3,733,382 3,077,397
Shares exchanged in reorganizations -- --
Reinvestment of dividends and distributions 190,942 230,595
Shares repurchased (6,950,294) (411,156)
- ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in shares outstanding (3,025,970) 2,896,836
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
33
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements
October 31, 1996
- --------------------------------------------------------------------------------
1. Organization
Goldman Sachs Trust (the "Trust") is a Massachusetts business trust
registered under the Investment Company Act of 1940 (as amended) as an open-end,
management investment company. Included in this report are the financial
statements for the GS Adjustable Rate Government Fund, GS Short Duration
Government Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund,
collectively, ("the Funds"). The Funds are diversified portfolios of the Trust
offering three classes of shares - Institutional shares, Administration shares
and Service shares. In addition, the GS Adjustable Rate Government Fund offers
Class A shares.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
-------------------------
Investments in mortgage backed, asset backed and U.S. Treasury obligations
for which accurate market quotations are readily available are valued on the
basis of quotations furnished by a pricing service or provided by dealers in
such securities. Other securities are valued based on yield equivalents, a
pricing matrix or other sources, under valuation procedures established by the
Trust's Board of Trustees. Portfolio securities for which accurate market
quotations are not readily available are valued based on yield equivalents,
pricing matrix or other sources, under valuation procedures established by the
Trust's Board of Trustees. Short-term debt obligations maturing in sixty days or
less are valued at amortized cost.
B. Security Transactions and Investment Income
------------------------------------------------
Security transactions are recorded on trade date. Realized gains and
losses on sales of portfolio securities are calculated on the identified cost
basis. Interest income is recorded on the basis of interest accrued. Premiums on
interest-only securities and on collateralized mortgage obligations with nominal
principal amounts are amortized, on an effective yield basis, over the expected
lives of the respective securities, taking into account actual principal
prepayment experience and estimates of future principal prepayments. Certain
mortgage security paydown gains and losses are taxable as ordinary income. Such
paydown gains and losses increase or decrease taxable ordinary income available
for distribution and are classified as interest income in the accompanying
Statements of Operations. Original issue discounts ("OID") on debt securities
are amortized to interest income over the life of the security with a
corresponding increase in the cost basis of that security. OID amortization on
mortgage backed REMIC securities is initially recorded based on estimates of
principal paydowns using the most recent OID factors available from the issuer.
Recorded amortization amounts are adjusted when actual OID factors are received.
Market premiums resulting from the purchase of long-term debt securities are
amortized to interest income over the life of the security with a corresponding
decrease in the cost basis of that security for GS Short Duration Tax-Free Fund.
Market discounts and market premiums on debt securities, other than mortgage
backed securities, are amortized to interest income over the life of the
security with a corresponding adjustment in the cost basis of that security for
GS Core Fixed Income Fund.
C. Mortgage Dollar Rolls
--------------------------
The Funds, with the exception of the GS Short Duration Tax-Free Fund, may
enter into mortgage "dollar rolls" in which the Fund sells securities in the
current month for delivery and simultaneously contracts with the same
counterparty to repurchase similar (same type,
34
<PAGE>
coupon and maturity) but not identical securities on a specified future date.
The Fund loses the right to receive principal and interest paid on the
securities sold. However, the Fund benefits to the extent of any price received
for the securities sold and the lower forward price for the future purchase
(often referred to as the "drop") or fee income plus the interest earned on the
cash proceeds of the securities sold until the settlement date of the forward
purchase. The Fund will hold and maintain in a segregated account, until the
settlement date, cash or liquid, high-grade debt securities in an amount equal
to the forward purchase price. For financial reporting and tax reporting
purposes, the Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving a
sale.
D. Futures Contracts
----------------------
The Funds may enter into futures transactions in order to hedge against
changes in interest rates, securities prices, currency exchange rates in the
case of GS Core Fixed Income Fund or to seek to increase total return. A Fund
will engage in futures transactions only for bona fide hedging purposes as
defined in regulations of the CFTC or to seek to increase total return to the
extent permitted by such regulations. The use of futures contracts involve, to
varying degrees, elements of market risk which may exceed the amounts recognized
in the Statements of Assets and Liabilities.
Upon entering into a futures contract, a Fund is required to deposit with
a broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund. When entering into a closing transaction, the Fund will realize, for book
purposes, a gain or loss equal to the difference between the value of the
futures contract to sell and the futures contract to buy. Futures contracts are
valued at the most recent settlement price, unless such price does not reflect
the fair market value of the contract, in which case the position will be valued
using methods as approved by the Board of Trustees.
Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds' hedging strategies and
may also result in a loss to the Funds.
E. Deferred Organization Expenses
-----------------------------------
Organization-related costs are being amortized on a straight-line basis
over a period of five years.
F. Expenses
-------------
Expenses incurred by the Trust that do not specifically relate to an
individual portfolio of the Trust are allocated to the portfolios based on each
portfolio's relative average net assets for the period.
Shareholders of Administration shares and Service shares bear all expenses
and fees paid to service organizations for their services with respect to such
shares as well as other expenses (subject to expense limitations) which are
directly attributable to such shares. For the GS Adjustable Rate Government
Fund, shareholders of Class A shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses which
are directly attributable to such shares.
G. Federal Taxes
------------------
It is each Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute each
year substantially all of its investment company taxable and tax-exempt income
to its shareholders. Accordingly, no federal tax provisions are required.
35
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
The characterization of distributions to shareholders for financial
statement purposes as either from or in excess of net investment income or net
realized gain on investment transactions, or from capital, depends on the type
of book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
At October 31, 1996, the Funds had approximately the following amounts of
capital loss carryforward for U.S. federal tax purposes:
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
- --------------------------------------- --------------------- -----------------
<S> <C> <C>
GS Adjustable Rate
Government Fund $47,923,000 2000-2003
GS Short Duration Government
Fund $13,272,000 2002-2003
GS Short Duration Tax-Free
Fund $4,271,000 2002-2003
GS Core Fixed Income
Fund $77,000 2004
</TABLE>
These amounts are available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.
3. Agreements
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as the investment adviser for the GS
Adjustable Rate Government and GS Short Duration Government Funds pursuant to
Investment Advisory Agreements. Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman Sachs, serves as the investment adviser
for the GS Short Duration Tax-Free and GS Core Fixed Income Funds pursuant to
Investment Advisory Agreements. Under the Investment Advisory Agreements, the
adviser, subject to the general supervision of the Trust's Board of Trustees,
manages the Funds' portfolios and provides for the administration of the Funds'
other affairs. As compensation for the services rendered under the Investment
Advisory Agreements and the assumption of the expenses related thereto, the
adviser is entitled to a fee, computed daily and payable monthly at an annual
rate equal to .40% of average daily net assets of GS Adjustable Rate Government,
GS Short Duration Tax-Free and GS Core Fixed Income Funds and .50% of average
daily net assets of GS Short Duration Government Fund. Until further notice,
GSFM has voluntarily agreed not to impose .10% of its investment advisory fee
for the GS Short Duration Government Fund. For the year ended October 31, 1996,
investment advisory fees of approximately $103,000 were waived for the GS Short
Duration Government Fund.
The adviser has voluntarily agreed to limit certain of the Funds' expenses
(excluding investment advisory fees, taxes, interest, brokerage, litigation,
administrative and service share fees, indemnification and other extraordinary
expenses and with respect to GS Adjustable Rate Government Class A shares,
distribution and authorized dealer service fees) to the extent that such
expenses exceed .05% per annum of each Fund's average daily net assets. For the
year ended October 31, 1996, the amount of reimbursed expenses for the GS
Adjustable Rate Government, GS Short Duration Government, GS Short Duration
Tax-Free and GS Core Fixed Income Funds were approximately $387,000, $169,000,
$238,000 and $233,000, respectively. The amounts reimbursable to the GS
Adjustable Rate Government, GS Short Duration Government, GS Short Duration
Tax-Free and the GS Core Fixed Income Funds at October 31, 1996 were
approximately $29,000, $12,000, $31,000 and $19,000, respectively, and are
included in "Other assets" in the accompanying Statements of Assets and
Liabilities.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to
a Distribution Agreement and receives no compensation in this capacity with the
exception of GS Adjustable Rate Government Fund Class A shares. At October 31,
1996, Goldman Sachs retained approximately $79,000 of sales load related to
Class A shares. Goldman Sachs also serves as Transfer Agent of the Funds for a
fee.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
The Trust, on behalf of the GS Adjustable Rate Government Fund, has
adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 for the Class A
shares. Under the Plan, Goldman Sachs is entitled to receive a quarterly
distribution fee equal, on an annual basis, to .25% of the average daily net
assets of Class A shares. Currently, Goldman Sachs has agreed to voluntarily
waive this distribution fee. Distribution fees waived for the period amounted to
approximately $31,000.
The Trust, on behalf of the GS Adjustable Rate Government Fund, has
adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the "Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. GS Adjustable Rate
Government Fund pays a fee under the Service Plan equal, on an annual basis, to
.25% of its average daily net assets attributable to Class A shares.
For the year ended October 31, 1996, GS Adjustable Rate Government Fund,
GS Short Duration Government Fund, GS Short Duration Tax-Free Fund and GS Core
Fixed Income Fund incurred commission expenses of approximately $108,000,
$24,000, $1,000 and $4,000, respectively, in connection with futures contracts
entered into with Goldman Sachs. At October 31, 1996, GS Adjustable Rate
Government Fund had approximately $20,000, payable to Goldman Sachs related to
variation margin on futures contracts. Approximately $5,000 relating to
variation margin was due to the GS Core Fixed Income Fund from Goldman Sachs.
4. Line of Credit Facility
The Funds participate in a $100,000,000 uncommitted, unsecured revolving
line of credit facility to be used solely for temporary or emergency purposes.
Under the most restrictive arrangement, each fund must own securities having a
market value in excess of 300% of the total bank borrowings. The interest rate
on the borrowings is based on the federal funds rate. During the year ended
October 31, 1996, the Funds did not have any borrowings under this facility.
5. Investment Transactions
Purchases and proceeds of sales or maturities of long-term securities for
the year ended October 31, 1996, were as follows:
================================================================================
GS GS GS
Adjustable Short Short GS
Rate Duration Duration Core Fixed
Government Government Tax-Free Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Purchases of U.S.
Government and
agency obligations $319,204,368 $117,205,724 -- $227,149,602
- --------------------------------------------------------------------------------
Purchases (excluding
U.S. Government and
agency obligations) -- -- $101,504,852 41,015,852
- --------------------------------------------------------------------------------
Sales or maturities of
U.S. Government and
agency obligations 370,448,093 113,784,637 -- 251,512,185
- --------------------------------------------------------------------------------
Sales or maturities
(excluding U.S.
Government and
agency obligations) -- -- 128,041,004 19,684,141
- --------------------------------------------------------------------------------
6. Summary of Share Transactions
Share activity for the year ended October 31, 1996 is as follows:
Fund Dollars Shares
- --------------------------------------------------------------------------------
GS Adjustable Rate Government Fund
Institutional Shares:
Shares sold $391,363,204 39,981,299
Reinvestment of dividends and
distributions 17,432,484 1,780,288
Shares repurchased (456,776,795) (46,666,343)
----------------------------------------
(47,981,107) (4,904,756)
----------------------------------------
Administration Shares:
Shares sold 1,457,872 148,981
Reinvestment of dividends and
distributions 94,420 9,641
Shares repurchased (1,356,764) (138,609)
----------------------------------------
195,528 20,013
----------------------------------------
37
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund: Dollars Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares:
Shares sold $ 13,765,298 1,404,698
Reinvestment of dividends and distributions 654,744 66,854
Shares repurchased (18,974,355) (1,936,518)
-------------------------------------
(4,554,313) (464,966)
-------------------------------------
Total $ (52,339,892) (5,349,709)
=====================================
GS Short Duration Government Fund
Institutional Shares:
Shares sold $ 39,855,638 4,072,082
Reinvestment of dividends and distributions 4,137,041 422,559
Shares repurchased (47,875,174) (4,893,286)
-------------------------------------
(3,882,495) (398,645)
-------------------------------------
Administration Shares:
Shares sold 326,101 33,251
Reinvestment of dividends and distributions 2,032 207
Shares repurchased (77,312) (7,921)
-------------------------------------
250,821 25,537
-------------------------------------
Service Shares:
Shares sold 1,837,702 188,134
Reinvestment of dividends and distributions 14,743 1,508
Shares repurchased (40,626) (4,150)
-------------------------------------
1,811,819 185,492
-------------------------------------
Total $ (1,819,855) (187,616)
=====================================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 20,777,050 2,085,253
Reinvestment of dividends and distributions 1,383,351 139,126
Shares repurchased (45,664,878) (4,601,865)
-------------------------------------
(23,504,477) (2,377,486)
-------------------------------------
Administration Shares:
Shares sold 105,302 10,672
Reinvestment of dividends and distributions 2,017 203
Shares repurchased (105,478) (10,644)
-------------------------------------
1,841 231
-------------------------------------
Service Shares:
Shares sold $ 1,366,332 137,557
Reinvestment of dividends and distributions 16,124 1,621
Shares repurchased (1,148,044) (115,450)
-------------------------------------
234,412 23,728
-------------------------------------
Total $ (23,268,224) (2,353,527)
=====================================
GS Core Fixed Income Fund
Institutional Shares:
Shares sold $ 20,524,422 2,094,833
Reinvestment of dividends and distributions 4,292,533 436,903
Shares repurchased (7,431,360) (769,104)
-------------------------------------
17,385,595 1,762,632
-------------------------------------
Administration Shares:
Shares sold 1,029,912 106,074
Reinvestment of dividends and distributions 17,883 1,847
Shares repurchased (358,284) (36,681)
-------------------------------------
689,511 71,240
-------------------------------------
Service Shares:
Shares sold 422,233 43,525
Reinvestment of dividends and distributions 5,332 549
Shares repurchased (50,931) (5,292)
-------------------------------------
376,634 38,782
-------------------------------------
Total $ 18,451,740 1,872,654
=====================================
</TABLE>
- --------------------------------------------------------------------------------
Share activity for the year ended October 31, 1995 is as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund Dollars Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C>
GS Adjustable Rate Government Fund
Institutional Shares:
Shares sold $ 445,293,934 45,635,666
Shares exchanged in reorganization 18,823,725 1,926,438
Reinvestment of dividends and distributions 20,730,137 2,125,494
Shares repurchased (771,265,543) (79,186,935)
-------------------------------------
(286,417,747) (29,499,337)
-------------------------------------
Administration Shares:
Shares sold 648,042 66,628
Shares exchanged in reorganization 1,561,584 159,814
Reinvestment of dividends and distributions 124,368 12,743
Shares repurchased (5,731,937) (588,307)
-------------------------------------
(3,397,943) (349,122)
-------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fund Dollars Shares
============================================================================================
<S> <C> <C>
Class A Shares:
Shares sold 10,820,993 1,106,877
Shares exchanged in reorganization 17,208,471 1,756,917
Reinvestment of dividends and distributions 419,180 42,880
Shares repurchased (13,214,046) (1,350,373)
-------------------------------------
15,234,598 1,556,301
-------------------------------------
Total $(274,581,092) (28,292,158)
=====================================
GS Short Duration Government Fund
Institutional Shares:
Shares sold $ 49,032,419 5,071,865
Reinvestment of dividends and distributions 4,993,225 516,155
Shares repurchased (145,260,300) (15,059,774)
-------------------------------------
(91,234,656) (9,471,754)
-------------------------------------
Administration Shares:
Shares sold 1,604 165
Reinvestment of dividends and distributions 218 23
Shares repurchased (728,374) (75,889)
-------------------------------------
(726,552) (75,701)
-------------------------------------
Total $ (91,961,208) (9,547,455)
=====================================
GS Short Duration Tax-Free Fund
Institutional Shares:
Shares sold $ 18,780,011 1,920,432
Reinvestment of dividends and distributions 1,860,104 189,624
Shares repurchased (46,762,899) (4,787,105)
-------------------------------------
(26,122,784) (2,677,049)
-------------------------------------
Administration Shares:
Shares sold -- --
Reinvestment of dividends and distributions 2,483 246
Shares repurchased (3,800,930) (390,639)
-------------------------------------
(3,798,447) (390,393)
-------------------------------------
Service Shares:
Shares sold 17,688,889 1,812,950
Reinvestment of dividends and distributions 10,567 1,072
Shares repurchased (17,301,340) (1,772,550)
-------------------------------------
398,116 41,472
-------------------------------------
Total $(29,523,115) (3,025,970)
=====================================
</TABLE>
7. Repurchase Agreements
- --------------------------------------------------------------------------------
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping in the customer-only account of State Street
Bank & Trust Co., the Fund's custodian, or at subcustodians. GSFM and GSAM
monitor the market value of the underlying securities by pricing them daily.
8. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having
advisory agreements with GSFM and GSAM or their affiliates, transfer uninvested
cash balances into a joint account, the daily aggregate balance of which is
invested in one or more repurchase agreements. The underlying securities for the
repurchase agreements are U.S. Treasury obligations and mortgage-related
securities issued by the U.S. Government, its agencies or instrumentalities. As
of October 31, 1996, the GS Adjustable Rate Government, GS Short Duration
Government and GS Core Fixed Income Funds had an .49%, .04% and .52%,
respectively, undivided interest in the repurchase agreements in the following
joint account which equaled $13,000,000, $1,000,000 and $13,900,000,
respectively, in principal amount.
- --------------------------------------------------------------------------------
39
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
October 31, 1996
- --------------------------------------------------------------------------------
As of October 31, 1996, the repurchase agreement in the joint account along
with the corresponding underlying securities (including the type of security,
market value, interest rate and maturity date) were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
================================================================================
<S> <C> <C> <C>
Bear Stearns & Co., dated 10/31/96, repurchase price $700,108,500 (FNMA:
$555,290,445, 5.5%--8.50%, 2.1.09-6/1/26; FHLMC: $165,859,789, 5.50%--8.50%,
9/1/98--8/1/26)
$700,000,000 5.58% 11/01/96 $700,000,000
Lehman Brothers, Inc. dated 10/31/96, repurchase price $924,843,329 (U.S. Treasury
Notes: $942,903,967, 4.38%--8.50%, 11/15/96--8/15/03)
924,700,000 5.58 11/01/96 924,700,000
Nomura Securities International, Inc. dated 10/31/96, repurchase price
$700,108,500 (FNMA: $256,600,142, 5.50%--8.00%, 2/1/02-10/1/26; FHLMC:
$464,523,981, 6.00%--9.00%, 9/1/1-10/1/26)
700,000,000 5.58 11/01/96 700,000,000
Smith Barney, Inc. dated 10/31/96, repurchase price $170,026,161 (U.S. Treasury
Interest Only Stripped Securities: $11,653,277, 2/15/98--5/15/02; U.S. Treasury
Notes: $85,997,728, 5.25%--7.75%, 5/15/97-10/15/06; U.S. Treasury Principal
Only Stripped Securities: $33,993,571, 5/15/97--5/15/05; U.S. Treasury Bills:
$41,756,285, 12/12/96--3/20/97)
170,000,000 5.54 11/01/96 170,000,000
Union Bank of Switzerland, Inc. dated 10/31/96, repurchase price
$175,026,979
(Treasury Notes: $178,528,739, 6.88%--7.75%, 8/31/99-1/31/00)
175,000,000 5.55 11/01/96 175,000,000
- --------------------------------------------------------------------------------
Total Joint Repurchase Agreement $2,669,700,000
================================================================================
</TABLE>
9. Administration and Service Plans
The Funds have adopted Administration and Service Plans. These plans allow
for Administration shares and Service shares, respectively, to compensate
service organizations for providing varying levels of account administration and
shareholder liaison services to their customers who are beneficial owners of
such shares. The Administration and Service Plans provide for compensation to
the service organizations in an amount up to .25% and .50% (on an annualized
basis), respectively, of the average daily net asset value of the respective
shares.
10. Other Matters
On April 28, 1995, the GS Adjustable Rate Government Fund acquired the
assets of GS Government Agency Portfolio (For Financial Institutions) in
exchange solely for (i) the issuance of Institutional shares and Administration
shares of beneficial interest of the GS Adjustable Rate Government Fund and
(ii) the assumption by GS Adjustable Rate Government Fund of the liabilities of
GS Government Agency Portfolio (For Financial Institutions). Following this
transfer, GS Government Agency Portfolio (For Financial Institutions) was
liquidated and GS Adjustable Rate Government Fund's Institutional and
Administration shares were distributed to the former shareholders of GS
Government Agency Portfolio (For Financial Institutions).
The Reorganization was accomplished by a tax-free transfer of assets whereby
each shareholder of GS Government Agency Portfolio (For Financial Institutions)
received a number of full and fractional shares of GS Adjustable Rate Government
Fund having a total net asset value of their shares of GS Government Agency
Portfolio (For Financial Institutions) held on April 28, 1995. The net assets,
including $370,489 of unrealized depreciation for the GS Government Agency
Portfolio (For Financial Institutions), net asset values per share and shares
outstanding as of April 28, 1995 were:
================================================================================
GS Government
Agency
Portfolio
(For Financial GS Adjustable GS Adjustable
Institutions Rate Government Rate Government
(Pre- Fund (Pre- Fund (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
Net Assets $20,385,309 $673,292,455 $693,677,764
Shares Outstanding
Institutional Shares 1,912,506 68,506,367 70,432,805
Administration Shares 158,661 401,122 560,936
Net Asset Value Per Share
Institutional Shares 9.84 9.77 9.77
Administration Shares 9.84 9.77 9.77
================================================================================
On May 11, 1995, shareholders of the GS Adjustable Rate Mortgage Fund
approved a Plan of Reorganization (the Plan) which was completed on May 12,
1995. Under the Plan, GS Adjustable Rate Mortgage Fund was reorganized as a
separate class (Class A) of the GS
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Adjustable Rate Government Fund. GS Adjustable Rate Mortgage Fund's assets were
acquired by GS Adjustable Rate Government Fund in exchange solely for (i) the
issuance of Class A shares of beneficial interest of GS Adjustable Rate
Government Fund and (ii) the assumption by GS Adjustable Rate Government Fund of
the liabilities of GS Adjustable Rate Mortgage Fund. Following this transfer, GS
Adjustable Rate Mortgage Fund was liquidated and GS Adjustable Rate Government
Fund Class A shares were distributed to the former shareholders of GS Adjustable
Rate Mortgage Fund.
The Reorganization was accomplished by a tax-free transfer of assets
whereby each shareholder of GS Adjustable Rate Mortgage Fund received a number
of Class A full and fractional shares of GS Adjustable Rate Government Fund
having a total net asset value of their shares of GS Adjustable Rate Mortgage
Fund held as of May 12, 1995. The net assets, including $45,684 of net
unrealized depreciation for the GS Adjustable Rate Mortgage Fund, net asset
values per share and shares outstanding as of May 12, 1995 were:
================================================================================
<TABLE>
<CAPTION>
GS Adjustable
Rate Mortgage GS Adjustable GS Adjustable
Fund Rate Government Rate Government
(Pre- Fund (Pre- Fund (Post-
Reorganization) Reorganization) Reorganization)
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Assets $17,208,471 $727,300,372 $744,508,843
Shares Outstanding
Institutional Shares -- 73,743,084 73,743,084
Administration Shares -- 561,352 561,352
Class A Shares 3,552,167 -- 1,756,917
Net Asset Value Per Share
Institutions Shares -- 9.79 9.79
Administration Shares -- 9.79 9.79
Class A Shares 4.84 -- 9.79
</TABLE>
================================================================================
The total amount of capital loss carryforward brought on to the books of
the GS Adjustable Rate Government Fund due to these reorganization was
approximately $3,154,000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of October 31, 1996, the Goldman, Sachs & Co. Employees Profit Sharing
and Retirement Income Plan was beneficial owner of approximately 29% of the
outstanding shares of the GS Short Duration Government Fund.
11. Certain Reclassifications
In accordance with Statement of Position 93-2, the GS Adjustable Rate
Government Fund, GS Short Duration Tax-Free Fund, and GS Core Fixed Income Fund
have reclassified $20,849, $36,587, $22,735, and $24,162, respectively, from
paid-in capital to accumulated undistributed net investment income. These
reclassifications have no impact on the net asset value of the Fund and are
designed to present the Fund's capital accounts on a tax basis.
- --------------------------------------------------------------------------------
41
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
=================================================================== ============================================
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment, In excess
value at Net option and currency from From net option of net
beginning investment futures related investment investment and futures investment
of period income transactions transactions operations income transactions income
================================================================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ $9.77 $0.5759(a) $0.0772(a) -- $0.6531 $ (0.5725) -- $ (0.0206)
1996-Administration
Shares............ 9.77 0.5489(a) 0.0797(a) -- 0.6286 (0.5489) -- (0.0198)
1996-Class A
Shares............ 9.77 0.5481(a) 0.0806(a) -- 0.6287 (0.5489) -- (0.0198)
1995-Institutional
Shares............ 9.74 0.5630(a) 0.0717(a) -- 0.6347 (0.5759) -- (0.0287)
1995-Administration
Shares............ 9.74 0.5366(a) 0.0737(a) -- 0.6103 (0.5528) -- (0.0275)
1995-Class A
Shares(c)......... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697) -- (0.0134)
1994-Institutional
Shares............ 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486) -- --
1994-Administration
Shares............ 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239) -- --
1993-Institutional
Shares............ 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397) -- (0.0024)
1993-Administration
Shares(e)......... 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146) -- (0.0027)
1992-Institutional
Shares............ 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470) -- --
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553) -- --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
=========================================
In excess of
net realized Net
gain on increase Ratio of
investment, From Total (decrease) Net asset net
option and paid distributions in net value at expenses
futures in to asset end of Total to average
transactions capital shareholders value period return(k) net assets
==============================================================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ -- -- $(0.5931) $0.0600 $9.83 6.86% 0.45%
1996-Administration
Shares............ -- -- (0.5687) 0.0600 9.83 6.60 0.70
1996-Class A
Shares............ -- -- (0.5687) 0.0600 9.83 6.60 0.70
1995-Institutional
Shares............ -- -- (0.6046) 0.0301 9.77 6.75 0.46
1995-Administration
Shares............ -- -- (0.5803) 0.0300 9.77 6.48 0.71
1995-Class A
Shares(c)......... -- -- (0.2831) (0.0200) 9.77 2.74(f) 0.69(b)
1994-Institutional
Shares............ -- -- (0.4486) (0.2600) 9.74 1.88 0.46
1994-Administration
Shares............ -- -- (0.4239) (0.2600) 9.74 1.63 0.71
1993-Institutional
Shares............ -- -- (0.4421) (0.0400) 10.00 4.13 0.45
1993-Administration
Shares(e)......... -- -- (0.2173) (0.0200) 10.00 2.01(f) 0.70(b)
1992-Institutional
Shares............ -- -- (0.5470) 0.0100 10.04 6.12 0.42
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ -- -- (0.1553) 0.0300 10.03 2.14(f) 0.20(b)
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
=============================
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate(d) (in 000s) net assets net assets
========================================================================
GS ADJUSTABLE RATE GOVERNMENT FUND
------------------------------------------------------------------------
For the Year Ended October 31,
=======================================
<S> <C> <C> <C> <C> <C>
1996-Institutional
Shares............ 5.85% 52.36% $613,149 0.51% 5.79%
1996-Administration
Shares............ 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares............ 5.59 52.36 10,728 1.01 5.28
1995-Institutional
Shares............ 5.77 24.12 657,358 0.53 5.70
1995-Administration
Shares............ 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)......... 5.87(b) 24.12 15,203 1.01(b) 5.55(b)
1994-Institutional
Shares............ 4.38 37.81 942,523 0.49 4.35
1994-Administration
Shares............ 4.27 37.81 6,960 0.74 4.24
1993-Institutional
Shares............ 4.36 103.74 2,760,871 0.48 4.33
1993-Administration
Shares(e)......... 3.81(b) 103.74 5,326 0.73(b) 3.78(b)
1992-Institutional
Shares............ 5.61 286.40 2,145,064 0.55 5.48
For the Period July 17, 1991(g) through October 31,
===================================================
1991-Institutional
Shares............ 7.31(b) 145.67(b) 239,642 1.02(b) 6.49(b)
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Goldman Sachs Trust
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations Distributions to shareholders
---------------------------------------------------------- ----------------------------------------
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions transactions operations income transactions
-------------------------------------------------------------------------------------------------------------------
GS SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31,
- -------------------------------------------------------
1996-Institutional
Shares ........... $9.82 $0.6290/(a)/ $0.0136/(a)/ -- $0.6426 $(0.6326) --
1996-Administration
Shares/(h)/ ...... 9.86 0.3837/(a)/ 0.0003/(a)/ -- 0.3840 (0.3940) --
1996-Service
Shares/(i)/ ...... 9.72 0.3134/(a)/ 0.1018/(a)/ -- 0.4152 (0.3152) --
1995-Institutional
Shares ........... 9.64 0.6652/(a)/ 0.1666/(a)/ -- 0.8318 (0.6518) --
1995-Administration
Shares ........... 9.64 0.2384/(a)/ (0.0433)/(a)/ -- 0.1951 (0.2051) --
1994-Institutional
Shares ........... 10.14 0.5628/(a)/ (0.4592)/(a)/ -- 0.1036 (0.5598) (0.0438)
1994-Administration
Shares ........... 10.14 0.5329/(a)/ (0.4539)/(a)/ -- 0.0790 (0.5352) (0.0438)
1993-Institutional
Shares ........... 10.16 0.5627 (0.0135)/(d)/ -- 0.5492 (0.5627) --
1993-Administration
Shares/(e)/ ...... 10.23 0.2725 (0.0900)/(d)/ -- 0.1825 (0.2725) --
1992-Institutional
Shares ........... 10.22 0.6703 (0.0600)/(d) -- 0.6103 (0.6703) --
1991-Institutional
Shares ........... 10.00 0.8020 0.2200/(d)/ -- 1.0220 (0.8020) --
1990-Institutional
Shares ........... 10.07 0.8300 (0.0700)/(d) -- 0.7600 (0.8300) --
1989-Institutional
Shares ........... 10.10 0.8800 -- -- 0.8800 (0.8800) --
For the Period August 15, 1988/(g)/ through October 31,
- -------------------------------------------------------
1988-Institutional
Shares ........... 10.00 0.1800 0.1000/(d)/ -- 0.2800 (0.1800) --
<CAPTION>
In excess of
net realized Net
gain on increase
In excess investment, From Total (decrease) Net asset
of net option and paid distributions in net value at
investment futures in to asset end of
income transactions capital shareholders value period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31,
1996-Institutional
Shares ............ -- -- -- $(0.6326) $0.0100 $9.83
1996-Administration
Shares/(h)/ ....... -- -- -- (0.3940) (0.0100) 9.85
1996-Service
Shares/(i)/ ....... -- -- -- (0.3152) 0.1000 9.82
1995-Institutional
Shares ............ -- -- -- (0.6518) 0.1800 9.82
1995-Administration
Shares ............ -- -- -- (0.2051) (0.0100) 9.63/(h)/
1994-Institutional
Shares ............ -- -- -- (0.6036) (0.5000) 9.64
1994-Administration
Shares ............ -- -- -- (0.5790) (0.5000) 9.64
1993-Institutional
Shares ............ (0.0065) -- -- (0.5692) (0.0200) 10.14
1993-Administration
Shares/(e)/ ....... -- -- -- (0.2725) (0.9000) 10.14
1992-Institutional
Shares ............ -- -- -- (0.6703) (0.0600) 10.16
1991-Institutional
Shares ............ -- -- -- (0.8020) 0.2200 10.22
1990-Institutional
Shares ............ -- -- -- (0.8300) (0.0700) 10.00
1989-Institutional
Shares ............ -- -- (0.0300) (0.9100) (0.0300) 10.07
For the Period August 15, 1988/(g)/ through October 31,
- -------------------------------------------------------
1988-Institutional
Shares ............ -- -- -- (0.1800) 0.1000 10.10
<CAPTION>
Ratios assuming
not voluntary waiver
of fees or
expense limitations
--------------------------
Ratio of Ratio of
net Net net
Ratio of investment assets investment
net income at end Ratio of income
expenses (loss) Portfolio of expenses (loss)
Total to average to average turnover period to average to average
return/(k)/ net assets net assets rate/(d)/ (in 000s) net assets net assets
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
1996-Institutional
Shares ............ 6.75% 0.45% 6.44% 115.45% $99,944 0.71% 6.18%
1996-Administration
Shares/(h)/ ....... 4.00/(f)/ 0.70%/(b)/ 5.97/(b)/ 115.45 252 0.96/(b)/ 5.71/(b)/
1996-Service
Shares/(i)/ ....... 4.35/(f)/ 0.95/(b)/ 6.05/(b) 115.45 1,822 1.21/(b)/ 5.79/(b)/
1995-Institutional
Shares ............ 8.97 0.45 6.87 292.56 103,760 0.72 6.60
1995-Administration
Shares ............ 2.10 0.70/(b)/ 7.91/(b)/ 292.56 -- 0.90/(b)/ 7.71/(b)/
1994-Institutional
Shares ............ 0.99 0.45 5.69 289.79 193,095 0.59 5.55
1994-Administration
Shares ............ 0.73 0.70 5.38 289.79 730 0.84 5.24
1993-Institutional
Shares ............ 5.55 0.45 5.46 411.66 359,708 0.64 5.31
1993-Administration
Shares/(e)/ ....... 1.74 0.70/(b)/ 4.84/(b)/ 411.66 16,490 0.80/(b)/ 4.74/(b)/
1992-Institutional
Shares ............ 6.24 0.45 6.60 216.07 277,927 0.69 6.36
1991-Institutional
Shares ............ 10.93 0.45 8.25 155.44 158,948 0.79 7.91
1990-Institutional
Shares ............ 8.23 0.45 8.62 173.21 68,995 0.95 8.12
1989-Institutional
Shares ............ 9.03 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 ............ 3.30/(f)/ 0.55/(b)/ 8.55/(b)/ 167.00/(b)/ 39,052 1.42/(b)/ 7.68/(b)/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
================================================ ===================================
Net realized Net realized
and unrealized and unrealized Total From net
gain (loss) gain (loss) income realized gain
Net asset on investment, on foreign (loss) on investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions transactions operations income transactions
===============================================================================================
GS SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... $9.94 $0.4192/(a)/ $0.0200/(a)/ -- $0.4392 $(0.4192) --
1996-Administration Shares.......... 9.94 0.3944/(a)/ 0.0200/(a)/ -- 0.4144 (0.3944) --
1996-Service Shares................. 9.95 0.3697/(a)/ 0.0200/(a)/ -- 0.3897 (0.3697) --
1995-Institutional Shares........... 9.79 0.4235/(a)/ 0.1500/(a)/ -- 0.5735 (0.4235) --
1995-Administration Shares.......... 9.79 0.3989/(a)/ 0.1500/(a)/ -- 0.5489 (0.3989) --
1995-Service Shares................. 9.79 0.3744/(a)/ 0.1600/(a)/ -- 0.5344 (0.3744) --
1994-Institutional Shares........... 10.23 0.3787/(a)/ (0.3575)/(a)/ -- 0.0212 (0.3787) (0.0825)
1994-Administration Shares.......... 10.23 0.3537/(a)/ (0.3575)/(a)/ -- (0.0038) (0.3537) (0.0825)
1994-Service Shares/(j)/............ 9.86 0.0475/(a)/ (0.0700)/(a)/ -- (0.0225) (0.0475) --
1993-Institutional Shares........... 9.93 0.3834 0.3000/(d)/ -- 0.6834 (0.3834) --
1993-Administration Shares/(j)/..... 10.16 0.1555 0.0720/(d)/ -- 0.2275 (0.1555) --
For the Period October 1, 1992/(g)/ through October 31,
- ----------------------------------------------------
1992-Institutional Shares........... 10.00 0.0341 (0.0700)/(d)/ -- (0.0359) (0.0341) --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
==================================
In excess of
net realized Net
gain on increase Ratio of
In excess investment, From Total (decrease) Net asset net
of net option and paid distributions in net value at expenses
investment futures in to asset end of Total to average
income transactions capital shareholders value period return/(k)/ net assets
==================================================================================================
GS SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
====================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... -- -- -- $(0.4192) $0.0300 $9.96 4.50% 0.45%
1996-Administration Shares.......... -- -- -- (0.3944) 0.0300 9.96 4.24 0.70
1996-Service Shares................. -- -- -- (0.3697) 0.0200 9.97 3.98 0.95
1995-Institutional Shares........... -- -- -- (0.4235) 0.1500 9.94 5.98 0.45
1995-Administration Shares.......... -- -- -- (0.3989) 0.1500 9.94 5.76 0.70
1995-Service Shares................. -- -- -- (0.3744) 0.1600 9.95 5.59 0.95
1994-Institutional Shares........... -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45
1994-Administration Shares.......... -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70
1994-Service Shares/(j)/............ -- -- -- (0.0475) (0.0700) 9.79 (0.32)/(f)/ 0.95/(b)/
1993-Institutional Shares........... -- -- -- (0.3834) 0.3000 10.23 7.03 0.41
1993-Administration Shares/(j)/..... -- -- -- (0.1555) 0.0720 10.23 2.28/(f)/ 0.70/(b)/
For the Period October 1, 1992/(g)/ through October 31,
- -----------------------------------------------------
1992-Institutional Shares........... -- -- -- (0.0341) (0.0700) 9.93 (0.34)/(f)/ 0.05/(b)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
==================================
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate/(d)/ (in 000s) net assets net assets
==========================================================
GS SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996-Institutional Shares........... 4.21% 231.65% $34,814 1.01% 3.65%
1996-Administration Shares.......... 3.96 231.65 48 1.26 3.40
1996-Service Shares................. 3.74 231.65 695 1.51 3.18
1995-Institutional Shares........... 4.31 259.52 58,389 0.77 3.99
1995-Administration Shares.......... 4.14 259.52 46 1.02 3.82
1995-Service Shares................. 3.87 259.52 454 1.27 3.55
1994-Institutional Shares........... 3.74 354.00 83,704 0.61 3.58
1994-Administration Shares.......... 3.51 354.00 3,866 0.86 3.35
1994-Service Shares/(j)/............ 4.30/(b)/ 354.00 440 1.11/(b)/ 4.14/(b)/
1993-Institutional Shares........... 3.70 404.60 115,803 1.06 3.05
1993-Administration Shares/(j)/..... 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........... 4.58/(b)/ 31.19/(f)/ 14,601 2.68/(b)/ 1.95/(b)/
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Goldman Sachs Trust
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from investment operations Distributions to shareholders
----------------------------------------------------- ------------------------------
Net realized
Net realized and From net
and unrealized unrealized Total realized gain
gain (loss) gain (loss) income on
Net asset on investment, on foreign (loss) investment,
value at Net option and currency from From net option
beginning investment futures related investment investment and futures
of period income transactions transactions operations income transactions
-----------------------------------------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... $10.00 $0.6448 $(0.0704) -- $0.5744 $(0.6438) $(0.0806)
1996-Administrative Shares(l)....... 9.91 0.4083 (0.0703) -- 0.3380 (0.4080) --
1996-Service Shares(l).............. 9.77 0.3756 0.0898 -- 0.4654 (0.3754) --
1995-Institutional Shares........... 9.24 0.6423 0.7610 -- 1.4033 (0.6433) --
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648) --
</TABLE>
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------------------
In excess of
net realized Net
gain on increase Ratio of
In excess investment, From Total (decrease) Net asset net
of net option and paid distributions in net value at expenses
investment futures in to asset end of Total to average
income transactions capital shareholders value period return(k) net assets
--------------------------------------------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996-Institutional Shares........... -- -- -- $(0.7244) $(0.1500) $9.85 5.98% 0.45%
1996-Administrative Shares(l)....... -- -- -- (0.4080) (0.0700) 9.84 3.56(f) 0.70(b)
1996-Service Shares(l).............. -- -- -- (0.3754) 0.0900 9.86 4.90(f) 0.95(b)
1995-Institutional Shares........... -- -- -- (0.6433) 0.7600 10.00 15.72 0.45
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... -- -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45(b)
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
-------------------------
Ratio of Ratio of
net Net net
investment assets investment
income at end Ratio of income
(loss) Portfolio of expenses (loss)
to average turnover period to average to average
net assets rate(d) (in 000s) net assets net assets
------------------------------------------------------------
GS CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended October 31,
- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996-Institutional Shares........... 6.51% 414.20% $72,061 0.83% 6.13%
1996-Administrative Shares(l)....... 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service Shares(l).............. 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-Institutional Shares........... 6.56 383.26 55,502 0.96 6.05
For the Period January 5, 1994(g)through October 31,
- ----------------------------------------------------
1994-Institutional Shares........... 6.48(b) 288.25 24,508 1.46(b) 5.47(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.
(e)Administration share activity commenced on April 15, 1993.
(f)Not annualized.
(g)Commencement of operations.
(h)GS 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 not 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.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the GS Adjustable Rate Government
Fund, GS Short Duration Government Fund, GS Short Duration Tax-Free Fund and GS
Core Fixed Income Fund:
We have audited the accompanying statements of assets and liabilities of the
GS Adjustable Rate Government Fund, GS Short Duration Government Fund, GS Short
Duration Tax-Free Fund and GS Core Fixed Income Fund (portfolios of Goldman
Sachs Trust, a Massachusetts Business Trust) including the statements of
investments, as of October 31, 1996, and the related statements of operations,
the statements of changes in net assets and the financial highlights for each of
the periods presented. These financial statements and the financial highlights
are the responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the GS Adjustable Rate Government Fund, GS Short Duration Government
Fund, GS Short Duration Tax-Free Fund and GS Core Fixed Income Fund as of
October 31, 1996, the results of their operations and the changes in their net
assets and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 12, 1996
<PAGE>
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Prospectus which contains
facts concerning each Fund's objectives and policies, management, expenses and
other information.
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX A
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. The performance of various types of securities (taxable money market funds,
U.S. Treasury securities, adjustable rate mortgage securities, government
securities, municipal bonds) over time. However, the characteristics of these
securities are not identical to, and may be very different from, those of a
Fund's portfolio;
. Volatility of total return of various market indices (i.e. Lehman Government
Bond Index, S&P 500, IBC/Donoghue's Money Fund Average/ All Taxable Index) over
varying periods of time.
. Credit Ratings of domestic government bonds in various countries
. Price volatility comparisons of types of securities over different periods of
time.
. Price and yield comparisons of a particular security over different periods
of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
1-A
<PAGE>
APPENDIX B
CORE FUND
GLOBAL INCOME FUND
DESCRIPTION OF BOND RATINGS/1/
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
/1/ The rating systems described herein are believed to be the most recent
rating systems available from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to secureities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratiings indicated do not necessarily
represent ratings which will be given to these securities on the date of a
Fund's fiscal year end.
1-B
<PAGE>
Moody's also provides credit ratings for commercial paper. These are
promissory obligations (1) not having an original maturity in excess of nine
months, and (2) backed by commercial banks. Notes bearing the designation P-1
have a superior capacity for repayment. Notes bearing the designation P-2 have
a strong capacity for repayment.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
S&P's top ratings for notes issued after July 29, 1984 are SP-1 and SP-2. The
designation SP-1 indicates a very strong capacity to pay principal and
interest. A plus sign (+) is added for those issues determined to possess
overwhelming safety characteristics. An "SP-2" designation indicates a
satisfactory capacity to pay principal and interest.
Commercial paper rated A by S&P is regarded as having the greatest capacity
for timely payment. Commercial paper rated A-1 is described as having an
overwhelming or very strong degree of safety regarding timely payment.
Commercial Paper rated A-2 by Standard & Poor's is described as having a strong
degree of safety regarding timely payment.
FITCH INVESTORS SERVICE, CORP.
Bond Ratings
- ------------
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the
2-B
<PAGE>
political and economic environment that might affect the issuer's future
financial strength and credit quality.
AAA: Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A: Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA Category covering 12-36 months.
Investment Grade Short-Term Ratings
- -----------------------------------
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-1+".
3-B
<PAGE>
DUFF & PHELPS
-------------
Commercial Paper/Certificates of Deposits
- -----------------------------------------
Category 1: Top Grade
Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by strong fundamental protection
factors. Risk factors are minor.
Notes: Bonds which are unrated may expose the investor to risks with
respect to capacity to pay interest or repay principal which
are similar to the risks of lower-rated bonds. The Fund is
dependent on the Investment Adviser's judgment, analysis and
experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a
bond by a rating service may not reflect the effect of recent
developments on the issuer's ability to make interest and
principal payments.
Description of Municipal Securities Ratings
-------------------------------------------
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various Municipal
Securities. It should be emphasized, however, that ratings are not absolute
standards of quality. Consequently, Municipal Securities with the same
maturity, coupon and rating may have different yields while Municipal
Securities of the same maturity and coupon with different ratings may have the
same yield.
Description of Ratings of State and Municipal Bonds
---------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
4-B
<PAGE>
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered medium-grade obligations, i.e.
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a manner of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgement to be formed; if a
bond is called for redemption; or for other reasons.
NOTE:Those bonds in the Aa and A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1 and Baa 1.
5-B
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarding as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Plus (+) or minus (-) for ratings from AA to CCC may be used to show relative
standing within the major rating categories.
Description of Ratings of State and Municipal Notes
---------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over the
short run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes
6-B
<PAGE>
maturing beyond three years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 Speculative capacity to pay principal and interest.
Description of Ratings of State and Municipal
Commercial Paper
---------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"PRIME-1" - Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
7-B
<PAGE>
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
"PRIME-2" - Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating
categories are as follows:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
Description of Ratings of Preferred Stock
-----------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Moody's utilizes a variation of its bond-rating symbols in the quality
ranking of preferred stocks because of the fundamental differences between
preferred stock and bonds. Preferred stock occupies a junior position to bonds
within a particular capital structure and such securities are rated within the
universe of preferred stocks.
aaa: An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset protection and
the least risk of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable assurance
the earnings and asset protection will remain relatively well maintained in the
foreseeable future.
a: An issue rated "a" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification,
8-B
<PAGE>
earnings and asset protection are, nevertheless, expected to be maintained at
adequate levels.
STANDARD & POOR'S RATINGS GROUP
A Standard & Poor's preferred stock rating is an assessment of the
capacity and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not be
higher than the debt of the same issuer.
The preferred stock ratings are based on the following considerations:
- - Likelihood of payment - capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation;
- - Nature of, and provisions of, the issue; and
- - Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA: This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates and extremely strong capacity
to pay the preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a
high-quality fixed-income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
AAA.
A: An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
9-B
<PAGE>
APPENDIX C
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide. The following are three of our 14 business principles.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
INTEGRITY AND HONESTY ARE AT THE HEART OF OUR BUSINESS. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
1-C
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities firm
with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms,
with partners capital and subordinated liabilities of over $5.3
billion as of November 29, 1996.
. Thirty-three offices worldwide where professionals focus on identifying
financial opportunities.
. The number one underwriter of all international equity issues for
1993, 1994, and 1995*
. Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1995).
. The number one lead manager of U.S. common stock offerings from 1989-
1996.*
* Source: Securities Data Corporation. Ranking excludes REITS, Trusts and
-----------------------------------
Rights.
2-C
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest to
date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 4000
1996 Goldman Sachs takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
3-C
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Included in the Prospectus:
Financial Highlights for the GS Adjustable Rate Government Fund, GS
Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core
Fixed Income Fund and Goldman Sachs Global Income Fund for the periods
ended October 31, 1996 (audited).
Financial Highlights for the GS Adjustable Rate Government Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and
Goldman Sachs Global Income Fund for the periods ended October 31, 1996
(audited).
Incorporated by Reference in the Statement of Additional
Information:
Report of Independent Public Accountants.
Statement of Investments for the GS Adjustable Rate Government Fund, GS
Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core
Fixed Income Fund and Goldman Sachs Global Income Fund as of October 31,
1996 (audited).
Statement of Investments for the GS Adjustable Rate Government Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income
Fund and Goldman Sachs Global Income Fund as of October 31, 1996
(audited).
Statement of Assets and Liabilities for the GS Adjustable Rate
Government Fund, GS Short Duration Government Fund, GS Short Duration
Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income
Fund as of October 31, 1996 (audited).
Statement of Assets and Liabilities for the GS Adjustable Rate
Government Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Government Income Fund and Goldman Sachs Global Income Fund as of
October 31, 1996 (audited).
Statement of Operations for the GS Adjustable Rate
Government Fund, GS Short Duration Government Fund, GS Short
Duration Tax-Free Fund, GS Core Fixed Income Fund and
<PAGE>
Goldman Sachs Global Income Fund for the fiscal year ended October 31,
1996 (audited).
Statement of Operations for the GS Adjustable Rate Government Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs Government Income
Fund and Goldman Sachs Global Income Fund for the fiscal year ended
October 31, 1996 (audited).
Statements of Changes in Net Assets for the GS Adjustable Rate
Government Fund, GS Short Duration Government Fund, GS Short Duration
Tax-Free Fund, GS Core Fixed Income Fund and Goldman Sachs Global Income
Fund for the fiscal year ended October 31, 1996 (audited).
Statements of Changes in Net Assets for the GS Adjustable Rate
Government Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Government Income Fund and Goldman Sachs Global Income Fund for the
fiscal year ended October 31, 1996 (audited).
Financial Highlights for the GS Adjustable Rate Government Fund, GS
Short Duration Government Fund, GS Short Duration Tax-Free Fund, GS Core
Fixed Income Fund and Goldman Sachs Global Income Fund for the periods
ended October 31, 1996 (audited).
Financial Highlights for the GS Adjustable Rate Government Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Government Income Fund and
Goldman Sachs Global Income Fund for the periods ended October 31, 1996
(audited).
Notes to Financial Statements.
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on form N-1A as initially filed (Reference A), to
Pre-Effective Amendment No. 1 to such Registration Statement (Reference B), or
to Post-Effective Amendment No. 1 to such Registration Statement (Reference C),
or to Post-Effective Amendment No. 2 to such Registration Statement (Reference
D), or to Post-Effective Amendment No. 4 to such Registration Statement
(Reference F), or to Post-Effective Amendment No. 12 to such Registration
Statement (Reference M), or to Post-Effective Amendment No. 16 to such
Registration Statement (Reference Q) or to Post-Effective Amendment No. 17 to
such Registration Statement (Reference R), or to Post-Effective Amendment No. 19
to such Registration Statement (Reference T), or to Post-Effective Amendment No.
20 to such Registration Statement (Reference U), or to Post-Effective Amendment
No. 21 to such
2
<PAGE>
Registration Statement (Reference V), or to Post-Effective Amendment No. 24 to
such Registration Statement (Reference Y), or to Post-Effective Amendment No. 25
to such Registration Statement (Reference Z), to Post-Effective Amendment No. 26
to such Registration Statement (Accession No. 0000950130-95-002856), to Post-
Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931) or to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No.0000950130-97-000573).
1(a). Amendment No. 2 to the Agreement and Declaration
of Trust of the Registrant. (Reference B)
1(b). Amendment to the Agreement and Declaration of
Trust of the Registrant. (Reference G)
1(c). Amended and Restated Agreement and Declaration of
Trust. (Reference I).
1(d). Amendment to the Amended and Restated Declaration
of Trust of the Registrant dated August 19, 1992.
(Reference K)
1(e). Amendment to Amended and Restated Agreement and
Declaration of Trust. (Reference L)
1(f). Amendment to the Amended and Restated Agreement
and Declaration of Trust (Reference S)
1(g). Agreement and Declaration of Trust on behalf of
Delaware business trust. (Accession No.
0000950130-97-000573)
2. By-laws of the Registrant. (Reference B)
2(a). By-laws of the Registrant on behalf of Delaware
business trust (Accession No. 0000950130-97-
000573)
5(a). Advisory Agreement between Registrant on behalf of
GS Short-Term Government Agency Fund and Goldman,
Sachs & Co. (Reference P)
5(b). Advisory Agreement between Registrant on behalf of
Goldman Sachs Global Income Fund and Goldman Sachs
Asset Management. (Reference P)
5(c). Subadvisory Agreement between Registrant on behalf
of Goldman Sachs Global Income Fund and Goldman
Sachs Asset Management International Limited.
(Reference P)
3
<PAGE>
5(d). Advisory Agreement between Registrant on behalf of
GS Adjustable Rate Government Agency Fund and
Goldman Sachs Asset Management. (Reference P)
5(e). Advisory Agreement between Registrant on behalf of
GS Short Duration Tax-Free Fund and Goldman, Sachs
& Co. (Reference P)
5(g). Advisory Agreement between Registrant on behalf of
Goldman Sachs Government Income Fund and Goldman
Sachs Asset Management. (Reference P)
5(i). Advisory Agreement between Registrant on behalf of
Goldman Sachs Municipal Income Fund and Goldman
Sachs Asset Management. (Reference P)
5(h). Administration Agreement between the Registrant on
behalf of Goldman Sachs Municipal Income Fund and
Goldman Sachs Asset Management. (Reference P)
5(k). Administration Agreement between Registrant on
behalf of Goldman Sachs Global Income Fund and
Goldman Sachs Asset Management. (Reference P)
5(m). Administration Agreement between Registrant on
behalf of Goldman Sachs Government Income Fund and
Goldman Sachs Asset Management. (Reference P)
5(n). Advisory Agreement between Registrant on behalf of
GS Core Fixed Income Fund and Goldman Sachs Asset
Management. (Reference T)
5(o). Form of Management Agreements on behalf of
Delaware business trust (Accesssion No.
0000950130-97-000573)
6(a). Distribution Agreement between Registrant and
Goldman, Sachs & Co. (Reference P)
8(a). Custodian Agreement between Registrant and State
Street Bank and Trust Company. (Reference P)
8(b). Form of Wiring Agreement among State Street Bank
and Trust Company, Goldman, Sachs & Co. and The
Northern Trust Company. (Reference B)
8(c). Fee schedule relating to the Custodian Agreement
between Registrant and State Street Bank and Trust
Company. (Reference C)
8(d). Form of Letter Agreement between Registrant and
State Street Bank and Trust pertaining to the
4
<PAGE>
latter's designation of Security Pacific National
Bank as its sub-custodian and certain other
matters. (Reference C)
8(g). Form of Amendment dated August, 1989 to the Wiring
Agreement among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern
Trust Company relating to the indemnification of
The Northern Trust Company. (Reference D)
10. Opinion of Counsel (filed with 24f-2)
13. Subscription Agreement with Goldman, Sachs & Co.
(Reference B)
15(a). Distribution Plan pursuant to Rule 12b-1 for
Goldman Sachs Municipal Income Fund. (Reference P)
15(c). Distribution Plan pursuant to Rule 12b-1 for
Goldman Sachs Government Income Fund (Reference O)
15(d). Distribution Plan pursuant to Rule 12b-1 for
Goldman Sachs Global Income Fund. (Reference O)
15(f). Distribution Plan Pursuant to Rule 12b-1 for GS
Adjustable Rate Government Agency Fund-Class A
Shares. (Reference Y)
15(h). Administration Plan and Service Plan of the Trust.
(Reference X)
17(a). Transfer Agency Agreement between Registrant and
Goldman, Sachs & Co. (Reference P)
17(b). Fee schedule relating to the Transfer Agency
Agreement between Registrant and Goldman, Sachs &
Co. (Reference B)
17(c). Power of Attorney of Ms. Beck. (Reference N)
17(d). Powers of Attorney of Messrs. Armellino, Bakhru,
Mayo, Nagel, Shuch, Smart, Springer, Strubel,
Gilman, Hopkins, Mosior, Richman, Mmes. Mucker and
Taylor. (Reference O)
17(e). Power of Attorney Messr. Ford. (Reference W)
18. Form of Plan entered into by Registrant pursuant
to Rule 18f-3 (Reference Z).
27. Financial Data Schedules (Accession No. 0000
950130-96-004931).
5
<PAGE>
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
11. Consent of Arthur Andersen.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
-------------------------------
Number of
Title of Class Record Holders
- -------------- --------------
GS Short Duration Government Fund
Institutional Shares 340
Administration Shares 21
Service Shares 1
Class A 0
Class B 0
GS Adjustable Rate Government Fund
Institutional Shares 466
Administration Shares 17
Service Shares 0
Class A Shares 365
GS Short Duration Tax-Free Fund
Institutional Shares 147
Administration Shares 3
Service Shares 0
Class A 0
Class B 0
GS Core Fixed Income Fund
Institutional Shares 144
Administration Shares 19
Service Shares 1
Class A 0
Class B 0
Goldman Sachs Global Income Fund
Institutional Shares 34
Service Shares 4
Class A Shares 2,493
Class B Shares 42
Goldman Sachs Government Income Fund
Class A Shares 728
Class B Shares 35
Goldman Sachs Municipal Income Fund
Class A Shares 1,533
Class B Shares 19
6
<PAGE>
Treasury Obligations Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Treasury Instruments Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Federal Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Government Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Prime Obligations Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
ILA Class B Units 0
Money Market Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt Diversified Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt California Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Tax-Exempt New York Portfolio
ILA Units 0
ILA Administration Units 0
ILA Service Units 0
Financial Square Treasury Obligations Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Prime Obligations Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Government Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
7
<PAGE>
Financial Square Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Tax-Free Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Municipal Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Money Market Plus Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Treasury Instruments Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Federal Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Goldman Sachs Capital Growth Fund Shares
Class A 0
Class B 0
Goldman Sachs CORE U.S. Equity Fund Shares
Class A 0
Class B 0
Institutional Class 0
Goldman Sachs Small Cap Equity Fund Shares
Class A 0
Class B 0
Goldman Sachs International Equity Fund Shares
Class A 0
Class B 0
Institutional Class 0
Service Class 0
Goldman Sachs Growth and Income Fund Shares
Class A 0
Class B 0
Institutional Class 0
Service Class 0
Goldman Sachs Asia Growth Fund Shares
Class A 0
8
<PAGE>
Class B 0
Institutional Class 0
Service Class 0
Goldman Sachs Balanced Fund Shares
Class A 0
Class B 0
Goldman Sachs Mid-Cap Equity Fund
Institutional Shares 0
Service Shares 0
Goldman Sachs CORE Large Cap Growth Fund
Class A 0
Class B 0
Institutional 0
Service 0
Goldman Sachs Growth Fund
Class A 0
Class B 0
Institutional 0
Service 0
Goldman Sachs Emerging Markets Equity Fund
Class A 0
Class B 0
Institutional 0
Service 0
(Information supplied as of January 31, 1997)
ITEM 27. INDEMNIFICATION
---------------
Article VI of the Registrant's Amended and Restated Agreement and Declaration of
Trust provides for indemnification of the Registrant's trustees and officers
under certain circumstances. A copy of each Amended and Restated Agreement and
Declaration of Trust is filed as Exhibit 1(f) in Post Effective Amendment No. 7
(Reference I).
Paragraph 7 of the Advisory Agreement dated March 28, 1988 between the
Registrant on behalf of GS Short-Term Government Agency Fund and Goldman, Sachs
& Co., paragraph 7 of the Advisory Agreement dated as of July 15, 1991 between
the Registrant on behalf of Goldman Sachs Global Income Fund and Goldman Sachs
Asset Management, paragraph 7 of the Advisory Agreement dated as of July 15,
1991 between GS Adjustable Rate Government Agency Fund and Goldman Sachs Asset
Management, and paragraph 7 of the Advisory Agreement dated September 25, 1992
between the Registrant on behalf of GS Short Duration Tax-Free Fund and Goldman
Sachs & Co., paragraph 7 of the Advisory Agreement dated November 23, 1993
between the Registrant on behalf of GS Government Agency Portfolio and Goldman,
Sachs & Co., paragraph 7 of the Advisory Agreement dated February 1, 1993
between the Registrant on behalf of each of GS Adjustable Rate Mortgage Fund and
Goldman Sachs Government Income Fund and Goldman Sachs Asset Management
9
<PAGE>
and paragraph 7 of the Advisory Agreement dated July 16, 1993 between the
Registrant on behalf of Goldman Sachs Municipal Income Fund and Goldman Sachs
Asset Management and paragraph 7 of the Advisory Agreement between the
Registrant on behalf of GS Core Fixed Income Fund and Goldman Sachs Asset
Management and paragraph 7 of the Advisory Agreement dated October 27, 1993
between the registrant on behalf of each of Goldman Sachs California Municipal
Income Fund and Goldman Sachs New York Municipal Income Fund and Goldman Sachs
Asset Management, provide for indemnification of Goldman, Sachs & Co., Goldman
Sachs Asset Management or, in lieu thereof, contribution by the Registrant under
certain circumstances. Copies of such Agreements were filed as Exhibits 5(a),
(b), (d), (e), (f), (g), (h), (i), (n), (o), and (p), respectively, to
Registrant's Registration Statement.
Article III of the Declaration of Trust of Goldman Sachs Trust, the Delaware
business trust, provides for indemnification of the Trustees, offices and agents
of the Trust, subject to certain limitations. The Declaration of Trust was filed
as Exhibit 1(g).
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on the party of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Advisory Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
wilful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Advisory Agreement. The Management
Agreements were filed as Exhibit 5(o).
Section XI of the Distribution Agreement and Section 7 of the Transfer Agency
Agreement between the Registrant and Goldman, Sachs & Co. dated July 15, 1991
each provides that the Registrant will indemnify Goldman, Sachs & Co. against
certain liabilities. A copy of such Agreements were filed as Exhibits 6(a) and
17(a), respectively, to the Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity
Portfolios, Inc., Trust for Credit Unions, The Benchmark Funds and The Commerce
Funds and Goldman, Sachs & Co. insure such persons and their respective
trustees, partners, officers and employees, subject to the policies' coverage
limits and exclusions and varying deductibles, against loss
10
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resulting from claims by reason of any act, error, omission, misstatement,
misleading statement, neglect or breach of duty.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801- 37591 and
801-38157, respectively) the text of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently serves
as investment adviser and distributor of the units of Goldman Money Market
Trust, Trust for Credit Unions and for shares of Goldman Sachs Trust and Goldman
Sachs Equity Portfolios, Inc. Goldman, Sachs & Co., or a division thereof
currently serves as administrator and distributor of the units or shares of The
Benchmark Funds and The Commerce Funds.
(b). Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., the Registrant's principal underwriter. None of the
members of the executive committee holds a position or office with the
Registrant.
GOLDMAN SACHS MANAGING DIRECTORS
Name and Principal
Business Address Position
------------------ --------
Jon S. Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
Henry M. Paulson, Jr. (1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
-----------------------
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Amended and Restated Agreement and Declaration of Trust, Bylaws and minute
books of the Registrant are in the physical
11
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possession of Goldman Sachs Asset Management, One New York Plaza, New York,
New York 10004. All other accounts, books and other documents required to be
maintained under Section 31(a) of the Investment Company Act of 1940 and the
Rule promulgated thereunder are in the physical possession of State Street Bank
and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105 except for certain
transfer agency records which are maintained by Goldman, Sachs & Co., 4900 Sears
Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES
-------------------
The Custodian Agreement between State Street Bank and Trust Company and
Registrant provides for State Street Bank and Trust Company to act as custodian
and to maintain certain accounting records for Registrant. Remuneration is based
on a minimum fixed dollar charge per annum and the Funds' average daily net
assets (such remuneration being subject to adjustment on the basis of the amount
of the Funds' uninvested cash) and on the number of portfolio transactions. Such
Agreement together with the related letter and other agreements and amendments
pertaining thereto, referred to under Item 24(b) are hereby incorporated by
reference.
ITEM 32. UNDERTAKINGS
------------
(a) The Funds Annual Reports contain performance information and are available
to any recipient of the Prospectuses upon request and without charge by writing
to Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 30 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and State of New York on the
21st day of February, 1997.
GOLDMAN SACHS TRUST
By: /s/ Michael J. Richman
--------------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 30 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
NAME TITLE DATE
- ---- ----- ----
*Douglas C. Grip President and Trustee February 21, 1997
- -----------------------
Douglas C. Grip
*Scott M. Gilman Principal Accounting February 21, 1997
- ----------------------- Officer And Principal
Scott M. Gilman Financial Officer
*David B. Ford Trustee February 21, 1997
- -----------------------
David B. Ford
*Ashok N. Bakhru Trustee February 21, 1997
- -----------------------
Ashok N. Bakhru
*Alan A. Shuch Trustee February 21, 1997
- -----------------------
Alan A. Shuch
*Jackson W. Smart Trustee February 21, 1997
- -----------------------
Jackson W. Smart, Jr.
*William H. Springer Trustee February 21, 1997
- -----------------------
William H. Springer
13
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NAME TITLE DATE
- ---- ----- ----
*Richard P. Strubel Trustee February 21, 1997
- -----------------------
Richard P. Strubel
*By: /s/ Michael J. Richman February 21, 1997
--------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
14
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INDEX TO EXHIBITS
-----------------
Exhibit
- -------
11. Consent of Arthur Andersen.
15
<PAGE>
EXHIBIT 11
----------
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
for Goldman Sachs Trust dated December 12, 1996 (and to all references to our
firm) included in or made a part of Post-Effective Amendment No. 30 and
Amendment No. 32 to Registration Statement File Nos. 33-17649 and 811-5349,
respectively.
Arthur Andersen LLP
Boston, Massachusetts
February 21, 1997
<PAGE>
[LETTERHEAD OF HALE AND DORR LLP]
February 25, 1997
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
Re: Post-Effective Amendment No. 31 to Goldman Sachs Trust's Registration
Statement on Form N-1A File Nos. 33-17619; 811-5349
---------------------------------------------------------------------
Ladies and Gentlemen:
As counsel to Goldman Sachs Trust (the "Trust"), we have reviewed the
above-captioned post-effective amendment to the Trust's Registration Statement
on Form N-1A for filing with the Securities and Exchange Commission. We hereby
represent, pursuant to Rule 485(b)(4) under the Securities Act of 1933, as
amended, that said post-effective amendment does not, in our view, contain
disclosures that would make it ineligible to become effective pursuant to
paragraph (b) of said Rule 485.
We hereby consent to your filing this letter with the Securities and
Exchange Commission together with the above-captioned post-effective amendment
to the Trust's Registration Statement on Form N-1A. Except as provided in this
paragraph, this letter may not be relied upon by, or filed with, any other
parties or used for any other purpose.
Very truly yours,
/s/ Hale and Dorr LLP
---------------------
Hale and Dorr LLP
