<PAGE>
As filed with the Securities and Exchange Commission on December 29, 1998
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. 50 (X)
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 52 (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. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 1345 Chestnut Street
Philadelphia, PA 19107
(Name and address of agent for service)
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
( ) On (date) pursuant to paragraph (b)
(X) 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.
<PAGE>
Prospectus
INSTITUTIONAL
SHARES
March 1, 1999
GOLDMAN SACHS FIXED INCOME FUNDS
. Goldman Sachs
Adjustable Rate
Government Fund
. Goldman Sachs
Short Duration
Government Fund
. Goldman Sachs
(INSERT ARTWORK) Short Duration
Tax-Free Fund
. Goldman Sachs
Government
Income Fund
. Goldman Sachs
Municipal
Income Fund
. Goldman Sachs
Core Fixed
Income Fund
. Goldman Sachs
Global Income
Fund
. Goldman Sachs
High Yield
Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income
and High Yield Funds. Goldman Sachs Funds Management, L.P. serves as invest-
ment adviser to the Adjustable Rate Government and Short Duration Government
Funds. Goldman Sachs Asset Management International serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management, Goldman
Sachs Funds Management, L.P., and Goldman Sachs Asset Management Interna-
tional are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
ACTIVE MANAGEMENT WITHIN A RISK-MANAGED FRAMEWORK
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. SECURITY SELECTION--In selecting securities for each Fund, the Investment
Adviser capitalizes on the extensive resources of Goldman Sachs, including
fixed-income and equity research professionals.
2. SECTOR ALLOCATION--The Investment Adviser assesses relative value among
sectors (such as U.S. corporate, asset-backed and mortgage-backed securi-
ties) to create investment strategies that meet each Fund's objectives.
3. YIELD CURVE STRATEGIES--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
THE INVESTMENT ADVISER DE-EMPHASIZES INTEREST RATE DURATION AS A MEANS OF
GEN- ERATING INCREMENTAL RETURN. INSTEAD, THE INVESTMENT ADVISER SEEKS TO
ADD VALUE THROUGH SECURITY AND SECTOR SELECTION.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1-L
<PAGE>
General Investment Management Approach continued
Each of the Funds described in this Prospectus has a target duration. 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 other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement 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
interests of a Fund and its shareholders.
2-L
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Six-month to One-year U.S. Treasury Security
Maximum = 2 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 9-month bill
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARKS: Six-Month and One-Year U.S. Treasury Security
3-L
<PAGE>
Goldman Sachs Short Duration Government Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Two-year U.S. Treasury Security plus or minus 0.5 years
Maximum = 3 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 2-year bond
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARK: Two-Year U.S. Treasury Security
4-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
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 ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), 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 private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 3-year Municipal Bond Index plus or minus 0.5 years
Maximum = 4 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 3-year bond
CREDIT QUALITY:
Minimum = BBB or Baa by a NRSRO at the time of purchase, or, if unrated,
determined by the Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Three-Year Municipal Bond Index
5-L
<PAGE>
Goldman Sachs Government Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Mutual Fund Government/Mortgage Index plus or minus
1 year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY: Non-U.S. Government Securities rated AAA or Aaa by a NRSRO
at the time of purchase or, if unrated, determined by the Investment Adviser
to be of comparable quality
BENCHMARK: Lehman Brothers Mutual Fund Government/Mortgage Index
6-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from certain of which (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 15-Year Municipal Bond Index plus or minus one year
Maximum = 12 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 15-year bond
CREDIT QUALITY:
Minimum = BBB/Baa at the time of purchase; Weighted Average = AA or Aa Secu-
rities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers 15-Year Municipal Bond Index
7-L
<PAGE>
Goldman Sachs Core Fixed Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
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 secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Aggregate Bond Index plus or minus one year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY:
Minimum = BBB or Baa; Minimum for non-U.S. dollar denominated securities =
AA or Aa
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Aggregate Bond Index
8-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The 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. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other single foreign country. The Fund may also invest up to
10% of its total assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..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
..Commercial paper
..Mortgage-Backed Securities and asset backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
9-L
<PAGE>
Goldman Sachs Global Income Fund continued
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = J.P. Morgan Global Government Bond Index (hedged) plus or minus
2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
CREDIT QUALITY:
Minimum = BBB or Baa at time of purchase; At least 50% of total assets = AAA
or Aaa.
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: J.P. Morgan Global Government Bond Index (hedged)
10-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities rated, at the time of invest-
ment, below investment grade. Non-investment grade securities are securities
rated BB, Ba or below by a NRSRO, or, if unrated, determined by the Invest-
ment Adviser to be of comparable quality. The Fund may invest in all types
of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in emerging
countries) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers High Yield Bond Index plus or minus 2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
11-L
<PAGE>
Goldman Sachs High Yield Fund continued
CREDIT QUALITY:
At least 65% of total assets = BB or Ba or lower at the time of investment
or, if unrated, determined by the Investment Adviser to be of comparable
quality
NON-INVESTMENT GRADE FIXED INCOME SECURITIES (COMMONLY KNOWN AS "JUNK
BONDS") TEND TO OFFER HIGHER YIELDS THAN HIGHER RATED SECURITIES WITH SIMI-
LAR MATURITIES. NON-INVESTMENT GRADE FIXED INCOME SECURITIES ARE, HOWEVER,
CONSIDERED SPECULATIVE AND GENERALLY INVOLVE GREATER PRICE VOLATILITY AND
GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST THAN HIGHER RATED SECURITIES.
THE FUND MAY PURCHASE THE SECURITIES OF ISSUERS THAT ARE IN DEFAULT.
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and non-convertible
bonds) held by the Fund during the fiscal year ended October 31, 1998:
CREDIT QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND'S ASSETS
--------------------------------------------
<S> <C>
AAA/Aaa 4.7%
AA/Aa 0%
A 0.5%
BBB/Baa 0.5%
BB/Ba 8.1%
Below Ba 81.8%
Not rated 0%
Comparable to A 0%
Comparable to BBB/Baa 0%
Comparable to BB/Ba or lower 0.9%
Comparable to Below Ba 3.5%
--------------------------------------------
100.0%
--------------------------------------------
</TABLE>
BENCHMARK: Lehman Brothers High Yield Bond Index
12-L
<PAGE>
[This page intentionally left blank]
13-L
<PAGE>
Other Investment Practices and Securities
Each of the Funds may use active management techniques to manage its duration
and term structure, to manage its exposure (if any) to foreign currencies and
to seek enhanced returns. The table below identifies some of these techniques
that may (but are not required to) be used by the Funds. The table also high-
lights the differences among the Funds in their use of these techniques and
other investment practices and investment securities. Numbers in this table
show allowable usage only; for actual usage, consult the Fund's
annual/semiannual reports. For more information see Appendix A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No asset limitation on usage; Limited only by the objectives and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Credit and Interest Rate Swaps . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps . . -- .
Options (including Options on
Futures) . . . .
Repurchase Agreements . . . .
Securities Lending . . . .
Standby Commitments and Tender
Option Bonds -- -- . --
Options on Foreign Currencies -- -- -- --
- ----------------------------------------------------------------------------
</TABLE>
14-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
-- . . .
-- . . .
-- . . .
. . . .
-- . . .
. . . .
-- . . --
-- . . .
. . . .
. . . .
. . . .
. -- -- --
-- . . .
- ---------------------------------------------------------------------------------------------------
</TABLE>
15-L
<PAGE>
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No policy limitation on usage; Limited only by the objective and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities -- -- -- .
Bank Obligations -- -- -- .
Convertible Securities -- -- -- --
Corporate Debt Obligations and Trust
Preferred Securities -- -- -- .
Emerging Market Securities -- -- -- --
Foreign Securities/1/ -- -- -- --
Foreign Government Securities -- -- -- --
Non-Investment Grade Fixed
Income Securities -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities -- -- -- --
Taxable Municipal Securities -- -- 20 --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./4/ .
- -------------------------------------------------------------------------------
</TABLE>
1 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
2 Investment in non-U.S. dollar-denominated fixed-income securities is lim-
ited to 25% of total assets.
3 High Yield Fund may invest up to 35% of total assets in investment grade
securities.
4 Short-Duration Tax-Free and Municipal Income Funds may invest no more than
20% of net assets in taxable investments.
5 High Yield Fund may for this purpose invest in investment grade securities.
16-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- . . .
-- . . .
-- . -- .
-- . . .
-- 10 10 25
-- ./2/ . ./2/
-- . . .
-- -- -- 65+/3/
-- -- -- .
-- . . .
-- . . .
-- . . .
-- . . .
-- . . .
-- -- -- .
-- . . .
20 . -- .
80+ . -- .
./4/ . . ./5/
- ---------------------------------------------------------------------------------------------------
</TABLE>
17-L
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. The following summarizes
important risks that apply to the Funds and may result in a loss of your
investment. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund will achieve its investment
objective.
..Applicable
- --Not Applicable
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
INVESTMENT RISK FUND FUND FUND FUND
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
Government Securities . . . .
Market . . . .
Management . . . .
Other . . . .
Concentration -- -- -- --
Foreign -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ----------------------------------------------------------------
</TABLE>
18-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
-- -- . --
-- . . .
-- -- -- .
. -- -- --
- ---------------------------------------------------------------------------------------------------
</TABLE>
19-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
All Funds:
..INTEREST RATE RISK--The risk that, when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..CREDIT/DEFAULT RISK--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..CALL RISK--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..EXTENSION RISK--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..DERIVATIVES RISK--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
instruments, which may be leveraged.
..GOVERNMENT SECURITIES RISK--The risk that the U.S. government will not provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by law.
..MARKET RISK--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..MANAGEMENT RISK--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..OTHER RISKS--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..CONCENTRATION RISK--The Global Income 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 investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political or economic events which may occur in those countries.
20-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
..FOREIGN RISKS--The Core Fixed Income, Global Income and High Yield Fund will
be subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less gov-
ernment regulation, less public information and less economic, political and
social stability. The Funds will also be subject to the risk of negative for-
eign currency rate fluctuations. Foreign risks will normally be greatest when
a Fund invests in issuers located in emerging countries.
.."JUNK BOND" RISK--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are considered
predominantly speculative by traditional investment standards. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities may be subject to greater
price volatility due to such factors as specific corporate developments,
interest rate sensitivity, negative perceptions of the junk bond markets
generally and less secondary market liquidity.
..TAX RISK--The Short Duration Tax-Free and Municipal Income Funds may be more
adversely impacted by changes in tax rates and policies than the other Funds.
Because interest income from Municipal Securities is normally 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 sup-
ply, liquidity and marketability of Municipal Securities. This could in turn
affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and Appendix A. Both are
important to your investment choice.
21-L
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Institutional Shares from year to year; and (b) how the average annual
returns of the Fund's Institutional Shares compare to those of a broad-based
securities market index. The bar chart and table assume reinvestment of div-
idends and distributions. A Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced.
2
<PAGE>
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES (Inception
7/17/91) % % % %
Six-Month U.S. Treasury Security* % % % %
One-Year U.S. Treasury Security* % % % %
--------------------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
3
<PAGE>
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING
DECEMBER 31, 1998 1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
(Inception 8/15/88) % % % % %
Two-Year U.S. Treasury
Security* % % % % %
-------------------------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
4
<PAGE>
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES (Inception
10/1/92) % % % %
Lehman Brothers Three-Year Municipal
Bond Index* % % % %
-----------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
5
<PAGE>
Government Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1YEAR SINCE INCEPTION
------------------------------------------------------------------------------
<S> <C> <C>
INSTITUTIONAL SHARES (Inception 8/15/97) % %
Lehman Brothers Mutual Fund Government/Mortgage Index* % %
------------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
6
<PAGE>
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
----------------------------------------------------------------------
<S> <C> <C>
INSTITUTIONAL SHARES (Inception 8/15/97) % %
Lehman Brothers 15-Year Municipal Bond Index* % %
----------------------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
7
<PAGE>
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C>
INSTITUTIONAL SHARES (Inception 1/05/94) % % %
Lehman Brothers Aggregate Bond Index* % % %
--------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified
portfolio of fixed-income securities, including U.S. Treasuries, investment-
grade corporate bonds, and mortgage-backed and asset-backed securities. The
Index figures do not reflect any fees or expenses.
8
<PAGE>
Global Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9
Worst Quarter
Q "9
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C>
INSTITUTIONAL SHARES (Inception 8/1/95) % % %
J.P. Morgan Global Government Bond Index
(hedged)* % % %
--------------------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
9
<PAGE>
High Yield Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[INSERT BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------------
<S> <C> <C>
INSTITUTIONAL SHARES (Inception 8/01/97) % %
Lehman Brothers High Yield Bond Index* % %
------------------------------------------------------------------
</TABLE>
*The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (Institutional Shares)
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of a Fund.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX-FREE
FUND FUND FUND
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees/2/ 0.40% 0.50% 0.40%
Other Expenses/3/ 0.13% 0.26% 0.64%
- --------------------------------------------------------------------------
Total Fund Operating Expenses/3/ 0.53% 0.76% 1.04%
- --------------------------------------------------------------------------
</TABLE>
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Short Duration Tax-Free, Government Income, Municipal
Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and 0.25%, respec-
tively. AS A RESULT OF FEE WAIVERS, THE CURRENT MANAGEMENT FEES OF THE SHORT
DURATION TAX-FREE, GOVERNMENT INCOME, MUNICIPAL INCOME AND GLOBAL INCOME FUNDS
ARE 0.35%, 0.54%, 0.50% AND 0.65%, RESPECTIVELY, OF SUCH FUNDS' AVERAGE DAILY
NET ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF THE
INVESTMENT ADVISER.
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE
GOVERNMENT MUNICIPAL FIXED GLOBAL HIGH
INCOME INCOME INCOME INCOME YIELD
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None None
None None None None None
None None None None None
None None None None None
None None None None None
0.65% 0.55% 0.40% 0.90% 0.70%
0.31% 0.43% 0.25% 0.20% 0.15%
- --------------------------------------------------------------------------------------------------------
0.96% 0.98% 0.65% 1.10% 0.85%
- --------------------------------------------------------------------------------------------------------
</TABLE>
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the aver-
age daily net assets of each Fund's Institutional Shares, plus all other
ordinary expenses of the Funds not detailed above. The Investment Adviser
has voluntarily agreed to reduce or limit "Other Expenses" of each Fund
(excluding management fees, transfer agency fees, taxes, interest and bro-
kerage fees and litigation, indemnification and other extraordinary
expenses) to the following percentages of each Fund's average daily net
assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
---------------------------
<S> <C>
Adjustable Rate
Government 0.05%
Short Duration
Government 0%
Short Duration
Tax-Free 0%
Government
Income 0%
Municipal Income 0%
Core Fixed
Income 0.10%
Global Income 0%
High Yield 0.02%
</TABLE>
13
<PAGE>
AS A RESULT OF CURRENT WAIVERS AND EXPENSE LIMITATIONS ACTUALLY INCURRED,
"OTHER EXPENSES" AND "TOTAL FUND OPERATING EXPENSES" OF THE FUNDS ARE AS SET
FORTH BELOW. THE WAIVERS AND EXPENSE LIMITATIONS MAY BE TERMINATED AT ANY TIME
AT THE OPTION OF THE INVESTMENT ADVISER. If this occurs, "Other Expenses" and
"Total Fund Operating Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TOTAL FUND
OTHER EXPENSES OPERATING EXPENSES
- -------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Government 0.09% 0.49%
- -------------------------------------------------------------------------------------
Short Duration Government 0.04% 0.54%
- -------------------------------------------------------------------------------------
Short Duration Tax-Free 0.04% 0.39%
- -------------------------------------------------------------------------------------
Government Income 0.04% 0.58%
- -------------------------------------------------------------------------------------
Municipal Income 0.04% 0.54%
- -------------------------------------------------------------------------------------
Core Fixed Income 0.14% 0.54%
- -------------------------------------------------------------------------------------
Global Income 0.04% 0.69%
- -------------------------------------------------------------------------------------
High Yield 0.06% 0.76%
- -------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Institu-
tional Shares of a Fund for the time periods indicated and then redeem all of
your Institutional Shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that a Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE GOVERNMENT $ 54 $170 $296 $ 665
- -----------------------------------------------------------
SHORT DURATION GOVERNMENT $ 78 $243 $422 $ 942
- -----------------------------------------------------------
SHORT DURATION TAX-FREE $106 $331 $574 $1,271
- -----------------------------------------------------------
GOVERNMENT INCOME $ 98 $306 $531 $1,178
- -----------------------------------------------------------
MUNICIPAL INCOME $100 $312 $542 $1,201
- -----------------------------------------------------------
CORE FIXED INCOME $ 66 $208 $362 $ 810
- -----------------------------------------------------------
GLOBAL INCOME $112 $350 $606 $1,340
- -----------------------------------------------------------
HIGH YIELD $ 87 $271 $471 $1,049
- -----------------------------------------------------------
</TABLE>
Institutions that invest in Institutional Shares on behalf of their customers
may charge other fees directly to their customer accounts in connection with
their investments. Such fees, if any, may affect the return such customers
realize with respect to their investments.
Certain institutions that invest in Institutional Shares on behalf of their
customers may receive certain compensation in connection with the sale and dis-
tribution of such shares or for services to their customers' accounts and/or
the Funds. Such fees, if any, may affect the return such customers realize with
respect to their investments. For additional information regarding such compen-
sation, see "Shareholder Guide" in the Prospectus and "Other Information" in
the Statement of Additional Information ("Additional Statement").
15
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
------------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Short Duration Tax-Free Fund
One New York Plaza Government Income Fund
New York, New York 10004 Municipal Income Fund
Core Fixed Income Fund
High Yield Fund
------------------------------------------------------------------------------
Goldman Sachs Funds Management, L.P.
("GSFM") Adjustable Rate Government Fund
One New York Plaza Short Duration Government Fund
New York, New York 10004
------------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") Global Income Fund
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of February , 1999, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in the U.S. and foreign markets. As permitted by applicable
law, these orders may be directed to any brokers, including Goldman Sachs
and its affiliates. While the Investment Adviser is ultimately responsible
for the management of the Funds, it is able to draw upon the research and
expertise of its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities. In addition, the
Investment Adviser has access to the research and certain proprietary tech-
nical models developed by Goldman Sachs, and will apply quantitative and
qualitative analysis in determining the appropriate allocations among cate-
gories of issuers and types of securities.
1-M
<PAGE>
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
CONTRACTUAL RATE OCTOBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.39%
-----------------------------------------------------------------------
Government Income 0.65% 0.52%
-----------------------------------------------------------------------
Municipal Income 0.55% 0.54%
-----------------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------------
High Yield 0.70% 0.68%
-----------------------------------------------------------------------
GSFM:
-----------------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------------
Short Duration Government 0.50% 0.47%
-----------------------------------------------------------------------
GSAM:
-----------------------------------------------------------------------
Global Income 0.90% 0.60%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify its voluntary limitation in the future at
its discretion.
2-M
<PAGE>
SERVICE PROVIDERS
FUND MANAGERS
Fixed Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $40 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Erica Adelberg PORTFOLIO MANAGER-- SINCE 1995 MS. ADELBERG JOINED THE
VICE PRESIDENT GOVERNMENT INCOME FUND INVESTMENT ADVISER IN
1995, AFTER WORKING AS A
MORTGAGE STRATEGIST AT
GOLDMAN SACHS.
- ---------------------------------------------------------------------------------------------
Jonathan A. PORTFOLIO MANAGER-- SINCE 1991 MR. BEINNER JOINED THE
Beinner ADJUSTABLE RATE INVESTMENT ADVISER IN
MANAGING GOVERNMENT FUND 1990.
DIRECTOR AND SHORT DURATION GOVERNMENT
CO-HEAD U.S. FUND
FIXED INCOME GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James B. Clark PORTFOLIO MANAGER-- SINCE 1994 MR. CLARK JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1994 AFTER WORKING AS AN
SHORT DURATION GOVERNMENT INVESTMENT MANAGER IN
FUND THE MORTGAGE BACK
GOVERNMENT INCOME FUND SECURITIES GROUP AT
TRAVELERS INSURANCE
COMPANY.
- ---------------------------------------------------------------------------------------------
Peter A. Dion PORTFOLIO MANAGER-- SINCE 1995 MR. DION JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1992.
SHORT DURATION GOVERNMENT
FUND
- ---------------------------------------------------------------------------------------------
C. Richard Lucy PORTFOLIO MANAGER-- SINCE 1992 MR. LUCY JOINED THE
MANAGING ADJUSTABLE RATE INVESTMENT ADVISER IN
DIRECTOR AND GOVERNMENT FUND 1992.
CO-HEAD U.S. SHORT DURATION GOVERNMENT
FIXED INCOME FUND
GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James P. PORTFOLIO MANAGER-- SINCE 1995 MR. MCCARTHY JOINED THE
McCarthy ADJUSTABLE RATE INVESTMENT ADVISER IN
VICE PRESIDENT GOVERNMENT FUND 1995 AFTER WORKING FOUR
SHORT DURATION GOVERNMENT YEARS AT NOMURA
FUND SECURITIES, WHERE HE WAS
AN ASSISTANT VICE
PRESIDENT AND AN
ADJUSTABLE RATE MORTGAGE
TRADER.
- ---------------------------------------------------------------------------------------------
</TABLE>
3-M
<PAGE>
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Elisabeth Shupf PORTFOLIO SINCE 1995 BEFORE REJOINING THE
Lonsdale MANAGER -- INVESTMENT ADVISER IN LATE
VICE PRESIDENT SHORT DURATION 1995, MS. LONSDALE WAS A
TAX-FREE FUND DIRECTOR OF FITCH INVESTORS
MUNICIPAL INCOME SERVICE DURING MOST OF
FUND 1995, EVALUATING THE CREDIT
RATINGS OF TAX-BACKED
ISSUES. PRIOR TO THAT, SHE
WORKED FOR TEN YEARS IN THE
GOLDMAN SACHS MUNICIPAL
FINANCE DEPARTMENT.
- ----------------------------------------------------------------------------------
Benjamin S. PORTFOLIO SINCE 1993 MR. THOMPSON JOINED THE
Thompson MANAGER -- INVESTMENT ADVISER IN 1992.
VICE PRESIDENT SHORT DURATION
TAX-FREE FUND
MUNICIPAL INCOME
FUND
- ----------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder PORTFOLIO SINCE 1997 MS. GOLDER JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND SHE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PRIOR TO JOINING THE
INVESTMENT ADVISER, SHE
SPENT SIX YEARS AT SAUDI
INTERNATIONAL BANK AS A
HIGH YIELD CREDIT ANALYST
AND PORTFOLIO MANAGER.
- ----------------------------------------------------------------------------------
Andrew Jessop PORTFOLIO SINCE 1997 MR. JESSOP JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND HE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PREVIOUSLY, HE WORKED SIX
YEARS MANAGING HIGH YIELD
PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
</TABLE>
4-M
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Michael L. PORTFOLIO SINCE 1997 MR. PASTERNAK IS A PRODUCT
Pasternak MANAGER -- MANAGER FOR HIGH YIELD
VICE PRESIDENT HIGH YIELD FUND ASSETS AND CONTRIBUTES TO
THE MANAGEMENT OF HIGH
YIELD ASSETS. HE JOINED THE
INVESTMENT ADVISER IN 1997.
PRIOR TO THAT, HE SPENT
EIGHT YEARS MANAGING HIGH
YIELD CORPORATE BOND AND
LOAN PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
Christopher PORTFOLIO SINCE 1997 MR. TESTA JOINED THE
Testa MANAGER -- INVESTMENT ADVISER IN 1994.
VICE PRESIDENT HIGH YIELD FUND HE IS RESPONSIBLE FOR
AND DIRECTOR OF MANAGING HIGH YIELD ASSETS.
CREDIT RESEARCH BEFORE JOINING THE
INVESTMENT ADVISER, HE WAS
A CREDIT ANALYST WITH CS
FIRST BOSTON FROM TO .
PRIOR TO THAT, HE WAS AN
ANALYST FOR METROPOLITAN
LIFE INSURANCE COMPANY
INVESTING IN PRIVATE
PLACEMENTS AND PUBLIC DEBT.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen PORTFOLIO SINCE 1992 MR. FITZGERALD JOINED THE
Fitzgerald MANAGER -- INVESTMENT ADVISER IN 1992.
EXECUTIVE GLOBAL INCOME
DIRECTOR, FUND
MANAGING
DIRECTOR AND
CHIEF
INVESTMENT
OFFICER FOR
INTERNATIONAL
INCOME
- ----------------------------------------------------------------------------------
Andrew Wilson PORTFOLIO SINCE 1995 MR. WILSON JOINED THE
EXECUTIVE MANAGER -- INVESTMENT ADVISER IN 1995.
DIRECTOR GLOBAL INCOME PRIOR TO HIS CURRENT
FUND POSITION, 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.
- ----------------------------------------------------------------------------------
</TABLE>
5-M
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates 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.
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 affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. 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.
6-M
<PAGE>
SERVICE PROVIDERS
YEAR 2000
Many computer systems were designed using only two digits to signify the year
(for example, "98" for "1998"). On January 1, 2000, if these computer systems
are not corrected, they may incorrectly interpret "00" as the year "1900"
rather than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct forward-
looking calculations, these computer problems may occur prior to January 1,
2000. Like other investment companies and financial and business organizations,
the Funds could be adversely affected in their ability to process securities
trades, price securities, provide shareholder account services and otherwise
conduct normal business operations if the computer systems used by the Invest-
ment Adviser or other Fund service providers do not adequately address this
problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken the
following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..Currently, the Investment Adviser does not anticipate that the transition
to the 21st century will have any material impact on its ability to
continue to service the Funds at current levels.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
..At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be
sufficient to avoid any adverse effect on the Funds due to the Year 2000
Problem. Furthermore, even if the actions taken by the Fund's Investment
Adviser and other service providers are successful, the Fund may
nevertheless suffer losses if the issuers of securities held by the Fund
are adversely affected by the Year 2000 Problem. Also, it is possible that
the normal operations of the Fund will, in any event, be disrupted
significantly by the failure of communications and public utility
companies, governmental entities, financial processors or others to perform
their services as a result of the Year 2000 Problem.
7-M
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund or
units of the ILA Portfolios. Special restrictions may apply for exchanges in
certain ILA Portfolios. See the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. 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.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME CAPITAL GAINS
DIVIDENDS DISTRIBUTIONS
------------------ -----------------
FUND DECLARED PAID DECLARED AND PAID
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Tax-Free DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Government Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Municipal Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Core Fixed Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Global Income MONTHLY MONTHLY ANNUALLY
- ----------------------------------------------------------------
High Yield DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
</TABLE>
8-M
<PAGE>
DIVIDENDS
From time to time a portion of such 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 ("NAV") per share may be represented by undistributed income
(in the case of the Global Income Fund) or realized or unrealized apprecia-
tion of any Fund's portfolio securities. Therefore, subsequent distributions
on such shares from such income or realized appreciation may be taxable to
the investor even if the NAV of the shares is, as a result of the distribu-
tions, reduced below the cost of such shares and the distributions (or por-
tions thereof) represent a return of a portion of the purchase price.
9-M
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Institutional
Shares.
HOW TO BUY SHARES
How Can I Purchase Institutional Shares Of The Funds?
You may purchase Institutional Shares on any business day at their NAV next
determined after receipt of an order. No sales load will be charged. You
should place an order with Goldman Sachs at 800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern") as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; OR
..Initiate an Automated Clearing House Network ("ACH") transfer to ensure
receipt by Northern on the next business day; OR
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--Name
of Fund and Class of Shares, c/o Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606. Goldman Sachs Trust (the "Trust") will not accept
a check drawn on a foreign bank or a third-party check.
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
Purchases of Institutional Shares of the Funds must be settled within three
business days of receipt of a complete purchase order.
1-S
<PAGE>
What is My Minimum Investment in the Funds?
<TABLE>
<CAPTION>
FUND TYPE OF INVESTOR MINIMUM INVESTMENT
----------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate .Any investor $50,000 alone or in
Government combination with
Short Duration Institutional Shares
Government of other Goldman
Short Duration Tax-Free Sachs Funds
Core Fixed Income
----------------------------------------------------------------------------------
Government Income .Individual investors $10,000,000
Municipal Income .Qualified non-profit
Global Income organizations, charitable
High Yield trusts, foundations and
endowments
.Accounts over which
GSAM or its advisory
affiliates have investment
discretion
----------------------------------------------------------------------------------
Government Income .Banks, trust companies $1,000,000 in
Municipal Income or other depository institutions Institutional Shares
Global Income investing for their own account of a Fund alone or
High Yield or on behalf of their clients in combination with
.Pension and profit sharing other assets under
plans, pension funds and other the management of
company-sponsored benefit plans GSAM and its affiliates
.State, county, city or any
instrumentality, department,
authority or agency thereof
.Corporations with at least
$100 million in assets or in
outstanding publicly traded
securities
."Wrap" account sponsors
(provided they have an agreement
covering the arrangement with
GSAM)
.Registered investment advisers
investing for accounts for which
they receive asset-based fees
----------------------------------------------------------------------------------
</TABLE>
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.
2-S
<PAGE>
SHAREHOLDER GUIDE
What Else Should I Know About Share Purchases?
The Funds reserve the right to:
..Modify or waive the minimum investment amounts.
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Institutional Shares
of a Fund is evident, or if purchases, sales or exchanges are, or a subse-
quent abrupt redemption might be, of a size that would disrupt management
of a Fund.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's portfolio's manager.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Institutional
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the Funds' investments may be
valued based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trustees. Debt obligations with a
remaining maturity of 60 days or less are valued at amortized cost.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). This occurs after the determination, if
any, of income declared as a dividend (except in the case of the Global
Income Fund). Fund shares will not be priced on any day the New York Stock
Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME BY
WHICH ORDERS MUST BE RECEIVED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE IS STOPPED AT A TIME OTHER
THAN 4:00 P.M. NEW YORK TIME.
3-S
<PAGE>
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
When Will Shares Be Issued And Dividends Begin To Be Paid?
GLOBAL INCOME FUND: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared which have a record date on or after such
purchase date.
FOR ALL OTHER FUNDS:
..Shares Purchased by Federal Funds Wire or ACH Transfer:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the business day after the purchase order is received; or
(ii) the day that the federal funds wire or ACH transfer is received by
State Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased By Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the business day after pay-
ment is received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
HOW TO SELL SHARES
How Can I Sell Institutional Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. GENERALLY, EACH FUND WILL REDEEM ITS INSTITU-
TIONAL SHARES UPON REQUEST ON ANY BUSINESS DAY AT THEIR NEXT NAV DETERMINED
AFTER RECEIPT OF SUCH REQUEST IN PROPER FORM. YOU MAY REQUEST THAT REDEMP-
TION PROCEEDS BE SENT TO YOU BY CHECK OR BY WIRE (IF THE WIRE INSTRUCTIONS
ARE ON RECORD). Redemptions may be requested in writing or by telephone.
4-S
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
INSTRUCTIONS FOR REDEMPTIONS:
----------------------------------------------------------------------
<S> <C> <C>
BY WRITING: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee
.Mail the request to:
Goldman, Sachs & Co.
4900 Sears Tower,
Chicago, Illinois 60606
----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Funds):
.Call 800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
----------------------------------------------------------------------
</TABLE>
What Is A Signature Guarantee?
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself or herself as the owner of an account or the owner's broker
where the owner has not declined in writing to use this service. Thus, you
risk possible losses if a telephone redemption is not authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
5-S
<PAGE>
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
NOTE: IT MAY BE DIFFICULT TO MAKE TELEPHONE REDEMPTIONS IN TIMES OF DRASTIC
ECONOMIC OR MARKET CHANGES.
How Are Redemption Proceeds Paid?
BY WIRE: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the Federal Reserve Bank is closed on the day that
the redemption proceeds would ordinarily be wired, wiring the redemption
proceeds may be delayed one additional business day.
..To change the bank designated on your Account Application to receive your
redemption proceeds, you must send written instructions (with your signa-
ture guaranteed) to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
BY CHECK: You may elect in writing to receive your redemption proceeds by
check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of a properly executed redemp-
tion request, unless you are selling shares you recently paid for by check.
In that case, the Funds will pay you when your check has cleared, which may
take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Institutional Shares of each Fund (other than the Global Income Fund) earn
dividends declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests
by their customers to
6-S
<PAGE>
SHAREHOLDER GUIDE
the Transfer Agent. In order to facilitate the timely transmittal of
redemption requests, these institutions may set times by which they must
receive redemption requests. These institutions may also require additional
documentation from you.
The Funds reserve the right to:
..Redeem your shares if your account balance is less than $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Pay redemptions by a distribution in kind of securities (instead of cash)
from the Fund. If you receive redemption proceeds in kind, you should
expect to incur transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange Institutional Shares of a Fund at NAV for Institutional
Shares of any other Goldman Sachs Fund.
<TABLE>
<CAPTION>
INSTRUCTIONS FOR EXCHANGING SHARES:
----------------------------------------------------------------------
<S> <C> <C>
BY WRITING: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names
.The dollar amount you want to exchange
.Obtain a signature guarantee
.Mail the request to:
Goldman, Sachs & Co.
Attention: Goldman Sachs Funds--
Name of Fund and Class of Shares,
c/o Shareholder Services,
4900 Sears Tower,
Chicago, IL 60606
----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Fund):
.Call 1-800-621-2550 (8:00 a.m. to 6:30 p.m.
New York time)
----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
7-S
<PAGE>
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identical amount.
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market changes.
..The Distributor may use reasonable procedures described under "What Do I
Need To Know About Telephone Redemption Requests?" in an effort to prevent
unauthorized or fraudulent telephone exchange requests.
The exchange privilege may be materially modified or withdrawn at any time
upon 60 days' written notice to you.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will I Be Sent Regarding Investments in Institutional
Shares?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs at 800-621-2550. You will also be provided with a printed con-
firmation for each transaction in your account and an individual monthly
account statement (quarterly in the case of the Global Income Fund). A year-
to-date statement for your account will be provided upon request made to
Goldman Sachs. The Funds do not generally provide sub-accounting services.
What Else Should I Know If I Invest Through a Financial Intermediary?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of the Trust, pur-
chase, redemption and exchange orders placed by or on behalf of their cus-
tomers and may designate other intermediaries to accept such orders, if
approved by the Trust. In these cases:
8-S
<PAGE>
SHAREHOLDER GUIDE
..A Fund will be deemed to have received an order in proper form when the
order is accepted by an authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
..Authorized institutions and intermediaries will be responsible for trans-
mitting accepted orders to the Trust within the time period agreed upon by
them.
You should contact your institution or intermediary to learn whether it is
authorized to accept orders for the Trust.
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' Institutional
Shares. These payments may be in addition to other payments borne by the
Funds.
The Investment Adviser, Distributor and/or their affiliates pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to certain institutions and other persons in connection
with the sale, distribution and/or servicing of shares of the Funds and
other Goldman Sachs Funds. Subject to applicable NASD regulations, the
Investment Adviser, Distributor and/or their affiliates may also contribute
to various cash and non-cash incentive arrangements to promote the sale of
shares. This additional compensation can vary among such institutions
depending upon such factors as the amounts their customers have invested (or
may invest) in particular Goldman Sachs Funds, the particular program
involved, or the amount of reimbursable expenses. Additional compensation
based on sales may, but is currently not expected to, exceed 0.50%
(annualized) of the amount invested.
Finally, banks, trust companies or other institutions through which you
acquire Institutional Shares may charge your account in connection with
transactions in Institutional Shares. You should contact your institution
for information regarding such charges.
In addition to Institutional Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Institutional
Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
back cover of this Prospectus.
9-S
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Except for exempt-interest dividends paid by the Short Duration Tax-Free and
Municipal Income Funds as described below, Fund distributions are taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) to the extent they are attributable to the Fund's net
investment income, certain net realized foreign exchange gains, and net
short-term capital gains. They are taxable as long-term capital gain to the
extent they are attributable to the Fund's excess of net long-term capital
gains over net short-term capital losses. The tax status of any distribution
is the same regardless of how long you have been in the Fund and whether you
reinvest in additional shares or take them as cash. Certain distributions
paid by a Fund in January of a given year may be taxable to shareholders as
if received the prior December 31. The tax status of the dividends and dis-
tributions for each calendar year will be detailed in your annual tax state-
ment from the Fund.
At any time, a portion of a Fund's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Fund's
portfolio securities. Therefore, subsequent distributions on a Fund's shares
may be taxable to you, even if the NAV of your shares is, as a result,
reduced below the cost of those shares and the distributions represent a
return of the purchase price.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. As an alternative, the Global Income Fund (but not
the other Funds) may make an election to treat a proportionate amount of
such taxes as constituting a distribution to you, which would allow you
either to (1) credit such proportionate amount of taxes against your U.S.
federal income tax liability or (2) take such amount as an itemized deduc-
tion.
The Short Duration Tax-Free and Municipal Income Funds expect to distribute
"exempt-interest dividends." These dividends will be exempt income for fed-
eral income tax purposes. However, distributions, if any, derived from net
long-term capital gains of the Short Duration Tax-Free and Municipal Income
Funds will generally be taxable to you as long-term capital gains. Distribu-
tions, if any, derived from taxable interest income, net short-term capital
gains
1-O
<PAGE>
TAXATION
and certain net realized foreign exchange gains will be taxable to you as
ordinary income.
Interest on indebtedness incurred by you to purchase or carry shares of the
Short Duration Tax-Free and Municipal Income Funds generally will not be
deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free and Municipal Income Funds may be an item of tax
preference for purposes of determining your federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with
other adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal income
taxes.
If you receive an exempt-interest dividend on shares that are held by you
for six months or less, any loss on the sale or exchange of the shares will
be disallowed to the extent of such dividend amount.
TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Fund shares may generate a tax liability (unless
your investment is in an IRA or other tax-advantaged account). Depending
upon the purchase or sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods that you hold shares.) Any loss rec-
ognized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activity in some type of instru-
ments.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from any Fund (including the Short Dura-
tion Tax-Free and Municipal Income Funds) or on the value of the shares held
by you. More tax information is provided in the Additional Statement. You
should also consult your own tax adviser for information regarding all tax
consequences applicable to your investments in the Funds.
2-O
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that 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. Credit risk involves the risk that
the issuer could default on its obligations and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). 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. In either case, a change in the
prepayment rate can result in losses to investors.
The Funds may, as described in this Prospectus, invest in (a) derivative
instruments, (b) foreign securities, (c) municipal securities, (d) illiquid
securities and (e) temporary cash investments. These investments will pres-
ent additional risks as described further below.
In addition, the Funds are subject to certain fundamental investment
restrictions that are described in the Additional Statement. Fundamental
investment restrictions of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund as defined in the Additional
Statement. Each Fund's investment objectives and all policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval. If there is a change in a Fund's investment objec-
tive, shareholders should consider whether that Fund remains an appropriate
investment in light of their then current financial positions and needs.
1-P
<PAGE>
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. See "Financial High-
lights" in Appendix B for a statement of the Funds' historical portfolio
turnover rates. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding secu-
rities having a maturity at the date of purchase of one year or less.
B. OTHER PORTFOLIO RISKS
RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency trans-
actions involve additional risk of loss that can result from a lack of cor-
relation between changes in the value of derivative instruments and the
portfolio assets (if any) being hedged, the potential illiquidity of the
markets for derivative instruments, or the risks arising from margin
requirements and related leverage factors associated with such transactions.
The use of these management techniques also involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in secu-
rities prices, interest rates or currency prices. Each Fund may also invest
in derivative investments for non-hedging purposes (that is, to seek to
increase total return), which is considered a speculative practice and pre-
sents even greater risk of loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments 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, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is magni-
fied.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. 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.
2-P
<PAGE>
APPENDIX A
RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that
are not typically associated with U.S. dollar denominated or quoted securi-
ties of U.S. issuers. Foreign investments may be affected by changes in cur-
rency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency block-
age). 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 port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union ("EMU") pre-
sents unique uncertainties, including the legal treatment of certain out-
standing financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro; the fluctuation
of the euro relative to non-euro currencies during the transition period
from January 1, 1999 to December 31, 2000 and beyond; whether the interest
rate, tax and labor regimes of European countries participating in the euro
will converge over time; and whether the conversion of the currencies of
other countries such as the United Kingdom and Denmark into the euro and the
admission of other non-EMU countries such as Poland, Latvia and Lithuania as
members of the EMU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions
before or after the introduction of the euro, and could adversely affect the
value of securities held by the Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets
3-P
<PAGE>
may have substantially less volume than U.S. securities markets and securi-
ties of many foreign issuers are less liquid and more volatile than securi-
ties of comparable domestic issuers. Furthermore, with respect to certain
foreign countries, there is a possibility of nationalization, expropriation
or confiscatory taxation, imposition of withholding or other taxes on divi-
dend or interest payments (or, in some cases, capital gains), limitations on
the removal of funds or other assets of the Funds, and political or social
instability or diplomatic developments which could affect investments in
those countries.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse in the
event of a default. Periods of economic uncertainty may result in volatility
of market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers. A
sovereign debtor's willingness or ability to repay principal and pay inter-
est in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availabil-
ity of sufficient foreign exchange on the date a payment is due, the rela-
tive size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country.
Many emerging countries may be subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in emerging countries. Investing in emerging countries involves
greater risk of loss due to expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investments
and on repatriation of capital invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund. Settlement procedures in emerging
countries are frequently less developed and reliable than those in the
United States and may
4-P
<PAGE>
APPENDIX A
involve a Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have a
negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
.Both domestic and foreign securities that are not readily marketable
.Certain municipal leases and participation interests
.Certain stripped Mortgage-Backed Securities
. Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
5-P
<PAGE>
. Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and, therefore, is liquid
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity of a Fund's portfolio to the extent that quali-
fied 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 liq-
uid market exists.
C. PORTFOLIO SECURITIES AND TECHNIQUES
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS
U.S. Government Securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. Government Securities may be 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 pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government
Securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. Government Securities, where the interest and principal compo-
nents of stripped U.S. Government Securities are traded independently.
Interest in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of U.S. government.
6-P
<PAGE>
APPENDIX A
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. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include 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. In most cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, 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 Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include 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 prin-
cipal payments from a pool of mortgage loans. The market value of SMBS con-
sisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage loans are generally higher than pre-
vailing 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.
Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to
both call risk and extension risk as previously described. Because of these
risks, these securities can have significantly greater price and yield vola-
tility than with traditional fixed-income securities.
The value of Mortgage-Backed Securities that are structured as pass-through
mortgage securities that are collateralized by ARMs are less likely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. This is because interest rate declines may result in accelerated
prepayments of mortgages
7-P
<PAGE>
with the result that proceeds from prepayments will be reinvested at lower
interest rates. On the other hand, during periods of rising interest rates,
the value of ARMs 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 invest-
ments in ARMs may fluctuate more substantially since these limits may pre-
vent the security from fully adjusting its interest rate to the prevailing
market rates.
ASSET-BACKED SECURITIES
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Asset-backed securities present credit risks that
are not presented by Mortgage-Backed Securities. This is 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 possibil-
ity that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
MUNICIPAL SECURITIES
Municipal Securities include bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies 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 alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in the tax rates and policies than taxable
fixed-income securities.
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. Municipal Securities include private
activity bonds, municipal
8-P
<PAGE>
APPENDIX A
leases, certificates of participation, pre-refunded municipal securities and
auction rate securities.
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 con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected. Municipal
lease obligations and certificates of participation are subject to the added
risk that the governmental lessee will fail to appropriate funds to enable
it to meet its payment obligations under the lease. Although these obliga-
tions 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 recover fully a Fund's original investment.
Municipal Securities may be in the form of a tender option bond, which is a
Municipal Security (generally held pursuant to a custodial arrangement) hav-
ing a relatively long maturity and bearing interest at a fixed rate substan-
tially higher than prevailing short-term, tax-exempt rates. The bond is typ-
ically 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 dif-
ference between the bond's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term, tax-exempt rate. Certain tender option bonds may
be illiquid.
In order to enhance the liquidity of Municipal Securities, a Fund may (but
is not required to) acquire the right to sell a security to another party at
a guaranteed price and date. This 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 securi-
ties. Standby commitments may not be available or may not be available on
satisfactory terms.
9-P
<PAGE>
CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES
Corporate debt obligations include bonds, notes, debentures and other obli-
gations of corporations to pay interest and repay principal, and include
securities issued by banks and other financial institutions. A trust pre-
ferred or capital security is a long dated bond (for example, 30 years) with
preferred features. The preferred features are that payment of interest can
be deferred for a specified period without initiating a default event. The
securities are generally senior in claim to standard preferred stock but
junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
FOREIGN CURRENCY TRANSACTIONS
A Fund may, to the extent it invests in foreign securities, purchase or sell
foreign currencies on a cash basis or through forward contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. A Fund may engage in
foreign currency transactions for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, a Fund also may enter into such transactions to seek to increase
total return when the Investment Adviser anticipates fluctuation in the
value of the foreign currency, but securities denominated or quoted in that
currency do not present attractive investment opportunities and are not held
in the Fund's portfolio, which is considered a speculative practice. Some
Funds may also engage in cross-hedging by using forward contracts in a cur-
rency different from that in which the hedged security is denomi-
10-P
<PAGE>
APPENDIX A
nated or quoted if the Investment Adviser determines that there is a pattern
of correlation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). 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.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, 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.
STRUCTURED SECURITIES
Structured securities are securities whose value 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. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce 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 Refer-
ence. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities, and may be more
volatile, less liquid and more difficult to accurately price than less com-
plex securities. Structured securities include, but are not limited to,
inverse floating rate debt securities ("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 var-
ies by a magnitude that exceeds the magnitude
11-P
<PAGE>
of the change in the index rate of interest. The higher the degree of lever-
age of an inverse floater, the greater the volatility of its market value.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
These securities are issued at a discount from their face value because
interest payments are typically postponed until maturity. Pay-in-kind secu-
rities are securities that have interest payable by the delivery of addi-
tional securities. The market prices of these securities 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.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll involves the sale by a Fund of securities for deliv-
ery in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll 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 roll, the use of this technique will
diminish the Fund's investment performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage 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, and do not treat them as borrowings.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
A put option gives the purchaser of the option the right to sell, and the
writer (seller) of the option the obligation to buy, the underlying instru-
ment during the option period. A call option gives the purchaser of the
option the right to buy, and the writer (seller) of the option the obliga-
tion to sell, the underlying instrument
12-P
<PAGE>
APPENDIX A
during the option period. 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. A Fund may also, to the extent it invests in foreign securities,
purchase and sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
brokerage transaction costs. Options written or purchased by the Funds may
be traded on either U.S. or foreign exchanges or over-the-counter. Foreign
and over-the-counter options will present greater possibility of loss
because of their greater liquidity and credit risks.
YIELD CURVE OPTIONS
Each Fund may enter into options on the yield "spread" or differential
between two securities. Such transactions 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.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts are standardized, exchange-traded contracts that provide
for the sale or purchase of a specified financial instrument or currency at
a future time at a specified price. An option on a futures contract gives
the purchaser the right (and the writer of the option the obligation) to
assume a position in a futures contract at a specified exercise price within
a specified period of time. A futures
13-P
<PAGE>
contract may be based on various securities (such as U.S. Government Securi-
ties), foreign currencies, securities indices and other financial instru-
ments and indices. The Funds may engage in futures transactions on both U.S.
and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund invests in foreign securities, currency
exchange rates, or to otherwise manage their term structures and durations
in accordance with their investment objectives and policies. Each Fund may
also enter into closing purchase and sale transactions with respect to such
contracts and options. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums 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. Future contracts and
related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing 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 NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
14-P
<PAGE>
APPENDIX A
..Foreign exchanges may not provide the same protection as U.S. exchanges.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.
When-issued securities are securities that have been authorized but not yet
issued. When-issued securities are purchased in order to secure what is con-
sidered to be an advantageous price and yield to the Fund at the time of
entering into the transaction.
A forward commitment involves entering into a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settle-
ment period.
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 before the settlement date. Conversely, securities sold on a for-
ward commitment basis involves the risk that the value of the securities to
be sold may increase before the settlement date. Although a Fund will gener-
ally 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.
LENDING OF PORTFOLIO SECURITIES
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents or
U.S. Government Securities in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equiva-
lents. If the Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience a delay in the recovery of its securities or possible loss if the
institution with which it has engaged in a securities lending transaction
breaches its agreement with the Fund.
REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and
price. 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. Some Funds may also enter into repurchase
agreements involving certain foreign government securities.
15-P
<PAGE>
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 repurchase agree-
ment are less than the repurchase price and the cost of the Fund associated
with delay and enforcement of the repurchase agreement. In addition, in the
event of bankruptcy of the seller, a Fund could suffer other losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS
The Funds can borrow money from banks and enter into reverse repurchase
agreements with banks and other financial institutions in amounts not
exceeding one-third of its total assets. Reverse repurchase agreements
involve the sale of securities held by a Fund subject to the Fund's agree-
ment to repurchase them at a mutually agreed upon date and price (including
interest). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the Investment Adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by a Fund
decline in value while these transactions are outstanding, the NAV of the
Fund's outstanding shares will decline in value by proportionately more than
the decline in value of the securities. In addition, reverse repurchase
agreements involve the risk that the interest income earned by a Fund (from
the investment of the proceeds) will be less than the interest expense of
the transaction, that the market value of the securities sold by a Fund will
decline below the price the Fund is obligated to pay to repurchase the secu-
rities, and that the securities may not be returned to the Fund.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS
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 simi-
lar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a ref-
erence pool or pools of mortgages. Credit swaps involve the receipt of
floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transac-
tion the right to dispose of or acquire an asset (or group of assets), or
the right to receive or make a payment from the other party, upon the occur-
rence of specified credit events. Currency swaps involve the exchange of the
parties' respective rights to make or receive payments in specified
16-P
<PAGE>
APPENDIX A
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 enti-
tles the purchaser, to the extent that a specified index falls below a pre-
determined 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.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit 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 transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
INVERSE FLOATING RATE DEBT SECURITIES ("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.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, invest in other
investment companies.
17-P
<PAGE>
NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed-
income securities are considered predominantly speculative by traditional
investment standards. In some cases, these obligations may be highly specu-
lative and have poor prospects for reaching investment grade standing. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality (commonly known as "junk bonds") are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate developments, interest rate sensitivity, negative perceptions of the
junk bond markets generally and less secondary market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to expand. Such issuers are often highly leveraged
and generally less able than more established or less leveraged entities to
make scheduled payments of principal and interest in the event of adverse
developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds
which invest in higher-rated securities. Issuers of non-investment grade
fixed-income securities may not be able to make use of more traditional
methods of financing and their ability to service debt obligations may be
affected more adversely than issuers of higher-rated securities by economic
downturns, specific corporate developments or the issuer's inability to meet
specific projected business forecasts. Negative publicity about the junk
bond market and investor perceptions regarding lower rated securities,
whether or not based on fundamental analysis, may depress the prices for
such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such
1-Q
<PAGE>
securities. Investment by a Fund in defaulted securities poses additional
risk of loss should nonpayment of principal and interest continue in respect
of such securities. Even if such securities are held to maturity, recovery
by a Fund of its initial investment and any anticipated income or apprecia-
tion is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could contract under adverse market or economic condi-
tions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market
price and a Fund's ability to dispose of particular portfolio investments. A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality. Investments
in non-investment grade and comparable unrated obligations will be more
dependent on the Investment Adviser's credit analysis than would be the case
with investments in investment-grade debt obligations.
LOAN PARTICIPATIONS
A loan participation is an interest in a loan to a U.S. or foreign company
or other borrower which is administered and sold by a financial intermedi-
ary. A Fund may only invest in loans to issuers in whose obligations it may
otherwise invest. Loan participation interests may take the form of a direct
or co-lending relationship with the corporate borrower, an assignment of an
interest in the loan by a co-lender or another participant, or a participa-
tion in the seller's share of the loan. When a Fund acts as co-lender in
connection with a participation interest or when it acquires certain partic-
ipation interests, the Fund will have direct recourse against the borrower
if the borrower fails to pay scheduled principal and interest. In cases
where the Fund lacks direct recourse, it will look to the agent bank to
enforce appropriate credit remedies against the borrower. In these cases,
the Fund
2-Q
<PAGE>
may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation
(such as commercial paper) of such borrower. Moreover, under the terms of
the loan participation, the Fund may be regarded as a creditor of the agent
bank (rather than of the underlying corporate borrower), so that the Fund
may also be subject to the risk that the agent bank may become insolvent.
PREFERRED STOCK, WARRANTS AND RIGHTS
Preferred stocks are securities that represent an ownership interest provid-
ing the holder with claims on the issuer's earnings and assets before common
stock owners but after bond owners. Unlike debt securities, the obligations
of an issuer of preferred stock, including dividend and other payment obli-
gations, may not typically be accelerated by the holders of such preferred
stock on the occurrence of an event of default or other non-compliance by
the issuer with the terms of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the war-
rant. The holders of warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
3-Q
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $ 9.88 $0.53 $(0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
1997 - Class A Shares 9.83 0.57f 0.05f
1997 - Institutional Shares 9.83 0.59f 0.05f
1997 - Administration Shares 9.83 0.57f 0.05f
1997 - Service Shares (commenced March
27) 9.84 0.33f 0.04f
1996 - Class A Shares 9.77 0.55f 0.08f
1996 - Institutional Shares 9.77 0.57f 0.08f
1996 - Administration Shares 9.77 0.55f 0.08f
1995 - Class A Shares (commenced May 15) 9.79 0.27f (0.01)f
1995 - Institutional Shares 9.74 0.56f 0.07f
1995 - Administration Shares 9.74 0.54f 0.07f
1994 - Institutional Shares 10.00 0.43f (0.24)f
1994 - Administration Shares 10.00 0.42f (0.26)f
- -------------------------------------------------------------------------------
</TABLE>
1-R
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET NET NET
REALIZED GAIN INCREASE ASSETS
IN EXCESS ON INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT AND FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $(0.02) $-- $(0.19) $9.69 3.71% 33.64% $ 60,782
(0.55) (0.02) -- (0.18) 9.70 4.09 33.64 441,228
(0.53) (0.02) -- (0.18) 9.70 3.83 33.64 5,999
(0.51) (0.02) -- (0.18) 9.70 3.57 33.64 822
(0.57) -- -- 0.05 9.88 6.43 46.58 43,393
(0.59) -- -- 0.05 9.88 6.70 46.58 463,511
(0.57) -- -- 0.05 9.88 6.43 46.58 2,793
(0.33) -- -- 0.04 9.88 3.81d 46.58 346
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 10,728
(0.57) (0.02) -- 0.06 9.83 6.86 52.36 613,149
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 3,792
(0.27) (0.01) -- (0.02) 9.77 2.74d 24.12 15,203
(0.57) (0.03) -- 0.03 9.77 6.75 24.12 657,358
(0.55) (0.03) -- 0.03 9.77 6.48 24.12 3,572
(0.45) -- -- (0.26) 9.74 1.88 37.81 942,523
(0.42) -- -- (0.26) 9.74 1.63 37.81 6,960
- -----------------------------------------------------------------------------------------
</TABLE>
2-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.80% 5.40% 1.02% 5.18%
1998 - Institutional Shares 0.53 5.63 0.53 5.63
1998 - Administration Shares 0.78 5.33 0.78 5.33
1998 - Service Shares 1.03 5.09 1.03 5.09
1997 - Class A Shares 0.74 5.60 1.02 5.32
1997 - Institutional Shares 0.49 5.99 0.52 5.96
1997 - Administration Shares 0.74 5.73 0.77 5.70
1997 - Service Shares (commenced
March 27) 1.05c 5.64c 1.08c 5.61c
1996 - Class A Shares 0.70 5.59 1.01 5.28
1996 - Institutional Shares 0.45 5.85 0.51 5.79
1996 - Administration Shares 0.70 5.59 0.76 5.53
1995 - Class A Shares (commenced
May 15) 0.69c 5.87c 1.01c 5.55c
1995 - Institutional Shares 0.46 5.77 0.53 5.70
1995 - Administration Shares 0.71 5.50 0.78 5.43
1994 - Institutional Shares 0.46 4.38 0.49 4.35
1994 - Administration Shares 0.71 4.27 0.74 4.24
- -------------------------------------------------------------------------------
</TABLE>
3-R
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE AT NET INVESTMENT, OPTION
BEGINNING INVESTMENT AND FUTURES
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $ 9.88 $0.57 $ 0.04
1998-Class B Shares 9.86 0.51 0.03
1998-Class C Shares 9.86 0.49 0.03
1998-Institutional Shares 9.86 0.58 0.06
1998-Administration Shares 9.89 0.55 0.05
1998-Service Shares 9.86 0.55 0.04
1997-Class A Shares (commenced May
1) 9.78 0.31f 0.09f
1997-Class B Shares (commenced May
1) 9.75 0.28f 0.10f
1997-Class C Shares (commenced May
15) 9.83 0.12f 0.02f
1997-Institutional Shares 9.83 0.64f 0.03f
1997-Administration Shares 9.85 0.62f 0.04f
1997-Service Shares 9.82 0.59f 0.04f
1996-Institutional Shares 9.82 0.63f 0.01f
1996-Administration Sharesg 9.86 0.38f --f
1996-Service Shares (commenced
April 10) 9.72 0.31f 0.10f
1995-Institutional Shares 9.64 0.66f 0.17f
1995-Administration Sharesg 9.64 0.24f (0.04)f
1994-Institutional Shares 10.14 0.56f (0.46)f
1994-Administration Shares 10.14 0.53f (0.45)f
- ------------------------------------------------------------------------------
</TABLE>
4-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET
IN EXCESS ON INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE PERIOD RETURNB RATEE (IN 000S)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.58) $-- $ -- $ 0.03 $9.91 6.36% 119.89% $ 56,725
(0.52) -- -- 0.02 9.88 5.62 119.89 5,025
(0.50) -- -- 0.02 9.88 5.46 119.89 4,527
(0.60) -- -- 0.04 9.90 6.75 119.89 145,514
(0.58) -- -- 0.02 9.91 6.27 119.89 7,357
(0.56) -- -- 0.03 9.89 6.12 119.89 6,232
(0.30) -- -- 0.10 9.88 4.14d 102.58 9,491
(0.27) -- -- 0.11 9.86 3.94d 102.58 747
(0.11) -- -- 0.03 9.86 1.44d 102.58 190
(0.64) -- -- 0.03 9.86 7.07 102.58 103,729
(0.62) -- -- 0.04 9.89 6.91 102.58 1,060
(0.59) -- -- 0.04 9.86 6.63 102.58 3,337
(0.63) -- -- 0.01 9.83 6.75 115.45 99,944
(0.39) -- -- (0.01) 9.85 4.00d 115.45 252
(0.31) -- -- 0.10 9.82 4.35d 115.45 1,822
(0.65) -- -- 0.18 9.82 8.97 292.56 103,760
(0.21) -- -- (0.01) 9.63 2.10d 292.56 --
(0.56) -- (0.04) (0.50) 9.64 0.99 289.79 193,095
(0.54) -- (0.04) (0.50) 9.64 0.73 289.79 730
- -------------------------------------------------------------------------------------------
</TABLE>
5-R
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998-Class A Shares 0.81% 5.68% 1.32% 5.17%
1998-Class B Shares 1.41 5.12 1.87 4.66
1998-Class C Shares 1.56 4.64 1.87 4.33
1998-Institutional Shares 0.53 6.06 0.84 5.75
1998-Administration Shares 0.78 5.76 1.09 5.45
1998-Service Shares 1.03 5.56 1.34 5.25
1997-Class A Shares
(commenced May 1) 0.70c 6.05c 1.32c 5.43c
1997-Class B Shares
(commenced May 1) 1.30c 5.52c 1.82c 5.00c
1997-Class C Shares
(commenced May 15) 1.45c 5.52c 1.82c 5.15c
1997-Institutional Shares 0.45 6.43 0.82 6.06
1997-Administration Shares 0.70 6.19 1.07 5.82
1997-Service Shares 0.95 5.92 1.32 5.55
1996-Institutional Shares 0.45 6.44 0.71 6.18
1996-Administration
Sharesg 0.70c 5.97c 0.96c 5.71c
1996-Service Shares
(commenced April 10) 0.95c 6.05c 1.21c 5.79c
1995-Institutional Shares 0.45 6.87 0.72 6.60
1995-Administration
Sharesg 0.70c 7.91c 0.90c 7.71c
1994-Institutional Shares 0.45 5.69 0.59 5.55
1994-Administration Shares 0.70 5.38 0.84 5.24
- -------------------------------------------------------------------------------
</TABLE>
6-R
<PAGE>
[This page intentionally left blank]
7-R
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE, NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOMEE TRANSACTIONSE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $10.08 $0.36 $0.13
1998 - Class B Shares 10.08 0.30 0.12
1998 - Class C Shares 10.07 0.28 0.14
1998 - Institutional Shares 10.07 0.39 0.13
1998 - Administration Shares 10.07 0.36 0.13
1998 - Service Shares 10.07 0.34 0.13
1997 - Class A Shares (commenced May 1) 9.94 0.20 0.14
1997 - Class B Shares (commenced May 1) 9.94 0.16 0.14
1997 - Class C Shares (commenced August
15) 10.04 0.07 0.03
1997 - Institutional Shares 9.96 0.42 0.11
1997 - Administration Shares 9.96 0.39 0.11
1997 - Service Shares 9.97 0.37 0.10
1996 - Institutional Shares 9.94 0.42 0.02
1996 - Administration Shares 9.94 0.39 0.02
1996 - Service Shares 9.95 0.37 0.02
1995 - Institutional Shares 9.79 0.42 0.15
1995 - Administration Shares 9.79 0.40 0.15
1995 - Service Shares 9.79 0.37 0.16
1994 - Institutional Shares 10.23 0.38 (0.36)
1994 - Administration Shares 10.23 0.35 (0.36)
1994 - Service Shares (commenced
September 20) 9.86 0.05 (0.07)
- ------------------------------------------------------------------------------
</TABLE>
8-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET NET
IN EXCESS ON INVESTMENT, INCREASE ASSETS
FROM NET OF NET OPTION (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET VALUE, TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE END OF PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.38) -- $ -- $0.11 $10.19 4.97% 140.72% $19,881
(0.32) -- -- 0.10 10.18 4.25 140.72 974
(0.31) -- -- 0.11 10.18 4.19 140.72 2,256
(0.41) -- -- 0.11 10.18 5.25 140.72 57,647
(0.38) -- -- 0.11 10.18 4.99 140.72 525
(0.36) -- -- 0.11 10.18 4.73 140.72 2,560
(0.20) -- -- 0.14 10.08 3.39d 194.75 4,023
(0.16) -- -- 0.14 10.08 3.07d 194.75 106
(0.07) -- -- 0.03 10.07 0.97d 194.75 2
(0.42) -- -- 0.11 10.07 5.40 194.75 28,821
(0.39) -- -- 0.11 10.07 5.14 194.75 77
(0.37) -- -- 0.10 10.07 4.77 194.75 2,051
(0.42) -- -- 0.02 9.96 4.50 231.65 34,814
(0.39) -- -- 0.02 9.96 4.24 231.65 48
(0.37) -- -- 0.02 9.97 3.98 231.65 695
(0.42) -- -- 0.15 9.94 5.98 259.52 58,389
(0.40) -- -- 0.15 9.94 5.76 259.52 46
(0.37) -- -- 0.16 9.95 5.59 259.52 454
(0.38) -- (0.08) (0.44) 9.79 0.17 354.00 83,704
(0.35) -- (0.08) (0.44) 9.79 (0.11) 354.00 3,866
(0.05) -- -- (0.07) 9.79 (0.32)d 354.00 440
- -----------------------------------------------------------------------------------------------
</TABLE>
9-R
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.71% 3.54% 1.74% 2.51%
1998 - Class B Shares 1.31 3.06 2.27 2.10
1998 - Class C Shares 1.46 2.82 2.27 2.01
1998 - Institutional Shares 0.45 3.92 1.26 3.11
1998 - Administration Shares 0.70 3.58 1.51 2.77
1998 - Service Shares 0.95 3.44 1.76 2.63
1997 - Class A Shares (commenced
May 1) 0.70c 3.81c 1.73c 2.78c
1997 - Class B Shares (commenced
May 1) 1.30c 3.31c 2.23c 2.38c
1997 - Class C Shares (commenced
August 15) 1.45c 2.60c 2.23c 1.82c
1997 - Institutional Shares 0.45 4.18 1.23 3.40
1997 - Administration Shares 0.70 3.91 1.48 3.13
1997 - Service Shares 0.95 3.66 1.73 2.88
1996 - Institutional Shares 0.45 4.21 1.01 3.65
1996 - Administration Shares 0.70 3.96 1.26 3.40
1996 - Service Shares 0.95 3.74 1.51 3.18
1995 - Institutional Shares 0.45 4.31 0.77 3.99
1995 - Administration Shares 0.70 4.14 1.02 3.82
1995 - Service Shares 0.95 3.87 1.27 3.55
1994 - Institutional Shares 0.45 3.74 0.61 3.58
1994 - Administration Shares 0.70 3.51 0.86 3.35
1994 - Service Shares (commenced
September 20) 0.95c 4.30c 1.11c 4.14c
- -------------------------------------------------------------------------------
</TABLE>
10-R
<PAGE>
[This page intentionally left blank]
11-R
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSN
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.59 $0.81 $0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares (commenced
August 15) 14.38 0.17 0.22
1997 - Institutional Shares
(commenced August 15) 14.37 0.20 0.22
1997 - Service Shares (commenced
August 15) 14.37 0.20 0.21
1996 - Class A shares 14.47 0.92 (0.11)
1996 - Class B shares (commenced May
1) 4.11 0.41 0.26
1995 - Class A shares 13.47 0.94 1.00
1994 - Class A shares 14.90 0.85 (1.28)
- -------------------------------------------------------------------------------
</TABLE>
12-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON NET
IN EXCESS ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
FROM NET OF NET OPTION AND OPTION AND (DECREASE) VALUE PORTFOLIO
INVESTMENT INVESTMENT FUTURES FUTURES IN NET AT END TOTAL TURNOVER
INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE OF PERIOD RETURNK RATEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.81) $(0.07) $(0.06) $ -- $0.32 $14.91 8.98% 315.43%
(0.72) (0.05) (0.06) -- 0.31 14.92 8.09 315.43
(0.74) (0.03) (0.06) -- 0.31 14.91 8.09 315.43
(0.87) (0.05) (0.06) -- 0.31 14.90 9.19 315.43
(0.80) (0.05) (0.06) -- 0.29 14.88 8.53 315.43
(0.90) -- (0.07) -- 0.23 14.59 8.72 395.75
(0.79) -- (0.07) -- 0.24 14.61 7.96 395.75
(0.17) -- -- -- 0.22 14.60 2.72d 395.75
(0.20) -- -- -- 0.22 14.59 2.94d 395.75
(0.19) -- -- -- 0.22 14.59 2.85d 395.75
(0.92) -- -- -- (0.11) 14.36 5.80 485.09
(0.41) -- -- -- 0.26 14.37 4.85d 485.09
(0.94) -- -- -- 1.00 14.47 14.90 449.53
(0.85) (0.02) (0.12) (0.01) (1.43) 13.47 (2.98) 654.90
- ---------------------------------------------------------------------------------------------
</TABLE>
13-R
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
AT END OF NET EXPENSES INCOME EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
(IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares $101,015 0.76% 5.53% 1.53% 4.76%
1998 - Class B Shares 16,125 1.51 4.76 2.05 4.22
1998 - Class C Shares 9,639 1.51 4.59 2.05 4.05
1998 - Institutional
Shares 2,642 0.51 5.82 1.05 5.28
1998 - Service Shares 2 1.01 5.48 1.55 4.94
1997 - Class A Shares 68,859 0.50 6.38 1.82 5.06
1997 - Class B Shares 8,041 1.25 5.59 2.32 4.52
1997 - Class C Shares
(commenced August 15) 1,196 1.25c 5.45c 2.32c 4.38c
1997 - Institutional
Shares (commenced
August 15) 1,894 0.25c 7.03c 1.32c 5.96c
1997 - Service Shares
(commenced August 15) 2 0.75c 6.49c 1.82c 5.42c
1996 - Class A shares 30,603 0.50 6.42 1.89 5.03
1996 - Class B shares
(commenced May 1) 234 1.25c 5.65c 2.39c 4.51c
1995 - Class A shares 29,503 0.47 6.67 2.34 4.80
1994 - Class A shares 14,452 0.11 6.06 2.86 3.31
- ----------------------------------------------------------------------------------------------
</TABLE>
14-R
<PAGE>
[This page intentionally left blank]
15-R
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/N/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.99 $0.65 $0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class C Shares (commenced
August 15) 14.85 0.12 0.14
1997 - Institutional Shares
(commenced August 15) 14.84 0.15 0.16
1997 - Service Shares (commenced
August 15) 14.84 0.14 0.15
1996 - Class A shares 14.17 0.65 0.20
1996 - Class B shares (commenced May
1) 14.03 0.27 0.34
1995 - Class A shares 13.08 0.67 1.09
1994 - Class A shares 14.64 0.73 (1.51)
- -------------------------------------------------------------------------------
</TABLE>
16-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATE (IN 000S)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.64) $-- $(0.03) $0.48 $15.47 7.79% 56.51% $91,158
(0.52) -- (0.03) 0.47 15.47 6.91 56.51 6,722.
(0.52) -- (0.03) 0.48 15.47 6.98 56.51 2,862
(0.68) -- (0.03) 0.47 15.47 8.00 56.51 6,154
(0.61) -- (0.03) 0.49 15.48 7.68 56.51 2
(0.67) -- -- 0.62 14.99 9.23 153.12 64,553
(0.56) -- -- 0.63 15.00 8.48 153.12 1,750
(0.12) -- -- 0.14 14.99 1.75d 153.12 130
(0.15) -- -- 0.16 15.00 2.10d 153.12 351
(0.14) -- -- 0.15 14.99 1.93d 153.12 2
(0.65) -- -- 0.20 14.37 6.13 344.13 52,267
(0.27) -- -- 0.34 14.37 4.40d 344.13 255
(0.67) -- -- 1.09 14.17 13.79 335.55 53,797
(0.73) -- (0.05) (1.56) 13.08 (5.51) 357.54 47,373
- ---------------------------------------------------------------------------------------
</TABLE>
17-R
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 0.87% 4.25% 1.64% 3.48%
1998 - Class B Shares 1.62 3.44 2.16 2.90
1998 - Class C Shares 1.62 3.38 2.16 2.84
1998 - Institutional
Shares 0.58 4.41 1.12 3.87
1998 - Service Shares 1.08 4.21 1.62 3.67
1997 - Class A Shares 0.85 4.60 1.62 3.83
1997 - Class B Shares 1.60 3.74 2.12 3.22
1997 - Class C Shares
(commenced August 15) 1.60c 3.24c 2.12c 2.72c
1997 - Institutional
Shares (commenced
August 15) 0.60c 4.41c 1.12c 3.89c
1997 - Service Shares
(commenced August 15) 1.10c 4.24c 1.62c 3.72c
1996 - Class A shares 0.85 4.58 1.55 3.88
1996 - Class B shares
(commenced May 1) 1.60c 3.55c 2.05c 3.10c
1995 - Class A shares 0.76 4.93 1.49 4.20
1994 - Class A shares 0.45 5.28 1.55 4.18
- -----------------------------------------------------------------------------------
</TABLE>
18-R
<PAGE>
[This page intentionally left blank]
19-R
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION,
NET ASSET FUTURES AND-
VALUE AT NET FOREIGN CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $10.06 $0.59 $0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.90 0.27
1998-Institutional Shares 10.08 1.08 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.99 0.27
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August
15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares
(commenced February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March
13) 9.77 0.38 0.09
1995-Institutional Shares 9.24 0.64 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares (commenced
January 5) 10.00 0.46 (0.76)
- ------------------------------------------------------------------------------
</TABLE>
20-R
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $(0.02) $(0.06) $0.19 $10.25 8.76% 271.50% $56,267
(0.52) (0.02) (0.06) 0.19 10.28 7.94 271.50 7,209
(0.90) (0.02) (0.06) 0.19 10.28 7.94 271.50 5,587
(1.08) (0.03) (0.06) 0.20 10.28 9.15 271.50 195,730
(0.57) (0.03) (0.06) 0.20 10.27 8.88 271.50 12,743
(0.99) (0.02) (0.06) 0.19 10.28 8.50 271.50 5,263
(0.30) -- -- 0.36 10.06 6.94d 361.27 9,336
(0.27) -- -- 0.37 10.09 6.63d 361.27 621
(0.11) -- -- 0.16 10.09 2.74d 361.27 272
(0.64) -- -- 0.23 10.08 9.19 361.27 79,230
(0.62) -- -- 0.23 10.07 8.92 361.27 6,176
(0.59) -- -- 0.23 10.09 8.65 361.27 1,868
(0.64) -- (0.08) (0.15) 9.85 5.98 414.20 72,061
(0.41) -- -- (0.07) 9.84 3.56d 414.20 702
(0.38) -- -- 0.09 9.86 4.90d 414.20 381
(0.64) -- -- 0.76 10.00 15.72 382.26 55,502
(0.46) -- -- (0.76) 9.24 (3.00)d 285.25 24,508
- ----------------------------------------------------------------------------------------
</TABLE>
21-R
<PAGE>
APPENDIX B
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares 0.74% 5.58% 1.21% 5.11%
1998-Class B Shares 1.49 4.82 1.75 4.56
1998-Class C Shares 1.49 4.81 1.75 4.55
1998-Institutional Shares 0.46 5.95 0.72 5.69
1998-Administration Shares 0.71 5.70 0.97 5.44
1998-Service Shares 0.96 5.44 1.22 5.18
1997-Class A Shares (commenced
May 1) 0.70c 6.13c 1.33c 5.50c
1997-Class B Shares (commenced
May 1) 1.45c 5.28c 1.83c 4.90c
1997-Class C Shares (commenced
August 15) 1.45c 4.84c 1.83c 4.46c
1997-Institutional Shares 0.45 6.53 0.83 6.15
1997-Administration Shares 0.70 6.27 1.08 5.89
1997-Service Shares 0.95 6.00 1.33 5.62
1996-Institutional Shares 0.45 6.51 0.83 6.13
1996-Administrative Shares
(commenced February 28) 0.70c 6.41c 1.08c 6.03c
1996-Service Shares (commenced
March 13) 0.95c 6.37c 1.33c 5.99c
1995-Institutional Shares 0.45 6.56 0.96 6.05
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares
(commenced January 5) 0.45c 6.48c 1.46c 5.47c
- -------------------------------------------------------------------------------
</TABLE>
22-R
<PAGE>
[This page intentionally left blank]
23-R
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION, FUTURES
NET ASSET AND FOREIGN
VALUE, NET CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $15.10 $0.72f $0.90f
1998 - Class B Shares 15.08 0.63f 0.92f
1998 - Class C Shares 15.06 0.63f 0.91f
1998 - Institutional Shares 15.09 0.82f 0.90f
1998 - Service Shares 15.09 0.74f 0.91f
1997 - Class A shares 14.53 0.59 0.77
1997 - Class B shares 14.53 0.72 0.56
1997 - Class C shares (commenced August
15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March
12) 14.69 0.53 0.39
1996 - Class A shares 14.45 0.71 0.80
1996 - Class B shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional shares 14.45 1.15 0.42
1995 - Class A shares 13.43 0.89 1.07
1995 - Institutional shares
(commenced August 1) 14.09 0.22 0.40
1994 - Class A shares 15.07 0.84 (1.49)
- -----------------------------------------------------------------------------
</TABLE>
24-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
NET REALIZED
GAIN ON NET
IN EXCESS INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION AND FROM (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT FUTURES PAID IN IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(1.01) $-- $(0.06) $ -- $0.55 $15.65 11.21% 229.91% $217,362
(0.94) -- (0.06) -- 0.55 15.63 10.66 229.91 8,135
(0.94) -- (0.06) -- 0.54 15.60 10.65 229.91 4,090
(1.11) -- (0.06) -- 0.55 15.64 11.95 229.91 178,532
(1.04) -- (0.06) -- 0.55 15.64 11.43 229.91 1,058
(0.79) -- -- -- 0.57 15.10 9.66 383.72 167,096
(0.73) -- -- -- 0.55 15.08 9.04 383.72 3,465
(0.19) -- -- -- 0.26 15.06 3.03d 383.72 496
(0.87) -- -- -- 0.57 15.09 10.26 383.72 60,929
(0.52) -- -- -- 0.40 15.09 6.42d 383.72 151
(1.43) -- -- -- 0.08 14.53 11.05 232.15 198,665
(0.36) -- -- -- 0.50 14.53 6.24d 232.15 256
(1.50) -- -- -- 0.07 14.52 11.55 232.15 54,254
(0.94) -- -- -- 1.02 14.45 15.08 265.86 245,835
(0.26) -- -- -- 0.36 14.45 4.42d 265.86 31,619
(0.22) -- (0.16) (0.61) (1.64) 13.43 (4.49) 343.74 396,584
- -----------------------------------------------------------------------------------------------
</TABLE>
25-R
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 1.31% 4.71% 1.75% 4.27%
1998 - Class B Shares 1.83 4.19 2.24 3.78
1998 - Class C Shares 1.83 4.20 2.24 3.79
1998 - Institutional
Shares 0.66 5.40 1.07 4.99
1998 - Service Shares 1.16 4.92 1.57 4.51
1997 - Class A shares 1.17 5.19 1.60 4.76
1997 - Class B shares 1.71 4.76 2.10 4.37
1997 - Class C shares
(commenced August 15) 1.71c 4.98c 2.10c 4.59c
1997 - Institutional
Shares 0.65 5.72 1.04 5.33
1997 - Service Shares
(commenced March 12) 1.15c 5.33c 1.54c 4.94c
1996 - Class A shares 1.16 5.81 1.64 5.33
1996 - Class B shares
(commenced May 1) 1.70c 5.16c 2.14c 4.72c
1996 - Institutional
shares 0.65 6.35 1.11 5.89
1995 - Class A shares 1.29 6.23 1.58 5.94
1995 - Institutional
shares
(commenced August
1) 0.65c 6.01c 1.08c 5.58c
1994 - Class A shares 1.28 5.73 1.53 5.48
- --------------------------------------------------------------------------------------
</TABLE>
26-R
<PAGE>
[This page intentionally left blank]
27-R
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS/A/
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE, NET INVESTMENT AND
BEGINNING INVESTMENT FOREIGN CURRENCY
OF PERIOD INCOME RELATED TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1998 - Class A Shares $ 9.97 $0.82 $(0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares (commenced
August 1) 10.00 0.17 (0.02)
1997 - Class B Shares (commenced
August 1) 10.00 0.15 (0.02)
1997 - Class C Shares (commenced
August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares (commenced
August 1) 10.00 0.17 (0.02)
- -----------------------------------------------------------------------------
</TABLE>
28-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
FROM IN EXCESS NET REALIZED NET INCREASE NET ASSETS
NET OF NET GAIN ON (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT INVESTMENT IN NET VALUE, END TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE OF PERIOD RETURNB RATE (IN 000S)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.78) $ -- $-- $(0.81) $9.16 (0.70)% 113.44% $401,626
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 29,256
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 8,532
(0.81) -- -- (0.80) 9.17 (0.32) 113.44 97,547
(0.76) -- -- (0.80) 9.17 (0.79) 113.44 447
(0.17) (0.01) -- (0.03) 9.97 1.50d 44.80d 325,911
(0.15) (0.01) -- (0.03) 9.97 1.31d 44.80d 10,308
(0.14) (0.01) -- -- 9.97 1.46d 44.80d 1,791
(0.18) (0.01) -- (0.03) 9.97 1.58d 44.80d 2
(0.17) (0.01) -- (0.03) 9.97 1.46d 44.80d 2
- --------------------------------------------------------------------------------------------
</TABLE>
29-R
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET EXPENSES INCOME EXPENSES TO INCOME
TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31,
1998 - Class A Shares 1.09% 8.25% 1.36% 7.98%
1998 - Class B Shares 1.84 7.61 1.88 7.57
1998 - Class C Shares 1.84 7.61 1.88 7.57
1998 - Institutional
Shares 0.84 9.47 0.88 9.43
1998 - Service Shares 1.34 9.17 1.38 9.13
FOR THE PERIOD ENDED
OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 0.95c 7.06c 1.57c 6.44c
1997 - Class B Shares
(commenced August 1) 1.70c 6.28c 2.07c 5.91c
1997 - Class C Shares
(commenced August 15) 1.70c 6.17c 2.07c 5.80c
1997 - Institutional
Shares
(commenced August
1) 0.70c 7.16c 1.07c 6.79c
1997 - Service Shares
(commenced August 1) 1.20c 6.69c 1.57c 6.32c
- --------------------------------------------------------------------------------------------
</TABLE>
30-R
<PAGE>
APPENDIX B
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 were taken into
account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
f Calculated based on the average shares outstanding methodology.
g Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
31-R
<PAGE>
Goldman Sachs Fixed Income Funds
Prospectus (Institutional Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during its
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. Information on the operation
of the public reference room may be obtained by calling the SEC at 1-800-
SEC-0330. The Fund's investment company registration number is 811-5349.
[LOGO]
16
<PAGE>
Index
General Investment Management Approach
Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Government Income Fund
7 Goldman Sachs Municipal Income Fund
8 Goldman Sachs Core Fixed Income Fund
9 Goldman Sachs Global Income Fund
10 Goldman Sachs High Yield Fund
Other Investment Practices and Securities
Principal Risks of the Fund
Fund Performance
12 Fund Fees and Expenses
Service Providers
Dividends
Shareholder Guide
28 How to Buy Shares
31 How to Sell Shares
Taxation
A-1 Appendix A:
Additional Information on
Portfolio Risks,
Securities and Techniques
B-1 Appendix B:
Financial Highlights
17
<PAGE>
SERVICE
GOLDMAN SACHS FIXED INCOME FUNDS SHARES
March 1, 1999
Prospectus
. Goldman Sachs
Adjustable Rate
Government Fund
. Goldman Sachs
Short Duration
Government Fund
. Goldman Sachs
Short Duration
(INSERT ARTWORK) Tax-Free Fund
. Goldman Sachs
Government
Income Fund
. Goldman Sachs
Municipal
Income Fund
. Goldman Sachs
Core Fixed
Income Fund
. Goldman Sachs
Global Income
Fund
. Goldman Sachs
High Yield
Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income
and High Yield Funds. Goldman Sachs Funds Management, L.P. serves as invest-
ment adviser to the Adjustable Rate Government and Short Duration Government
Funds. Goldman Sachs Asset Management International serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management, Goldman
Sachs Funds Management, L.P., and Goldman Sachs Asset Management Interna-
tional are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
ACTIVE MANAGEMENT WITHIN A RISK-MANAGED FRAMEWORK
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. SECURITY SELECTION--In selecting securities for each Fund, the Investment
Adviser capitalizes on the extensive resources of Goldman Sachs, including
fixed-income and equity research professionals.
2. SECTOR ALLOCATION--The Investment Adviser assesses relative value among
sectors (such as U.S. corporate, asset-backed and mortgage-backed securi-
ties) to create investment strategies that meet each Fund's objectives.
3. YIELD CURVE STRATEGIES--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
THE INVESTMENT ADVISER DE-EMPHASIZES INTEREST RATE DURATION AS A MEANS OF
GEN- ERATING INCREMENTAL RETURN. INSTEAD, THE INVESTMENT ADVISER SEEKS TO
ADD VALUE THROUGH SECURITY AND SECTOR SELECTION.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1-L
<PAGE>
General Investment Management Approach continued
Each of the Funds described in this Prospectus has a target duration. 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 other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement 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
interests of a Fund and its shareholders.
2-L
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Six-month to One-year U.S. Treasury Security
Maximum = 2 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 9-month bill
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARKS: Six-Month and One-Year U.S. Treasury Security
3-L
<PAGE>
Goldman Sachs Short Duration Government Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Two-year U.S. Treasury Security plus or minus 0.5 years
Maximum = 3 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 2-year bond
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARK: Two-Year U.S. Treasury Security
4-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
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 ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), 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 private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 3-year Municipal Bond Index plus or minus 0.5 years
Maximum = 4 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 3-year bond
CREDIT QUALITY:
Minimum = BBB or Baa by a NRSRO at the time of purchase, or, if unrated,
determined by the Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Three-Year Municipal Bond Index
5-L
<PAGE>
Goldman Sachs Government Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Mutual Fund Government/Mortgage Index plus or minus
1 year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY: Non-U.S. Government Securities rated AAA or Aaa by a NRSRO
at the time of purchase or, if unrated, determined by the Investment Adviser
to be of comparable quality
BENCHMARK: Lehman Brothers Mutual Fund Government/Mortgage Index
6-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from certain of which (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 15-Year Municipal Bond Index plus or minus one year
Maximum = 12 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 15-year bond
CREDIT QUALITY:
Minimum = BBB/Baa at the time of purchase; Weighted Average = AA or Aa Secu-
rities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers 15-Year Municipal Bond Index
7-L
<PAGE>
Goldman Sachs Core Fixed Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
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 secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Aggregate Bond Index plus or minus one year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY:
Minimum = BBB or Baa; Minimum for non-U.S. dollar denominated securities =
AA or Aa
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Aggregate Bond Index
8-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The 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. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other single foreign country. The Fund may also invest up to
10% of its total assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..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
..Commercial paper
..Mortgage-Backed Securities and asset backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
9-L
<PAGE>
Goldman Sachs Global Income Fund continued
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = J.P. Morgan Global Government Bond Index (hedged) plus or minus
2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
CREDIT QUALITY:
Minimum = BBB or Baa at time of purchase; At least 50% of total assets = AAA
or Aaa.
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: J.P. Morgan Global Government Bond Index (hedged)
10-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities rated, at the time of invest-
ment, below investment grade. Non-investment grade securities are securities
rated BB, Ba or below by a NRSRO, or, if unrated, determined by the Invest-
ment Adviser to be of comparable quality. The Fund may invest in all types
of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in emerging
countries) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers High Yield Bond Index plus or minus 2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
11-L
<PAGE>
Goldman Sachs High Yield Fund continued
CREDIT QUALITY:
At least 65% of total assets = BB or Ba or lower at the time of investment
or, if unrated, determined by the Investment Adviser to be of comparable
quality
NON-INVESTMENT GRADE FIXED INCOME SECURITIES (COMMONLY KNOWN AS "JUNK
BONDS") TEND TO OFFER HIGHER YIELDS THAN HIGHER RATED SECURITIES WITH SIMI-
LAR MATURITIES. NON-INVESTMENT GRADE FIXED INCOME SECURITIES ARE, HOWEVER,
CONSIDERED SPECULATIVE AND GENERALLY INVOLVE GREATER PRICE VOLATILITY AND
GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST THAN HIGHER RATED SECURITIES.
THE FUND MAY PURCHASE THE SECURITIES OF ISSUERS THAT ARE IN DEFAULT.
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and non-convertible
bonds) held by the Fund during the fiscal year ended October 31, 1998:
CREDIT QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND'S ASSETS
--------------------------------------------
<S> <C>
AAA/Aaa 4.7%
AA/Aa 0%
A 0.5%
BBB/Baa 0.5%
BB/Ba 8.1%
Below Ba 81.8%
Not rated 0%
Comparable to A 0%
Comparable to BBB/Baa 0%
Comparable to BB/Ba or lower 0.9%
Comparable to Below Ba 3.5%
--------------------------------------------
100.0%
--------------------------------------------
</TABLE>
BENCHMARK: Lehman Brothers High Yield Bond Index
12-L
<PAGE>
[This page intentionally left blank]
13-L
<PAGE>
Other Investment Practices and Securities
Each of the Funds may use active management techniques to manage its duration
and term structure, to manage its exposure (if any) to foreign currencies and
to seek enhanced returns. The table below identifies some of these techniques
that may (but are not required to) be used by the Funds. The table also high-
lights the differences among the Funds in their use of these techniques and
other investment practices and investment securities. Numbers in this table
show allowable usage only; for actual usage, consult the Fund's
annual/semiannual reports. For more information see Appendix A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No asset limitation on usage; Limited only by the objectives and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Credit and Interest Rate Swaps . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps . . -- .
Options (including Options on
Futures) . . . .
Repurchase Agreements . . . .
Securities Lending . . . .
Standby Commitments and Tender
Option Bonds -- -- . --
Options on Foreign Currencies -- -- -- --
- ----------------------------------------------------------------------------
</TABLE>
14-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
-- . . .
-- . . .
-- . . .
. . . .
-- . . .
. . . .
-- . . --
-- . . .
. . . .
. . . .
. . . .
. -- -- --
-- . . .
- ---------------------------------------------------------------------------------------------------
</TABLE>
15-L
<PAGE>
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No policy limitation on usage; Limited only by the objective and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities -- -- -- .
Bank Obligations -- -- -- .
Convertible Securities -- -- -- --
Corporate Debt Obligations and Trust
Preferred Securities -- -- -- .
Emerging Market Securities -- -- -- --
Foreign Securities/1/ -- -- -- --
Foreign Government Securities -- -- -- --
Non-Investment Grade Fixed
Income Securities -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities -- -- -- --
Taxable Municipal Securities -- -- 20 --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./4/ .
- -------------------------------------------------------------------------------
</TABLE>
1 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
2 Investment in non-U.S. dollar-denominated fixed-income securities is lim-
ited to 25% of total assets.
3 High Yield Fund may invest up to 35% of total assets in investment grade
securities.
4 Short-Duration Tax-Free and Municipal Income Funds may invest no more than
20% of net assets in taxable investments.
5 High Yield Fund may for this purpose invest in investment grade securities.
16-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- . . .
-- . . .
-- . -- .
-- . . .
-- 10 10 25
-- ./2/ . ./2/
-- . . .
-- -- -- 65+/3/
-- -- -- .
-- . . .
-- . . .
-- . . .
-- . . .
-- . . .
-- -- -- .
-- . . .
20 . -- .
80+ . -- .
./4/ . . ./5/
- ---------------------------------------------------------------------------------------------------
</TABLE>
17-L
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. The following summarizes
important risks that apply to the Funds and may result in a loss of your
investment. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund will achieve its investment
objective.
..Applicable
- --Not Applicable
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
INVESTMENT RISK FUND FUND FUND FUND
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
Government Securities . . . .
Market . . . .
Management . . . .
Other . . . .
Concentration -- -- -- --
Foreign -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ----------------------------------------------------------------
</TABLE>
18-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
-- -- . --
-- . . .
-- -- -- .
. -- -- --
- ---------------------------------------------------------------------------------------------------
</TABLE>
19-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
All Funds:
..INTEREST RATE RISK--The risk that, when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..CREDIT/DEFAULT RISK--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..CALL RISK--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..EXTENSION RISK--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..DERIVATIVES RISK--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
instruments, which may be leveraged.
..GOVERNMENT SECURITIES RISK--The risk that the U.S. government will not provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by law.
..MARKET RISK--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..MANAGEMENT RISK--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..OTHER RISKS--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..CONCENTRATION RISK--The Global Income 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 investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political or economic events which may occur in those countries.
20-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
..FOREIGN RISKS--The Core Fixed Income, Global Income and High Yield Fund will
be subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less gov-
ernment regulation, less public information and less economic, political and
social stability. The Funds will also be subject to the risk of negative for-
eign currency rate fluctuations. Foreign risks will normally be greatest when
a Fund invests in issuers located in emerging countries.
.."JUNK BOND" RISK--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are considered
predominantly speculative by traditional investment standards. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities may be subject to greater
price volatility due to such factors as specific corporate developments,
interest rate sensitivity, negative perceptions of the junk bond markets
generally and less secondary market liquidity.
..TAX RISK--The Short Duration Tax-Free and Municipal Income Funds may be more
adversely impacted by changes in tax rates and policies than the other Funds.
Because interest income from Municipal Securities is normally 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 sup-
ply, liquidity and marketability of Municipal Securities. This could in turn
affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and Appendix A. Both are
important to your investment choice.
21-L
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Service Shares from year to year; and (b) how the average annual returns of
a Fund's Service Shares compare to those of a broad-based securities market
index. The bar chart and table assume reinvestment of dividends and distri-
butions. A Fund's past performance is not necessarily an indication of how
the Fund will perform in the future. Performance reflects expense limita-
tions in effect. If expense limitations were not in place, a Fund's perfor-
mance would have been reduced.
2
<PAGE>
FUND PERFORMANCE
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/27/97) % %
Six-Month U.S. Treasury Security* % %
One-Year U.S. Treasury Security* % %
-----------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
3
<PAGE>
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 4/10/96) % %
Two-Year U.S. Treasury Security* % %
-----------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
4
<PAGE>
FUND PERFORMANCE
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst
Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR 3 YEARS SINCE INCEPTION
---------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 9/20/94) % % %
Lehman Brothers Three-Year Municipal
Bond Index* % % %
---------------------------------------------------------------------
</TABLE>
* The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
5
<PAGE>
Government Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) % %
Lehman Brothers Mutual Fund
Government/Mortgage Index* % %
-----------------------------------------------------------
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
6
<PAGE>
FUND PERFORMANCE
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/15/97) % %
Lehman Brothers 15-Year Municipal
Bond Index* % %
-----------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
7
<PAGE>
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/13/96) % %
Lehman Brothers Aggregate Bond Index* % %
--------------------------------------------------------------
</TABLE>
* The Lehman Brothers Aggregate Bond Index represents an unmanaged diversi-
fied portfolio of fixed-income securities, including U.S. Treasuries,
investment-grade corporate bonds and mortgage-backed and asset-backed secu-
rities. The Index figures do not reflect any fees or expenses.
8
<PAGE>
FUND PERFORMANCE
Global Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/12/97) % %
J.P. Morgan Global Government
Bond Index (hedged)* % %
-----------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
9
<PAGE>
High Yield Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
----------------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/1/97) % %
Lehman Brothers High Yield Bond Index* % %
----------------------------------------------------------------
</TABLE>
* The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you may pay if you buy and hold
Service Shares of a Fund.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX-FREE
FUND FUND FUND
- -------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS):/1/
Management Fees/2/ 0.40% 0.50% 0.40%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.13% 0.26% 0.64%
- -------------------------------------------------------------------------
Total Fund Operating Expenses/4/ 1.03% 1.26% 1.54%
- -------------------------------------------------------------------------
</TABLE>
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Short Duration Tax-Free, Government Income, Municipal
Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and 0.25%, respec-
tively. AS A RESULT OF FEE WAIVERS, THE CURRENT MANAGEMENT FEES OF THE SHORT
DURATION TAX-FREE, GOVERNMENT INCOME, MUNICIPAL INCOME AND GLOBAL INCOME FUNDS
ARE 0.35%, 0.54%, 0.50% AND 0.65%, RESPECTIVELY, OF SUCH FUNDS' AVERAGE DAILY
NET ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF THE
INVESTMENT ADVISER.
/3/Service Organizations may charge other fees to their customers who are bene-
ficial owners of Service Shares in connection with their customers' accounts.
Such fees may affect the return customers realize with respect to their invest-
ments.
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE
GOVERNMENT MUNICIPAL FIXED GLOBAL
INCOME INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None None
None None None None None
None None None None None
None None None None None
None None None None None
0.65% 0.55% 0.40% 0.90% 0.70%
0.50% 0.50% 0.50% 0.50% 0.50%
0.31% 0.43% 0.25% 0.20% 0.15%
- -----------------------------------------------------------------------------------------------
1.46% 1.48% 1.15% 1.60% 1.35%
- -----------------------------------------------------------------------------------------------
</TABLE>
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the aver-
age daily net assets of each Fund's Service Shares, plus all other ordinary
expenses of the Funds not detailed above. The Investment Adviser has volun-
tarily agreed to reduce or limit "Other Expenses" of each Fund (excluding
management fees, transfer agency fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses) to the following percentages of each Fund's average daily net
assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
---------------------------
<S> <C>
Adjustable Rate
Government 0.05%
Short Duration
Government 0%
Short Duration
Tax-Free 0%
Government
Income 0%
Municipal Income 0%
Core Fixed
Income 0.10%
Global Income 0%
High Yield 0.02%
</TABLE>
13
<PAGE>
AS A RESULT OF CURRENT WAIVERS AND EXPENSE LIMITATIONS ACTUALLY INCURRED,
"OTHER EXPENSES" AND "TOTAL FUND OPERATING EXPENSES" OF THE FUNDS ARE AS SET
FORTH BELOW. THE WAIVERS AND EXPENSE LIMITATIONS MAY BE TERMINATED AT ANY TIME
AT THE OPTION OF THE INVESTMENT ADVISER. If this occurs, "Other Expenses" and
"Total Fund Operating Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TOTAL FUND
OTHER EXPENSES OPERATING EXPENSES
- -------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE RATE GOVERNMENT 0.09% 0.99%
- -------------------------------------------------------------
SHORT DURATION GOVERNMENT 0.04% 1.04%
- -------------------------------------------------------------
SHORT DURATION TAX-FREE 0.04% 0.89%
- -------------------------------------------------------------
GOVERNMENT INCOME 0.04% 1.08%
- -------------------------------------------------------------
MUNICIPAL INCOME 0.04% 1.04%
- -------------------------------------------------------------
CORE FIXED INCOME 0.14% 1.04%
- -------------------------------------------------------------
GLOBAL INCOME 0.04% 1.19%
- -------------------------------------------------------------
HIGH YIELD 0.06% 1.26%
- -------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Service
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE GOVERNMENT $105 $328 $569 $1,259
- ------------------------------------------------------------
SHORT DURATION GOVERNMENT $128 $400 $692 $1,523
- ------------------------------------------------------------
SHORT DURATION TAX-FREE $157 $486 $839 $1,834
- ------------------------------------------------------------
GOVERNMENT INCOME $149 $462 $797 $1,746
- ------------------------------------------------------------
MUNICIPAL INCOME $151 $468 $808 $1,768
- ------------------------------------------------------------
CORE FIXED INCOME $117 $365 $633 $1,398
- ------------------------------------------------------------
GLOBAL INCOME $163 $505 $871 $1,900
- ------------------------------------------------------------
HIGH YIELD $137 $428 $739 $1,624
- ------------------------------------------------------------
</TABLE>
In addition to the compensation itemized above, certain Service Organizations
may receive other compensation in connection with the sale and distribution of
Service Shares or for services to their customers' accounts and/or the Funds.
Such fees, if any, may affect the return such customers realize with respect to
their investments. For additional information regarding such compensation, see
"Shareholder Guide" in the Prospectus and "Other Information" in the Statement
of Additional Information ("Additional Statement")
15
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
------------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Short Duration Tax-Free Fund
One New York Plaza Government Income Fund
New York, New York 10004 Municipal Income Fund
Core Fixed Income Fund
High Yield Fund
------------------------------------------------------------------------------
Goldman Sachs Funds Management, L.P.
("GSFM") Adjustable Rate Government Fund
One New York Plaza Short Duration Government Fund
New York, New York 10004
------------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") Global Income Fund
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of February , 1999, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in the U.S. and foreign markets. As permitted by applicable
law, these orders may be directed to any brokers, including Goldman Sachs
and its affiliates. While the Investment Adviser is ultimately responsible
for the management of the Funds, it is able to draw upon the research and
expertise of its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities. In addition, the
Investment Adviser has access to the research and certain proprietary tech-
nical models developed by Goldman Sachs, and will apply quantitative and
qualitative analysis in determining the appropriate allocations among cate-
gories of issuers and types of securities.
1-M
<PAGE>
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
CONTRACTUAL RATE OCTOBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.39%
-----------------------------------------------------------------------
Government Income 0.65% 0.52%
-----------------------------------------------------------------------
Municipal Income 0.55% 0.54%
-----------------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------------
High Yield 0.70% 0.68%
-----------------------------------------------------------------------
GSFM:
-----------------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------------
Short Duration Government 0.50% 0.47%
-----------------------------------------------------------------------
GSAM:
-----------------------------------------------------------------------
Global Income 0.90% 0.60%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify its voluntary limitation in the future at
its discretion.
2-M
<PAGE>
SERVICE PROVIDERS
FUND MANAGERS
Fixed Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $40 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Erica Adelberg PORTFOLIO MANAGER-- SINCE 1995 MS. ADELBERG JOINED THE
VICE PRESIDENT GOVERNMENT INCOME FUND INVESTMENT ADVISER IN
1995, AFTER WORKING AS A
MORTGAGE STRATEGIST AT
GOLDMAN SACHS.
- ---------------------------------------------------------------------------------------------
Jonathan A. PORTFOLIO MANAGER-- SINCE 1991 MR. BEINNER JOINED THE
Beinner ADJUSTABLE RATE INVESTMENT ADVISER IN
MANAGING GOVERNMENT FUND 1990.
DIRECTOR AND SHORT DURATION GOVERNMENT
CO-HEAD U.S. FUND
FIXED INCOME GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James B. Clark PORTFOLIO MANAGER-- SINCE 1994 MR. CLARK JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1994 AFTER WORKING AS AN
SHORT DURATION GOVERNMENT INVESTMENT MANAGER IN
FUND THE MORTGAGE BACK
GOVERNMENT INCOME FUND SECURITIES GROUP AT
TRAVELERS INSURANCE
COMPANY.
- ---------------------------------------------------------------------------------------------
Peter A. Dion PORTFOLIO MANAGER-- SINCE 1995 MR. DION JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1992.
SHORT DURATION GOVERNMENT
FUND
- ---------------------------------------------------------------------------------------------
C. Richard Lucy PORTFOLIO MANAGER-- SINCE 1992 MR. LUCY JOINED THE
MANAGING ADJUSTABLE RATE INVESTMENT ADVISER IN
DIRECTOR AND GOVERNMENT FUND 1992.
CO-HEAD U.S. SHORT DURATION GOVERNMENT
FIXED INCOME FUND
GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James P. PORTFOLIO MANAGER-- SINCE 1995 MR. MCCARTHY JOINED THE
McCarthy ADJUSTABLE RATE INVESTMENT ADVISER IN
VICE PRESIDENT GOVERNMENT FUND 1995 AFTER WORKING FOUR
SHORT DURATION GOVERNMENT YEARS AT NOMURA
FUND SECURITIES, WHERE HE WAS
AN ASSISTANT VICE
PRESIDENT AND AN
ADJUSTABLE RATE MORTGAGE
TRADER.
- ---------------------------------------------------------------------------------------------
</TABLE>
3-M
<PAGE>
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Elisabeth Shupf PORTFOLIO SINCE 1995 BEFORE REJOINING THE
Lonsdale MANAGER -- INVESTMENT ADVISER IN LATE
VICE PRESIDENT SHORT DURATION 1995, MS. LONSDALE WAS A
TAX-FREE FUND DIRECTOR OF FITCH INVESTORS
MUNICIPAL INCOME SERVICE DURING MOST OF
FUND 1995, EVALUATING THE CREDIT
RATINGS OF TAX-BACKED
ISSUES. PRIOR TO THAT, SHE
WORKED FOR TEN YEARS IN THE
GOLDMAN SACHS MUNICIPAL
FINANCE DEPARTMENT.
- ----------------------------------------------------------------------------------
Benjamin S. PORTFOLIO SINCE 1993 MR. THOMPSON JOINED THE
Thompson MANAGER -- INVESTMENT ADVISER IN 1992.
VICE PRESIDENT SHORT DURATION
TAX-FREE FUND
MUNICIPAL INCOME
FUND
- ----------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder PORTFOLIO SINCE 1997 MS. GOLDER JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND SHE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PRIOR TO JOINING THE
INVESTMENT ADVISER, SHE
SPENT SIX YEARS AT SAUDI
INTERNATIONAL BANK AS A
HIGH YIELD CREDIT ANALYST
AND PORTFOLIO MANAGER.
- ----------------------------------------------------------------------------------
Andrew Jessop PORTFOLIO SINCE 1997 MR. JESSOP JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND HE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PREVIOUSLY, HE WORKED SIX
YEARS MANAGING HIGH YIELD
PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
</TABLE>
4-M
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Michael L. PORTFOLIO SINCE 1997 MR. PASTERNAK IS A PRODUCT
Pasternak MANAGER -- MANAGER FOR HIGH YIELD
VICE PRESIDENT HIGH YIELD FUND ASSETS AND CONTRIBUTES TO
THE MANAGEMENT OF HIGH
YIELD ASSETS. HE JOINED THE
INVESTMENT ADVISER IN 1997.
PRIOR TO THAT, HE SPENT
EIGHT YEARS MANAGING HIGH
YIELD CORPORATE BOND AND
LOAN PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
Christopher PORTFOLIO SINCE 1997 MR. TESTA JOINED THE
Testa MANAGER -- INVESTMENT ADVISER IN 1994.
VICE PRESIDENT HIGH YIELD FUND HE IS RESPONSIBLE FOR
AND DIRECTOR OF MANAGING HIGH YIELD ASSETS.
CREDIT RESEARCH BEFORE JOINING THE
INVESTMENT ADVISER, HE WAS
A CREDIT ANALYST WITH CS
FIRST BOSTON FROM TO .
PRIOR TO THAT, HE WAS AN
ANALYST FOR METROPOLITAN
LIFE INSURANCE COMPANY
INVESTING IN PRIVATE
PLACEMENTS AND PUBLIC DEBT.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen PORTFOLIO SINCE 1992 MR. FITZGERALD JOINED THE
Fitzgerald MANAGER -- INVESTMENT ADVISER IN 1992.
EXECUTIVE GLOBAL INCOME
DIRECTOR, FUND
MANAGING
DIRECTOR AND
CHIEF
INVESTMENT
OFFICER FOR
INTERNATIONAL
INCOME
- ----------------------------------------------------------------------------------
Andrew Wilson PORTFOLIO SINCE 1995 MR. WILSON JOINED THE
EXECUTIVE MANAGER -- INVESTMENT ADVISER IN 1995.
DIRECTOR GLOBAL INCOME PRIOR TO HIS CURRENT
FUND POSITION, 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.
- ----------------------------------------------------------------------------------
</TABLE>
5-M
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates 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.
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 affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. 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.
6-M
<PAGE>
SERVICE PROVIDERS
YEAR 2000
Many computer systems were designed using only two digits to signify the year
(for example, "98" for "1998"). On January 1, 2000, if these computer systems
are not corrected, they may incorrectly interpret "00" as the year "1900"
rather than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct forward-
looking calculations, these computer problems may occur prior to January 1,
2000. Like other investment companies and financial and business organizations,
the Funds could be adversely affected in their ability to process securities
trades, price securities, provide shareholder account services and otherwise
conduct normal business operations if the computer systems used by the Invest-
ment Adviser or other Fund service providers do not adequately address this
problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken the
following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..Currently, the Investment Adviser does not anticipate that the transition
to the 21st century will have any material impact on its ability to
continue to service the Funds at current levels.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
..At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be
sufficient to avoid any adverse effect on the Funds due to the Year 2000
Problem. Furthermore, even if the actions taken by the Fund's Investment
Adviser and other service providers are successful, the Fund may
nevertheless suffer losses if the issuers of securities held by the Fund
are adversely affected by the Year 2000 Problem. Also, it is possible that
the normal operations of the Fund will, in any event, be disrupted
significantly by the failure of communications and public utility
companies, governmental entities, financial processors or others to perform
their services as a result of the Year 2000 Problem.
7-M
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund or
units of the ILA Portfolios. Special restrictions may apply for exchanges in
certain ILA Portfolios. See the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. 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.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME CAPITAL GAINS
DIVIDENDS DISTRIBUTIONS
------------------ -----------------
FUND DECLARED PAID DECLARED AND PAID
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Tax-Free DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Government Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Municipal Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Core Fixed Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Global Income MONTHLY MONTHLY ANNUALLY
- ----------------------------------------------------------------
High Yield DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
</TABLE>
8-M
<PAGE>
DIVIDENDS
From time to time a portion of such 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 ("NAV") per share may be represented by undistributed income
(in the case of the Global Income Fund) or realized or unrealized apprecia-
tion of any Fund's portfolio securities. Therefore, subsequent distributions
on such shares from such income or realized appreciation may be taxable to
the investor even if the NAV of the shares is, as a result of the distribu-
tions, reduced below the cost of such shares and the distributions (or por-
tions thereof) represent a return of a portion of the purchase price.
9-M
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load will be charged.
Purchases of Service Shares must be settled within three business days of
receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders in a
timely fashion. Service Organizations should place an order with Goldman
Sachs at 800-621-2550 and either:
..Wire federal funds to the Northern Trust Company ("Northern") as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; OR
..Initiate an Automated Clearing House Network ("ACH") transfer to ensure
receipt by Northern on the next business day; OR
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--Name
of Fund and Class of Shares, c/o Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606. Goldman Sachs Trust (the "Trust") will not accept
a check drawn on a foreign bank or a third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
1-T
<PAGE>
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..The Service Organization or intermediary will be responsible for transmit-
ting accepted orders to the Trust within the time period agreed upon by
them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payment for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers.
Service Organizations may also charge fees directly to their customers in
connection with their customer accounts. These fees would be in addition to
any amounts received by the Service Organization from the Trust and may
affect the return earned on an investment in a Fund.
The Investment Adviser, Distributor and/or their affiliates pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to selected Service Organizations and other persons in
connection with the sale and/or servicing of shares of the Funds and other
Goldman Sachs Funds. Subject to applicable NASD regulations, the Investment
Adviser, Distributor and/or their affiliates may also contribute to various
cash and non-cash incentive arrangements to promote the sale of shares. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular Goldman Sachs Funds, the particular program involved, or the
amount of reimbursable expenses. Additional compensation based on sales may,
but is currently not expected to, exceed 0.50% (annualized) of the amount
invested.
2-T
<PAGE>
SHAREHOLDER GUIDE
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Service Shares.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
What Is My Minimum Investment In The Funds?
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 Serv-
ice Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Funds reserve the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a 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 the management of
a Fund.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's portfolio manager.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the Funds' investments may be
valued based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trustees. Debt obligations with a
remaining maturity of 60 days or less are valued at amortized cost.
3-T
<PAGE>
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). This occurs after the determination, if
any, of income declared as a dividend (except in the case of the Global
Income Fund). Fund shares will not be priced on any day the New York Stock
Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME BY
WHICH ORDERS MUST BE RECEIVED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE IS STOPPED AT A TIME OTHER
THAN 4:00 P.M. NEW YORK TIME.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
When Will Shares Be Issued And Dividends Begin To Be Paid?
GLOBAL INCOME FUND: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared on or after such purchase date.
FOR ALL OTHER FUNDS:
..Shares Purchased by Federal Funds Wire or ACH Transfer:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the business day after the purchase order is received; or
(ii) the day that the federal funds wire or ACH transfer is received by
State Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased by Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the business day after pay-
ment is received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
4-T
<PAGE>
SHAREHOLDER GUIDE
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. GENERALLY,
EACH FUND WILL REDEEM ITS SERVICE SHARES ON ANY BUSINESS DAY AT THEIR NAV
NEXT DETERMINED AFTER RECEIPT OF AN ORDER IN PROPER FORM. Redemption pro-
ceeds may be sent to recordholders by check or by wire (if the wire instruc-
tions are on record).
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------
<S> <C>
BY WRITING: Goldman, Sachs & Co.
Transfer Agent
4900 Sears Tower
Chicago, IL 60606
--------------------------------------
BY TELEPHONE: 800-621-2550
--------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
NOTE: IT MAY BE DIFFICULT TO MAKE TELEPHONE REDEMPTIONS IN TIMES OF DRASTIC
ECONOMIC OR MARKET CHANGES.
5-T
<PAGE>
How Are Redemption Proceeds Paid?
BY WIRE: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the Federal Reserve Bank is closed on the day that
the redemption proceeds would ordinarily be wired, wiring the redemption
proceeds may be delayed one additional business day.
..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 Organiza-
tion in the transfer process. If a problem with such performance arises,
you should deal directly with such intermediaries or Service Organizations.
BY CHECK: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request, unless the shares to be sold were recently paid
for by check. In that case, the Funds will pay the redemption proceeds when
the check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Service Shares of each Fund (other than the Global Income Fund) earn divi-
dends declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Funds reserve the right to:
..Redeem the Service Shares of any Service Organization whose account balance
is less than $50 as a result of earlier redemptions. The Funds will not
redeem Service Shares on this basis if the value of the account falls below
the minimum account balance solely as a result of market conditions. The
Funds will give 60
6-T
<PAGE>
SHAREHOLDER GUIDE
days' prior written notice to allow a Service Organization to purchase suf-
ficient additional Service Shares of the Fund in order to avoid such a
redemption.
..Pay redemptions by a distribution in kind of securities (instead of cash)
from the Fund. If you receive redemptions in kind, you should expect to
incur transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
Service Shares of any other Goldman Sachs Fund.
<TABLE>
<CAPTION>
INSTRUCTIONS FOR EXCHANGING SHARES:
----------------------------------------------------------------------
<S> <C> <C>
BY WRITING: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names
.The dollar amount to be exchanged
.Mail the request to:
Goldman, Sachs & Co.
Attention: Goldman Sachs Funds--
Name of Fund and Class of Shares,
c/o Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606
----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Fund):
.Call 1-800-621-2550 (8:00 a.m. to 6:30 p.m.
New York time)
----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..Telephone exchanges normally will be made only to an identical account.
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market changes.
7-T
<PAGE>
..The Distributor may use reasonable procedures described under "What Do I
Need To Know About Telephone Redemption Requests?" in an effort to prevent
unauthorized or fraudulent telephone exchange requests.
The exchange privilege may be materially modified or withdrawn at any time
upon 60 days' written notice.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will Be Sent Regarding Investments in Service Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semiannual reports. Service Organizations
will also be provided with a printed confirmation for each transaction in
their account and a monthly account statement (quarterly in the case of the
Global Income Fund). A year-to-date statement for accounts will be provided
upon request made to Goldman Sachs. Service Organizations are responsible
for providing these or other reports to their customers who are the benefi-
cial owners of Service Shares in accordance with the rules that apply to
their accounts with the Service Organizations.
8-T
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Except for exempt-interest dividends paid by the Short Duration Tax-Free and
Municipal Income Funds as described below, Fund distributions are taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) to the extent they are attributable to the Fund's net
investment income, certain net realized foreign exchange gains, and net
short-term capital gains. They are taxable as long-term capital gain to the
extent they are attributable to the Fund's excess of net long-term capital
gains over net short-term capital losses. The tax status of any distribution
is the same regardless of how long you have been in the Fund and whether you
reinvest in additional shares or take them as cash. Certain distributions
paid by a Fund in January of a given year may be taxable to shareholders as
if received the prior December 31. The tax status of the dividends and dis-
tributions for each calendar year will be detailed in your annual tax state-
ment from the Fund.
At any time, a portion of a Fund's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Fund's
portfolio securities. Therefore, subsequent distributions on a Fund's shares
may be taxable to you, even if the NAV of your shares is, as a result,
reduced below the cost of those shares and the distributions represent a
return of the purchase price.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. As an alternative, the Global Income Fund (but not
the other Funds) may make an election to treat a proportionate amount of
such taxes as constituting a distribution to you, which would allow you
either to (1) credit such proportionate amount of taxes against your U.S.
federal income tax liability or (2) take such amount as an itemized deduc-
tion.
The Short Duration Tax-Free and Municipal Income Funds expect to distribute
"exempt-interest dividends." These dividends will be exempt income for fed-
eral income tax purposes. However, distributions, if any, derived from net
long-term capital gains of the Short Duration Tax-Free and Municipal Income
Funds will generally be taxable to you as long-term capital gains. Distribu-
tions, if any, derived from taxable interest income, net short-term capital
gains
1-O
<PAGE>
TAXATION
and certain net realized foreign exchange gains will be taxable to you as
ordinary income.
Interest on indebtedness incurred by you to purchase or carry shares of the
Short Duration Tax-Free and Municipal Income Funds generally will not be
deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free and Municipal Income Funds may be an item of tax
preference for purposes of determining your federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with
other adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal income
taxes.
If you receive an exempt-interest dividend on shares that are held by you
for six months or less, any loss on the sale or exchange of the shares will
be disallowed to the extent of such dividend amount.
TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Fund shares may generate a tax liability (unless
your investment is in an IRA or other tax-advantaged account). Depending
upon the purchase or sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods that you hold shares.) Any loss rec-
ognized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activity in some type of instru-
ments.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from any Fund (including the Short Dura-
tion Tax-Free and Municipal Income Funds) or on the value of the shares held
by you. More tax information is provided in the Additional Statement. You
should also consult your own tax adviser for information regarding all tax
consequences applicable to your investments in the Funds.
2-O
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that 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. Credit risk involves the risk that
the issuer could default on its obligations and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). 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. In either case, a change in the
prepayment rate can result in losses to investors.
The Funds may, as described in this Prospectus, invest in (a) derivative
instruments, (b) foreign securities, (c) municipal securities, (d) illiquid
securities and (e) temporary cash investments. These investments will pres-
ent additional risks as described further below.
In addition, the Funds are subject to certain fundamental investment
restrictions that are described in the Additional Statement. Fundamental
investment restrictions of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund as defined in the Additional
Statement. Each Fund's investment objectives and all policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval. If there is a change in a Fund's investment objec-
tive, shareholders should consider whether that Fund remains an appropriate
investment in light of their then current financial positions and needs.
1-P
<PAGE>
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. See "Financial High-
lights" in Appendix B for a statement of the Funds' historical portfolio
turnover rates. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding secu-
rities having a maturity at the date of purchase of one year or less.
B. OTHER PORTFOLIO RISKS
RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency trans-
actions involve additional risk of loss that can result from a lack of cor-
relation between changes in the value of derivative instruments and the
portfolio assets (if any) being hedged, the potential illiquidity of the
markets for derivative instruments, or the risks arising from margin
requirements and related leverage factors associated with such transactions.
The use of these management techniques also involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in secu-
rities prices, interest rates or currency prices. Each Fund may also invest
in derivative investments for non-hedging purposes (that is, to seek to
increase total return), which is considered a speculative practice and pre-
sents even greater risk of loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments 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, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is magni-
fied.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. 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.
2-P
<PAGE>
APPENDIX A
RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that
are not typically associated with U.S. dollar denominated or quoted securi-
ties of U.S. issuers. Foreign investments may be affected by changes in cur-
rency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency block-
age). 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 port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union ("EMU") pre-
sents unique uncertainties, including the legal treatment of certain out-
standing financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro; the fluctuation
of the euro relative to non-euro currencies during the transition period
from January 1, 1999 to December 31, 2000 and beyond; whether the interest
rate, tax and labor regimes of European countries participating in the euro
will converge over time; and whether the conversion of the currencies of
other countries such as the United Kingdom and Denmark into the euro and the
admission of other non-EMU countries such as Poland, Latvia and Lithuania as
members of the EMU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions
before or after the introduction of the euro, and could adversely affect the
value of securities held by the Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets
3-P
<PAGE>
may have substantially less volume than U.S. securities markets and securi-
ties of many foreign issuers are less liquid and more volatile than securi-
ties of comparable domestic issuers. Furthermore, with respect to certain
foreign countries, there is a possibility of nationalization, expropriation
or confiscatory taxation, imposition of withholding or other taxes on divi-
dend or interest payments (or, in some cases, capital gains), limitations on
the removal of funds or other assets of the Funds, and political or social
instability or diplomatic developments which could affect investments in
those countries.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse in the
event of a default. Periods of economic uncertainty may result in volatility
of market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers. A
sovereign debtor's willingness or ability to repay principal and pay inter-
est in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availabil-
ity of sufficient foreign exchange on the date a payment is due, the rela-
tive size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country.
Many emerging countries may be subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in emerging countries. Investing in emerging countries involves
greater risk of loss due to expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investments
and on repatriation of capital invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund. Settlement procedures in emerging
countries are frequently less developed and reliable than those in the
United States and may
4-P
<PAGE>
APPENDIX A
involve a Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have a
negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
.Both domestic and foreign securities that are not readily marketable
.Certain municipal leases and participation interests
.Certain stripped Mortgage-Backed Securities
. Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
5-P
<PAGE>
. Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and, therefore, is liquid
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity of a Fund's portfolio to the extent that quali-
fied 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 liq-
uid market exists.
C. PORTFOLIO SECURITIES AND TECHNIQUES
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS
U.S. Government Securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. Government Securities may be 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 pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government
Securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. Government Securities, where the interest and principal compo-
nents of stripped U.S. Government Securities are traded independently.
Interest in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of U.S. government.
6-P
<PAGE>
APPENDIX A
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. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include 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. In most cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, 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 Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include 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 prin-
cipal payments from a pool of mortgage loans. The market value of SMBS con-
sisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage loans are generally higher than pre-
vailing 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.
Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to
both call risk and extension risk as previously described. Because of these
risks, these securities can have significantly greater price and yield vola-
tility than with traditional fixed-income securities.
The value of Mortgage-Backed Securities that are structured as pass-through
mortgage securities that are collateralized by ARMs are less likely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. This is because interest rate declines may result in accelerated
prepayments of mortgages
7-P
<PAGE>
with the result that proceeds from prepayments will be reinvested at lower
interest rates. On the other hand, during periods of rising interest rates,
the value of ARMs 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 invest-
ments in ARMs may fluctuate more substantially since these limits may pre-
vent the security from fully adjusting its interest rate to the prevailing
market rates.
ASSET-BACKED SECURITIES
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Asset-backed securities present credit risks that
are not presented by Mortgage-Backed Securities. This is 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 possibil-
ity that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
MUNICIPAL SECURITIES
Municipal Securities include bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies 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 alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in the tax rates and policies than taxable
fixed-income securities.
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. Municipal Securities include private
activity bonds, municipal
8-P
<PAGE>
APPENDIX A
leases, certificates of participation, pre-refunded municipal securities and
auction rate securities.
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 con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected. Municipal
lease obligations and certificates of participation are subject to the added
risk that the governmental lessee will fail to appropriate funds to enable
it to meet its payment obligations under the lease. Although these obliga-
tions 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 recover fully a Fund's original investment.
Municipal Securities may be in the form of a tender option bond, which is a
Municipal Security (generally held pursuant to a custodial arrangement) hav-
ing a relatively long maturity and bearing interest at a fixed rate substan-
tially higher than prevailing short-term, tax-exempt rates. The bond is typ-
ically 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 dif-
ference between the bond's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term, tax-exempt rate. Certain tender option bonds may
be illiquid.
In order to enhance the liquidity of Municipal Securities, a Fund may (but
is not required to) acquire the right to sell a security to another party at
a guaranteed price and date. This 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 securi-
ties. Standby commitments may not be available or may not be available on
satisfactory terms.
9-P
<PAGE>
CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES
Corporate debt obligations include bonds, notes, debentures and other obli-
gations of corporations to pay interest and repay principal, and include
securities issued by banks and other financial institutions. A trust pre-
ferred or capital security is a long dated bond (for example, 30 years) with
preferred features. The preferred features are that payment of interest can
be deferred for a specified period without initiating a default event. The
securities are generally senior in claim to standard preferred stock but
junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
FOREIGN CURRENCY TRANSACTIONS
A Fund may, to the extent it invests in foreign securities, purchase or sell
foreign currencies on a cash basis or through forward contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. A Fund may engage in
foreign currency transactions for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, a Fund also may enter into such transactions to seek to increase
total return when the Investment Adviser anticipates fluctuation in the
value of the foreign currency, but securities denominated or quoted in that
currency do not present attractive investment opportunities and are not held
in the Fund's portfolio, which is considered a speculative practice. Some
Funds may also engage in cross-hedging by using forward contracts in a cur-
rency different from that in which the hedged security is denomi-
10-P
<PAGE>
APPENDIX A
nated or quoted if the Investment Adviser determines that there is a pattern
of correlation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). 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.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, 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.
STRUCTURED SECURITIES
Structured securities are securities whose value 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. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce 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 Refer-
ence. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities, and may be more
volatile, less liquid and more difficult to accurately price than less com-
plex securities. Structured securities include, but are not limited to,
inverse floating rate debt securities ("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 var-
ies by a magnitude that exceeds the magnitude
11-P
<PAGE>
of the change in the index rate of interest. The higher the degree of lever-
age of an inverse floater, the greater the volatility of its market value.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
These securities are issued at a discount from their face value because
interest payments are typically postponed until maturity. Pay-in-kind secu-
rities are securities that have interest payable by the delivery of addi-
tional securities. The market prices of these securities 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.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll involves the sale by a Fund of securities for deliv-
ery in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll 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 roll, the use of this technique will
diminish the Fund's investment performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage 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, and do not treat them as borrowings.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
A put option gives the purchaser of the option the right to sell, and the
writer (seller) of the option the obligation to buy, the underlying instru-
ment during the option period. A call option gives the purchaser of the
option the right to buy, and the writer (seller) of the option the obliga-
tion to sell, the underlying instrument
12-P
<PAGE>
APPENDIX A
during the option period. 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. A Fund may also, to the extent it invests in foreign securities,
purchase and sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
brokerage transaction costs. Options written or purchased by the Funds may
be traded on either U.S. or foreign exchanges or over-the-counter. Foreign
and over-the-counter options will present greater possibility of loss
because of their greater liquidity and credit risks.
YIELD CURVE OPTIONS
Each Fund may enter into options on the yield "spread" or differential
between two securities. Such transactions 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.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts are standardized, exchange-traded contracts that provide
for the sale or purchase of a specified financial instrument or currency at
a future time at a specified price. An option on a futures contract gives
the purchaser the right (and the writer of the option the obligation) to
assume a position in a futures contract at a specified exercise price within
a specified period of time. A futures
13-P
<PAGE>
contract may be based on various securities (such as U.S. Government Securi-
ties), foreign currencies, securities indices and other financial instru-
ments and indices. The Funds may engage in futures transactions on both U.S.
and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund invests in foreign securities, currency
exchange rates, or to otherwise manage their term structures and durations
in accordance with their investment objectives and policies. Each Fund may
also enter into closing purchase and sale transactions with respect to such
contracts and options. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums 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. Future contracts and
related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing 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 NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
14-P
<PAGE>
APPENDIX A
..Foreign exchanges may not provide the same protection as U.S. exchanges.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.
When-issued securities are securities that have been authorized but not yet
issued. When-issued securities are purchased in order to secure what is con-
sidered to be an advantageous price and yield to the Fund at the time of
entering into the transaction.
A forward commitment involves entering into a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settle-
ment period.
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 before the settlement date. Conversely, securities sold on a for-
ward commitment basis involves the risk that the value of the securities to
be sold may increase before the settlement date. Although a Fund will gener-
ally 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.
LENDING OF PORTFOLIO SECURITIES
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents or
U.S. Government Securities in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equiva-
lents. If the Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience a delay in the recovery of its securities or possible loss if the
institution with which it has engaged in a securities lending transaction
breaches its agreement with the Fund.
REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and
price. 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. Some Funds may also enter into repurchase
agreements involving certain foreign government securities.
15-P
<PAGE>
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 repurchase agree-
ment are less than the repurchase price and the cost of the Fund associated
with delay and enforcement of the repurchase agreement. In addition, in the
event of bankruptcy of the seller, a Fund could suffer other losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS
The Funds can borrow money from banks and enter into reverse repurchase
agreements with banks and other financial institutions in amounts not
exceeding one-third of its total assets. Reverse repurchase agreements
involve the sale of securities held by a Fund subject to the Fund's agree-
ment to repurchase them at a mutually agreed upon date and price (including
interest). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the Investment Adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by a Fund
decline in value while these transactions are outstanding, the NAV of the
Fund's outstanding shares will decline in value by proportionately more than
the decline in value of the securities. In addition, reverse repurchase
agreements involve the risk that the interest income earned by a Fund (from
the investment of the proceeds) will be less than the interest expense of
the transaction, that the market value of the securities sold by a Fund will
decline below the price the Fund is obligated to pay to repurchase the secu-
rities, and that the securities may not be returned to the Fund.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS
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 simi-
lar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a ref-
erence pool or pools of mortgages. Credit swaps involve the receipt of
floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transac-
tion the right to dispose of or acquire an asset (or group of assets), or
the right to receive or make a payment from the other party, upon the occur-
rence of specified credit events. Currency swaps involve the exchange of the
parties' respective rights to make or receive payments in specified
16-P
<PAGE>
APPENDIX A
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 enti-
tles the purchaser, to the extent that a specified index falls below a pre-
determined 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.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit 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 transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
INVERSE FLOATING RATE DEBT SECURITIES ("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.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, invest in other
investment companies.
17-P
<PAGE>
NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed-
income securities are considered predominantly speculative by traditional
investment standards. In some cases, these obligations may be highly specu-
lative and have poor prospects for reaching investment grade standing. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality (commonly known as "junk bonds") are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate developments, interest rate sensitivity, negative perceptions of the
junk bond markets generally and less secondary market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to expand. Such issuers are often highly leveraged
and generally less able than more established or less leveraged entities to
make scheduled payments of principal and interest in the event of adverse
developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds
which invest in higher-rated securities. Issuers of non-investment grade
fixed-income securities may not be able to make use of more traditional
methods of financing and their ability to service debt obligations may be
affected more adversely than issuers of higher-rated securities by economic
downturns, specific corporate developments or the issuer's inability to meet
specific projected business forecasts. Negative publicity about the junk
bond market and investor perceptions regarding lower rated securities,
whether or not based on fundamental analysis, may depress the prices for
such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such
1-Q
<PAGE>
securities. Investment by a Fund in defaulted securities poses additional
risk of loss should nonpayment of principal and interest continue in respect
of such securities. Even if such securities are held to maturity, recovery
by a Fund of its initial investment and any anticipated income or apprecia-
tion is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could contract under adverse market or economic condi-
tions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market
price and a Fund's ability to dispose of particular portfolio investments. A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality. Investments
in non-investment grade and comparable unrated obligations will be more
dependent on the Investment Adviser's credit analysis than would be the case
with investments in investment-grade debt obligations.
LOAN PARTICIPATIONS
A loan participation is an interest in a loan to a U.S. or foreign company
or other borrower which is administered and sold by a financial intermedi-
ary. A Fund may only invest in loans to issuers in whose obligations it may
otherwise invest. Loan participation interests may take the form of a direct
or co-lending relationship with the corporate borrower, an assignment of an
interest in the loan by a co-lender or another participant, or a participa-
tion in the seller's share of the loan. When a Fund acts as co-lender in
connection with a participation interest or when it acquires certain partic-
ipation interests, the Fund will have direct recourse against the borrower
if the borrower fails to pay scheduled principal and interest. In cases
where the Fund lacks direct recourse, it will look to the agent bank to
enforce appropriate credit remedies against the borrower. In these cases,
the Fund
2-Q
<PAGE>
may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation
(such as commercial paper) of such borrower. Moreover, under the terms of
the loan participation, the Fund may be regarded as a creditor of the agent
bank (rather than of the underlying corporate borrower), so that the Fund
may also be subject to the risk that the agent bank may become insolvent.
PREFERRED STOCK, WARRANTS AND RIGHTS
Preferred stocks are securities that represent an ownership interest provid-
ing the holder with claims on the issuer's earnings and assets before common
stock owners but after bond owners. Unlike debt securities, the obligations
of an issuer of preferred stock, including dividend and other payment obli-
gations, may not typically be accelerated by the holders of such preferred
stock on the occurrence of an event of default or other non-compliance by
the issuer with the terms of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the war-
rant. The holders of warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
3-Q
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $ 9.88 $0.53 $(0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
1997 - Class A Shares 9.83 0.57f 0.05f
1997 - Institutional Shares 9.83 0.59f 0.05f
1997 - Administration Shares 9.83 0.57f 0.05f
1997 - Service Shares (commenced March
27) 9.84 0.33f 0.04f
1996 - Class A Shares 9.77 0.55f 0.08f
1996 - Institutional Shares 9.77 0.57f 0.08f
1996 - Administration Shares 9.77 0.55f 0.08f
1995 - Class A Shares (commenced May 15) 9.79 0.27f (0.01)f
1995 - Institutional Shares 9.74 0.56f 0.07f
1995 - Administration Shares 9.74 0.54f 0.07f
1994 - Institutional Shares 10.00 0.43f (0.24)f
1994 - Administration Shares 10.00 0.42f (0.26)f
- -------------------------------------------------------------------------------
</TABLE>
1-R
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET NET NET
REALIZED GAIN INCREASE ASSETS
IN EXCESS ON INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT AND FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $(0.02) $-- $(0.19) $9.69 3.71% 33.64% $ 60,782
(0.55) (0.02) -- (0.18) 9.70 4.09 33.64 441,228
(0.53) (0.02) -- (0.18) 9.70 3.83 33.64 5,999
(0.51) (0.02) -- (0.18) 9.70 3.57 33.64 822
(0.57) -- -- 0.05 9.88 6.43 46.58 43,393
(0.59) -- -- 0.05 9.88 6.70 46.58 463,511
(0.57) -- -- 0.05 9.88 6.43 46.58 2,793
(0.33) -- -- 0.04 9.88 3.81d 46.58 346
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 10,728
(0.57) (0.02) -- 0.06 9.83 6.86 52.36 613,149
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 3,792
(0.27) (0.01) -- (0.02) 9.77 2.74d 24.12 15,203
(0.57) (0.03) -- 0.03 9.77 6.75 24.12 657,358
(0.55) (0.03) -- 0.03 9.77 6.48 24.12 3,572
(0.45) -- -- (0.26) 9.74 1.88 37.81 942,523
(0.42) -- -- (0.26) 9.74 1.63 37.81 6,960
- -----------------------------------------------------------------------------------------
</TABLE>
2-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.80% 5.40% 1.02% 5.18%
1998 - Institutional Shares 0.53 5.63 0.53 5.63
1998 - Administration Shares 0.78 5.33 0.78 5.33
1998 - Service Shares 1.03 5.09 1.03 5.09
1997 - Class A Shares 0.74 5.60 1.02 5.32
1997 - Institutional Shares 0.49 5.99 0.52 5.96
1997 - Administration Shares 0.74 5.73 0.77 5.70
1997 - Service Shares (commenced
March 27) 1.05c 5.64c 1.08c 5.61c
1996 - Class A Shares 0.70 5.59 1.01 5.28
1996 - Institutional Shares 0.45 5.85 0.51 5.79
1996 - Administration Shares 0.70 5.59 0.76 5.53
1995 - Class A Shares (commenced
May 15) 0.69c 5.87c 1.01c 5.55c
1995 - Institutional Shares 0.46 5.77 0.53 5.70
1995 - Administration Shares 0.71 5.50 0.78 5.43
1994 - Institutional Shares 0.46 4.38 0.49 4.35
1994 - Administration Shares 0.71 4.27 0.74 4.24
- -------------------------------------------------------------------------------
</TABLE>
3-R
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE AT NET INVESTMENT, OPTION
BEGINNING INVESTMENT AND FUTURES
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $ 9.88 $0.57 $ 0.04
1998-Class B Shares 9.86 0.51 0.03
1998-Class C Shares 9.86 0.49 0.03
1998-Institutional Shares 9.86 0.58 0.06
1998-Administration Shares 9.89 0.55 0.05
1998-Service Shares 9.86 0.55 0.04
1997-Class A Shares (commenced May
1) 9.78 0.31f 0.09f
1997-Class B Shares (commenced May
1) 9.75 0.28f 0.10f
1997-Class C Shares (commenced May
15) 9.83 0.12f 0.02f
1997-Institutional Shares 9.83 0.64f 0.03f
1997-Administration Shares 9.85 0.62f 0.04f
1997-Service Shares 9.82 0.59f 0.04f
1996-Institutional Shares 9.82 0.63f 0.01f
1996-Administration Sharesg 9.86 0.38f --f
1996-Service Shares (commenced
April 10) 9.72 0.31f 0.10f
1995-Institutional Shares 9.64 0.66f 0.17f
1995-Administration Sharesg 9.64 0.24f (0.04)f
1994-Institutional Shares 10.14 0.56f (0.46)f
1994-Administration Shares 10.14 0.53f (0.45)f
- ------------------------------------------------------------------------------
</TABLE>
4-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET
IN EXCESS ON INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE PERIOD RETURNB RATEE (IN 000S)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.58) $-- $ -- $ 0.03 $9.91 6.36% 119.89% $ 56,725
(0.52) -- -- 0.02 9.88 5.62 119.89 5,025
(0.50) -- -- 0.02 9.88 5.46 119.89 4,527
(0.60) -- -- 0.04 9.90 6.75 119.89 145,514
(0.58) -- -- 0.02 9.91 6.27 119.89 7,357
(0.56) -- -- 0.03 9.89 6.12 119.89 6,232
(0.30) -- -- 0.10 9.88 4.14d 102.58 9,491
(0.27) -- -- 0.11 9.86 3.94d 102.58 747
(0.11) -- -- 0.03 9.86 1.44d 102.58 190
(0.64) -- -- 0.03 9.86 7.07 102.58 103,729
(0.62) -- -- 0.04 9.89 6.91 102.58 1,060
(0.59) -- -- 0.04 9.86 6.63 102.58 3,337
(0.63) -- -- 0.01 9.83 6.75 115.45 99,944
(0.39) -- -- (0.01) 9.85 4.00d 115.45 252
(0.31) -- -- 0.10 9.82 4.35d 115.45 1,822
(0.65) -- -- 0.18 9.82 8.97 292.56 103,760
(0.21) -- -- (0.01) 9.63 2.10d 292.56 --
(0.56) -- (0.04) (0.50) 9.64 0.99 289.79 193,095
(0.54) -- (0.04) (0.50) 9.64 0.73 289.79 730
- -------------------------------------------------------------------------------------------
</TABLE>
5-R
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998-Class A Shares 0.81% 5.68% 1.32% 5.17%
1998-Class B Shares 1.41 5.12 1.87 4.66
1998-Class C Shares 1.56 4.64 1.87 4.33
1998-Institutional Shares 0.53 6.06 0.84 5.75
1998-Administration Shares 0.78 5.76 1.09 5.45
1998-Service Shares 1.03 5.56 1.34 5.25
1997-Class A Shares
(commenced May 1) 0.70c 6.05c 1.32c 5.43c
1997-Class B Shares
(commenced May 1) 1.30c 5.52c 1.82c 5.00c
1997-Class C Shares
(commenced May 15) 1.45c 5.52c 1.82c 5.15c
1997-Institutional Shares 0.45 6.43 0.82 6.06
1997-Administration Shares 0.70 6.19 1.07 5.82
1997-Service Shares 0.95 5.92 1.32 5.55
1996-Institutional Shares 0.45 6.44 0.71 6.18
1996-Administration
Sharesg 0.70c 5.97c 0.96c 5.71c
1996-Service Shares
(commenced April 10) 0.95c 6.05c 1.21c 5.79c
1995-Institutional Shares 0.45 6.87 0.72 6.60
1995-Administration
Sharesg 0.70c 7.91c 0.90c 7.71c
1994-Institutional Shares 0.45 5.69 0.59 5.55
1994-Administration Shares 0.70 5.38 0.84 5.24
- -------------------------------------------------------------------------------
</TABLE>
6-R
<PAGE>
[This page intentionally left blank]
7-R
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE, NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOMEE TRANSACTIONSE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $10.08 $0.36 $0.13
1998 - Class B Shares 10.08 0.30 0.12
1998 - Class C Shares 10.07 0.28 0.14
1998 - Institutional Shares 10.07 0.39 0.13
1998 - Administration Shares 10.07 0.36 0.13
1998 - Service Shares 10.07 0.34 0.13
1997 - Class A Shares (commenced May 1) 9.94 0.20 0.14
1997 - Class B Shares (commenced May 1) 9.94 0.16 0.14
1997 - Class C Shares (commenced August
15) 10.04 0.07 0.03
1997 - Institutional Shares 9.96 0.42 0.11
1997 - Administration Shares 9.96 0.39 0.11
1997 - Service Shares 9.97 0.37 0.10
1996 - Institutional Shares 9.94 0.42 0.02
1996 - Administration Shares 9.94 0.39 0.02
1996 - Service Shares 9.95 0.37 0.02
1995 - Institutional Shares 9.79 0.42 0.15
1995 - Administration Shares 9.79 0.40 0.15
1995 - Service Shares 9.79 0.37 0.16
1994 - Institutional Shares 10.23 0.38 (0.36)
1994 - Administration Shares 10.23 0.35 (0.36)
1994 - Service Shares (commenced
September 20) 9.86 0.05 (0.07)
- ------------------------------------------------------------------------------
</TABLE>
8-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET NET
IN EXCESS ON INVESTMENT, INCREASE ASSETS
FROM NET OF NET OPTION (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET VALUE, TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE END OF PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.38) -- $ -- $0.11 $10.19 4.97% 140.72% $19,881
(0.32) -- -- 0.10 10.18 4.25 140.72 974
(0.31) -- -- 0.11 10.18 4.19 140.72 2,256
(0.41) -- -- 0.11 10.18 5.25 140.72 57,647
(0.38) -- -- 0.11 10.18 4.99 140.72 525
(0.36) -- -- 0.11 10.18 4.73 140.72 2,560
(0.20) -- -- 0.14 10.08 3.39d 194.75 4,023
(0.16) -- -- 0.14 10.08 3.07d 194.75 106
(0.07) -- -- 0.03 10.07 0.97d 194.75 2
(0.42) -- -- 0.11 10.07 5.40 194.75 28,821
(0.39) -- -- 0.11 10.07 5.14 194.75 77
(0.37) -- -- 0.10 10.07 4.77 194.75 2,051
(0.42) -- -- 0.02 9.96 4.50 231.65 34,814
(0.39) -- -- 0.02 9.96 4.24 231.65 48
(0.37) -- -- 0.02 9.97 3.98 231.65 695
(0.42) -- -- 0.15 9.94 5.98 259.52 58,389
(0.40) -- -- 0.15 9.94 5.76 259.52 46
(0.37) -- -- 0.16 9.95 5.59 259.52 454
(0.38) -- (0.08) (0.44) 9.79 0.17 354.00 83,704
(0.35) -- (0.08) (0.44) 9.79 (0.11) 354.00 3,866
(0.05) -- -- (0.07) 9.79 (0.32)d 354.00 440
- -----------------------------------------------------------------------------------------------
</TABLE>
9-R
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.71% 3.54% 1.74% 2.51%
1998 - Class B Shares 1.31 3.06 2.27 2.10
1998 - Class C Shares 1.46 2.82 2.27 2.01
1998 - Institutional Shares 0.45 3.92 1.26 3.11
1998 - Administration Shares 0.70 3.58 1.51 2.77
1998 - Service Shares 0.95 3.44 1.76 2.63
1997 - Class A Shares (commenced
May 1) 0.70c 3.81c 1.73c 2.78c
1997 - Class B Shares (commenced
May 1) 1.30c 3.31c 2.23c 2.38c
1997 - Class C Shares (commenced
August 15) 1.45c 2.60c 2.23c 1.82c
1997 - Institutional Shares 0.45 4.18 1.23 3.40
1997 - Administration Shares 0.70 3.91 1.48 3.13
1997 - Service Shares 0.95 3.66 1.73 2.88
1996 - Institutional Shares 0.45 4.21 1.01 3.65
1996 - Administration Shares 0.70 3.96 1.26 3.40
1996 - Service Shares 0.95 3.74 1.51 3.18
1995 - Institutional Shares 0.45 4.31 0.77 3.99
1995 - Administration Shares 0.70 4.14 1.02 3.82
1995 - Service Shares 0.95 3.87 1.27 3.55
1994 - Institutional Shares 0.45 3.74 0.61 3.58
1994 - Administration Shares 0.70 3.51 0.86 3.35
1994 - Service Shares (commenced
September 20) 0.95c 4.30c 1.11c 4.14c
- -------------------------------------------------------------------------------
</TABLE>
10-R
<PAGE>
[This page intentionally left blank]
11-R
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSN
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.59 $0.81 $0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares (commenced
August 15) 14.38 0.17 0.22
1997 - Institutional Shares
(commenced August 15) 14.37 0.20 0.22
1997 - Service Shares (commenced
August 15) 14.37 0.20 0.21
1996 - Class A shares 14.47 0.92 (0.11)
1996 - Class B shares (commenced May
1) 4.11 0.41 0.26
1995 - Class A shares 13.47 0.94 1.00
1994 - Class A shares 14.90 0.85 (1.28)
- -------------------------------------------------------------------------------
</TABLE>
12-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON NET
IN EXCESS ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
FROM NET OF NET OPTION AND OPTION AND (DECREASE) VALUE PORTFOLIO
INVESTMENT INVESTMENT FUTURES FUTURES IN NET AT END TOTAL TURNOVER
INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE OF PERIOD RETURNK RATEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.81) $(0.07) $(0.06) $ -- $0.32 $14.91 8.98% 315.43%
(0.72) (0.05) (0.06) -- 0.31 14.92 8.09 315.43
(0.74) (0.03) (0.06) -- 0.31 14.91 8.09 315.43
(0.87) (0.05) (0.06) -- 0.31 14.90 9.19 315.43
(0.80) (0.05) (0.06) -- 0.29 14.88 8.53 315.43
(0.90) -- (0.07) -- 0.23 14.59 8.72 395.75
(0.79) -- (0.07) -- 0.24 14.61 7.96 395.75
(0.17) -- -- -- 0.22 14.60 2.72d 395.75
(0.20) -- -- -- 0.22 14.59 2.94d 395.75
(0.19) -- -- -- 0.22 14.59 2.85d 395.75
(0.92) -- -- -- (0.11) 14.36 5.80 485.09
(0.41) -- -- -- 0.26 14.37 4.85d 485.09
(0.94) -- -- -- 1.00 14.47 14.90 449.53
(0.85) (0.02) (0.12) (0.01) (1.43) 13.47 (2.98) 654.90
- ---------------------------------------------------------------------------------------------
</TABLE>
13-R
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
AT END OF NET EXPENSES INCOME EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
(IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares $101,015 0.76% 5.53% 1.53% 4.76%
1998 - Class B Shares 16,125 1.51 4.76 2.05 4.22
1998 - Class C Shares 9,639 1.51 4.59 2.05 4.05
1998 - Institutional
Shares 2,642 0.51 5.82 1.05 5.28
1998 - Service Shares 2 1.01 5.48 1.55 4.94
1997 - Class A Shares 68,859 0.50 6.38 1.82 5.06
1997 - Class B Shares 8,041 1.25 5.59 2.32 4.52
1997 - Class C Shares
(commenced August 15) 1,196 1.25c 5.45c 2.32c 4.38c
1997 - Institutional
Shares (commenced
August 15) 1,894 0.25c 7.03c 1.32c 5.96c
1997 - Service Shares
(commenced August 15) 2 0.75c 6.49c 1.82c 5.42c
1996 - Class A shares 30,603 0.50 6.42 1.89 5.03
1996 - Class B shares
(commenced May 1) 234 1.25c 5.65c 2.39c 4.51c
1995 - Class A shares 29,503 0.47 6.67 2.34 4.80
1994 - Class A shares 14,452 0.11 6.06 2.86 3.31
- ----------------------------------------------------------------------------------------------
</TABLE>
14-R
<PAGE>
[This page intentionally left blank]
15-R
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/N/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.99 $0.65 $0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class C Shares (commenced
August 15) 14.85 0.12 0.14
1997 - Institutional Shares
(commenced August 15) 14.84 0.15 0.16
1997 - Service Shares (commenced
August 15) 14.84 0.14 0.15
1996 - Class A shares 14.17 0.65 0.20
1996 - Class B shares (commenced May
1) 14.03 0.27 0.34
1995 - Class A shares 13.08 0.67 1.09
1994 - Class A shares 14.64 0.73 (1.51)
- -------------------------------------------------------------------------------
</TABLE>
16-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATE (IN 000S)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.64) $-- $(0.03) $0.48 $15.47 7.79% 56.51% $91,158
(0.52) -- (0.03) 0.47 15.47 6.91 56.51 6,722.
(0.52) -- (0.03) 0.48 15.47 6.98 56.51 2,862
(0.68) -- (0.03) 0.47 15.47 8.00 56.51 6,154
(0.61) -- (0.03) 0.49 15.48 7.68 56.51 2
(0.67) -- -- 0.62 14.99 9.23 153.12 64,553
(0.56) -- -- 0.63 15.00 8.48 153.12 1,750
(0.12) -- -- 0.14 14.99 1.75d 153.12 130
(0.15) -- -- 0.16 15.00 2.10d 153.12 351
(0.14) -- -- 0.15 14.99 1.93d 153.12 2
(0.65) -- -- 0.20 14.37 6.13 344.13 52,267
(0.27) -- -- 0.34 14.37 4.40d 344.13 255
(0.67) -- -- 1.09 14.17 13.79 335.55 53,797
(0.73) -- (0.05) (1.56) 13.08 (5.51) 357.54 47,373
- ---------------------------------------------------------------------------------------
</TABLE>
17-R
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 0.87% 4.25% 1.64% 3.48%
1998 - Class B Shares 1.62 3.44 2.16 2.90
1998 - Class C Shares 1.62 3.38 2.16 2.84
1998 - Institutional
Shares 0.58 4.41 1.12 3.87
1998 - Service Shares 1.08 4.21 1.62 3.67
1997 - Class A Shares 0.85 4.60 1.62 3.83
1997 - Class B Shares 1.60 3.74 2.12 3.22
1997 - Class C Shares
(commenced August 15) 1.60c 3.24c 2.12c 2.72c
1997 - Institutional
Shares (commenced
August 15) 0.60c 4.41c 1.12c 3.89c
1997 - Service Shares
(commenced August 15) 1.10c 4.24c 1.62c 3.72c
1996 - Class A shares 0.85 4.58 1.55 3.88
1996 - Class B shares
(commenced May 1) 1.60c 3.55c 2.05c 3.10c
1995 - Class A shares 0.76 4.93 1.49 4.20
1994 - Class A shares 0.45 5.28 1.55 4.18
- -----------------------------------------------------------------------------------
</TABLE>
18-R
<PAGE>
[This page intentionally left blank]
19-R
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION,
NET ASSET FUTURES AND-
VALUE AT NET FOREIGN CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $10.06 $0.59 $0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.90 0.27
1998-Institutional Shares 10.08 1.08 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.99 0.27
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August
15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares
(commenced February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March
13) 9.77 0.38 0.09
1995-Institutional Shares 9.24 0.64 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares (commenced
January 5) 10.00 0.46 (0.76)
- ------------------------------------------------------------------------------
</TABLE>
20-R
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $(0.02) $(0.06) $0.19 $10.25 8.76% 271.50% $56,267
(0.52) (0.02) (0.06) 0.19 10.28 7.94 271.50 7,209
(0.90) (0.02) (0.06) 0.19 10.28 7.94 271.50 5,587
(1.08) (0.03) (0.06) 0.20 10.28 9.15 271.50 195,730
(0.57) (0.03) (0.06) 0.20 10.27 8.88 271.50 12,743
(0.99) (0.02) (0.06) 0.19 10.28 8.50 271.50 5,263
(0.30) -- -- 0.36 10.06 6.94d 361.27 9,336
(0.27) -- -- 0.37 10.09 6.63d 361.27 621
(0.11) -- -- 0.16 10.09 2.74d 361.27 272
(0.64) -- -- 0.23 10.08 9.19 361.27 79,230
(0.62) -- -- 0.23 10.07 8.92 361.27 6,176
(0.59) -- -- 0.23 10.09 8.65 361.27 1,868
(0.64) -- (0.08) (0.15) 9.85 5.98 414.20 72,061
(0.41) -- -- (0.07) 9.84 3.56d 414.20 702
(0.38) -- -- 0.09 9.86 4.90d 414.20 381
(0.64) -- -- 0.76 10.00 15.72 382.26 55,502
(0.46) -- -- (0.76) 9.24 (3.00)d 285.25 24,508
- ----------------------------------------------------------------------------------------
</TABLE>
21-R
<PAGE>
APPENDIX B
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares 0.74% 5.58% 1.21% 5.11%
1998-Class B Shares 1.49 4.82 1.75 4.56
1998-Class C Shares 1.49 4.81 1.75 4.55
1998-Institutional Shares 0.46 5.95 0.72 5.69
1998-Administration Shares 0.71 5.70 0.97 5.44
1998-Service Shares 0.96 5.44 1.22 5.18
1997-Class A Shares (commenced
May 1) 0.70c 6.13c 1.33c 5.50c
1997-Class B Shares (commenced
May 1) 1.45c 5.28c 1.83c 4.90c
1997-Class C Shares (commenced
August 15) 1.45c 4.84c 1.83c 4.46c
1997-Institutional Shares 0.45 6.53 0.83 6.15
1997-Administration Shares 0.70 6.27 1.08 5.89
1997-Service Shares 0.95 6.00 1.33 5.62
1996-Institutional Shares 0.45 6.51 0.83 6.13
1996-Administrative Shares
(commenced February 28) 0.70c 6.41c 1.08c 6.03c
1996-Service Shares (commenced
March 13) 0.95c 6.37c 1.33c 5.99c
1995-Institutional Shares 0.45 6.56 0.96 6.05
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares
(commenced January 5) 0.45c 6.48c 1.46c 5.47c
- -------------------------------------------------------------------------------
</TABLE>
22-R
<PAGE>
[This page intentionally left blank]
23-R
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION, FUTURES
NET ASSET AND FOREIGN
VALUE, NET CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $15.10 $0.72f $0.90f
1998 - Class B Shares 15.08 0.63f 0.92f
1998 - Class C Shares 15.06 0.63f 0.91f
1998 - Institutional Shares 15.09 0.82f 0.90f
1998 - Service Shares 15.09 0.74f 0.91f
1997 - Class A shares 14.53 0.59 0.77
1997 - Class B shares 14.53 0.72 0.56
1997 - Class C shares (commenced August
15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March
12) 14.69 0.53 0.39
1996 - Class A shares 14.45 0.71 0.80
1996 - Class B shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional shares 14.45 1.15 0.42
1995 - Class A shares 13.43 0.89 1.07
1995 - Institutional shares
(commenced August 1) 14.09 0.22 0.40
1994 - Class A shares 15.07 0.84 (1.49)
- -----------------------------------------------------------------------------
</TABLE>
24-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
NET REALIZED
GAIN ON NET
IN EXCESS INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION AND FROM (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT FUTURES PAID IN IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(1.01) $-- $(0.06) $ -- $0.55 $15.65 11.21% 229.91% $217,362
(0.94) -- (0.06) -- 0.55 15.63 10.66 229.91 8,135
(0.94) -- (0.06) -- 0.54 15.60 10.65 229.91 4,090
(1.11) -- (0.06) -- 0.55 15.64 11.95 229.91 178,532
(1.04) -- (0.06) -- 0.55 15.64 11.43 229.91 1,058
(0.79) -- -- -- 0.57 15.10 9.66 383.72 167,096
(0.73) -- -- -- 0.55 15.08 9.04 383.72 3,465
(0.19) -- -- -- 0.26 15.06 3.03d 383.72 496
(0.87) -- -- -- 0.57 15.09 10.26 383.72 60,929
(0.52) -- -- -- 0.40 15.09 6.42d 383.72 151
(1.43) -- -- -- 0.08 14.53 11.05 232.15 198,665
(0.36) -- -- -- 0.50 14.53 6.24d 232.15 256
(1.50) -- -- -- 0.07 14.52 11.55 232.15 54,254
(0.94) -- -- -- 1.02 14.45 15.08 265.86 245,835
(0.26) -- -- -- 0.36 14.45 4.42d 265.86 31,619
(0.22) -- (0.16) (0.61) (1.64) 13.43 (4.49) 343.74 396,584
- -----------------------------------------------------------------------------------------------
</TABLE>
25-R
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 1.31% 4.71% 1.75% 4.27%
1998 - Class B Shares 1.83 4.19 2.24 3.78
1998 - Class C Shares 1.83 4.20 2.24 3.79
1998 - Institutional
Shares 0.66 5.40 1.07 4.99
1998 - Service Shares 1.16 4.92 1.57 4.51
1997 - Class A shares 1.17 5.19 1.60 4.76
1997 - Class B shares 1.71 4.76 2.10 4.37
1997 - Class C shares
(commenced August 15) 1.71c 4.98c 2.10c 4.59c
1997 - Institutional
Shares 0.65 5.72 1.04 5.33
1997 - Service Shares
(commenced March 12) 1.15c 5.33c 1.54c 4.94c
1996 - Class A shares 1.16 5.81 1.64 5.33
1996 - Class B shares
(commenced May 1) 1.70c 5.16c 2.14c 4.72c
1996 - Institutional
shares 0.65 6.35 1.11 5.89
1995 - Class A shares 1.29 6.23 1.58 5.94
1995 - Institutional
shares
(commenced August
1) 0.65c 6.01c 1.08c 5.58c
1994 - Class A shares 1.28 5.73 1.53 5.48
- --------------------------------------------------------------------------------------
</TABLE>
26-R
<PAGE>
[This page intentionally left blank]
27-R
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS/A/
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE, NET INVESTMENT AND
BEGINNING INVESTMENT FOREIGN CURRENCY
OF PERIOD INCOME RELATED TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1998 - Class A Shares $ 9.97 $0.82 $(0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares (commenced
August 1) 10.00 0.17 (0.02)
1997 - Class B Shares (commenced
August 1) 10.00 0.15 (0.02)
1997 - Class C Shares (commenced
August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares (commenced
August 1) 10.00 0.17 (0.02)
- -----------------------------------------------------------------------------
</TABLE>
28-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
FROM IN EXCESS NET REALIZED NET INCREASE NET ASSETS
NET OF NET GAIN ON (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT INVESTMENT IN NET VALUE, END TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE OF PERIOD RETURNB RATE (IN 000S)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.78) $ -- $-- $(0.81) $9.16 (0.70)% 113.44% $401,626
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 29,256
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 8,532
(0.81) -- -- (0.80) 9.17 (0.32) 113.44 97,547
(0.76) -- -- (0.80) 9.17 (0.79) 113.44 447
(0.17) (0.01) -- (0.03) 9.97 1.50d 44.80d 325,911
(0.15) (0.01) -- (0.03) 9.97 1.31d 44.80d 10,308
(0.14) (0.01) -- -- 9.97 1.46d 44.80d 1,791
(0.18) (0.01) -- (0.03) 9.97 1.58d 44.80d 2
(0.17) (0.01) -- (0.03) 9.97 1.46d 44.80d 2
- --------------------------------------------------------------------------------------------
</TABLE>
29-R
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET EXPENSES INCOME EXPENSES TO INCOME
TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31,
1998 - Class A Shares 1.09% 8.25% 1.36% 7.98%
1998 - Class B Shares 1.84 7.61 1.88 7.57
1998 - Class C Shares 1.84 7.61 1.88 7.57
1998 - Institutional
Shares 0.84 9.47 0.88 9.43
1998 - Service Shares 1.34 9.17 1.38 9.13
FOR THE PERIOD ENDED
OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 0.95c 7.06c 1.57c 6.44c
1997 - Class B Shares
(commenced August 1) 1.70c 6.28c 2.07c 5.91c
1997 - Class C Shares
(commenced August 15) 1.70c 6.17c 2.07c 5.80c
1997 - Institutional
Shares
(commenced August
1) 0.70c 7.16c 1.07c 6.79c
1997 - Service Shares
(commenced August 1) 1.20c 6.69c 1.57c 6.32c
- --------------------------------------------------------------------------------------------
</TABLE>
30-R
<PAGE>
APPENDIX B
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 were taken into
account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
f Calculated based on the average shares outstanding methodology.
g Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
31-R
<PAGE>
Fixed Income Funds
Prospectus (Service Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during its
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC at
1-800-SEC-0330. The Fund's investment company registration number is
811-5349.
[LOGO]
16
<PAGE>
Index
General Investment Management Approach
2 Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Government Income Fund
7 Goldman Sachs Municipal Income Fund
8 Goldman Sachs Core Fixed Income Fund
9 Goldman Sachs Global Income Fund
10 Goldman Sachs High Yield Fund
-- Other Investment Practices and Securities
-- Principal Risks of the Funds
-- Fund Performance
12 Fund Fees and Expenses
Service Providers
Dividends
Shareholder Guide
32 How to Buy Shares
42 How to Sell Shares
Taxation
A-1 Appendix A:
Additional Information on
Portfolio Risks,
Securities and Techniques
B-1 Appendix B:
Financial Highlights
17
<PAGE>
Prospectus
ADMINISTRATION
SHARES
March 1, 1999
GOLDMAN SACHS FIXED INCOME FUNDS
. Goldman Sachs
Adjustable Rate
Government Fund
. Goldman Sachs
Short Duration
Government Fund
. Goldman Sachs
Short Duration
Tax-Free Fund
. Goldman Sachs
Core Fixed
Income Fund
(INSERT ARTWORK)
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the Short
Duration Tax-Free and Core Fixed Income Funds. Goldman Sachs Funds Manage-
ment, L.P. serves as investment adviser to the Adjustable Rate Government
and Short Duration Government Funds. Goldman Sachs Asset Management and
Goldman Sachs Funds Management, L.P. are each referred to in this Prospectus
as the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
ACTIVE MANAGEMENT WITHIN A RISK-MANAGED FRAMEWORK
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. SECURITY SELECTION--In selecting securities for each Fund, the Investment
Adviser capitalizes on the extensive resources of Goldman Sachs, including
fixed-income and equity research professionals.
2. SECTOR ALLOCATION--The Investment Adviser assesses relative value among
sectors (such as U.S. corporate, asset-backed and mortgage-backed securi-
ties) to create investment strategies that meet each Fund's objectives.
3. YIELD CURVE STRATEGIES--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
THE INVESTMENT ADVISER DE-EMPHASIZES INTEREST RATE DURATION AS A MEANS OF
GENERATING INCREMENTAL RETURN. INSTEAD, THE INVESTMENT ADVISER SEEKS TO ADD
VALUE THROUGH SECURITY AND SECTOR SELECTION.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1-U
<PAGE>
General Investment Management Approach continued
Each of the Funds described in this Prospectus has a target duration. 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 other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement 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
interests of a Fund and its shareholders.
2-U
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Six-month to One-year U.S. Treasury Security
Maximum = 2 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 9-month note
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARKS: Six-month and one-year U.S. Treasury Security
3-U
<PAGE>
Goldman Sachs Short Duration Government Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Two-year U.S. Treasury Security plus or minus 0.5 years
Maximum = 3 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 2-year bond
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARK: Two-year U.S. Treasury Security
4-U
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
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 ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), 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 private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers three-year Municipal Bond Index plus or minus 0.5
years
Maximum = 4 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 3-year bond
CREDIT QUALITY:
Minimum = BBB or Baa by a NRSRO at the time of purchase, or, if unrated,
determined by the Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Three-Year Municipal Bond Index
5-U
<PAGE>
Goldman Sachs Core Fixed Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
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 secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Aggregate Bond Index plus or minus one year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY:
Minimum = BBB or Baa; Minimum for non-U.S. dollar denominated securities =
AA or Aa Securities will either be rated by an NRSRO or, if unrated, deter-
mined by the Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Aggregate Bond Index
6-U
<PAGE>
Other Investment Practices and Securities
Each of the Funds may use active management techniques to manage its dura-
tion and term structure, to manage its exposure (if any) to foreign curren-
cies and to seek enhanced returns. The table below identifies some of these
techniques that may (but are not required to) be used by the Funds. The
table also highlights the differences among the Funds in their use of these
techniques and other investment practices and investment securities. Numbers
in this table show allowable usage only; for actual usage, consult the
Fund's annual/semiannual reports. For more information, see Appendix A.
10Percent of total assets
.. No asset limitation on
usage; Limited only by the
objectives and strategies
of the Fund.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION CORE FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT PRACTICES
Credit Swaps and Interest Rate Swaps . . . .
Currency Options and Futures -- -- -- .
Cross Hedging of Currencies -- -- -- .
Currency Swaps -- -- -- .
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- .
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps . . -- .
Option Contracts (including Options
on Futures) . . . .
Repurchase Agreements . . . .
Securities Lending . . . .
Standby Commitments and Tender
Option Bonds -- -- . --
Options on Foreign Currencies -- -- -- .
- -------------------------------------------------------------------------------
</TABLE>
- --Not permitted.
7-U
<PAGE>
Other Investment Practices and Securities continued
10Percent of total assets
.. No policy limitation on usage; Limited only by the objectives and stratagies
of the Fund
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION CORE FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities -- -- -- .
Bank Obligations -- -- -- .
Convertible Securities -- -- -- .
Corporate Debt Obligations and Trust
Preferred Securities -- -- -- .
Emerging Market Securities -- -- -- 10
Foreign Securities/1/ -- -- -- .
Foreign Government Securities -- -- -- .
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Structured Securities -- -- -- .
Taxable Municipal Securities -- -- 20 .
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./2/ .
- -------------------------------------------------------------------------------
</TABLE>
- --Not permitted.
1 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
2 Short Duration Tax-Free Fund may invest no more than 20% of net assets in
taxable investments.
8-U
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. The following summarizes
important risks that apply to the Funds and may result in a loss of your
investment. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund will achieve its investment
objective.
.. Applicable
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION CORE FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME
INVESTMENT RISK FUND FUND FUND FUND
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
Government Securities . . . .
Market . . . .
Management . . . .
Other . . . .
Foreign - - - .
Tax - - . -
- ----------------------------------------------------------------
</TABLE>
- --Not applicable
All Funds:
..INTEREST RATE RISK--The risk that, when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..CREDIT/DEFAULT RISK--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..CALL RISK--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..EXTENSION RISK--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under
9-U
<PAGE>
Principal Risks of the Funds continued
these circumstances, the value of the obligation will decrease, and a Fund
will also suffer from the inability to invest in higher yielding securities.
..DERIVATIVES RISK--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
instruments, which may be leveraged.
..GOVERNMENT SECURITIES RISK--The risk that the U.S. government will not provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by law.
..MARKET RISK--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..MANAGEMENT RISK--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..OTHER RISKS--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..FOREIGN RISKS--The Core Fixed Income Fund will be subject to risks with
respect to its foreign investments that are not typically associated with
domestic issuers. These risks result from less government regulation, less
public information and less economic, political and social stability. The Fund
will also be subject to the risk of negative foreign currency rate
fluctuations. Foreign risks will normally be greatest when a Fund invests in
issuers located in emerging countries.
..TAX RISK--The Short Duration Tax-Free Fund may be more adversely impacted by
changes in tax rates and policies than the other Funds. Because interest
income from Municipal Securities is normally 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. This could, in turn,
affect the Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and Appendix A. Both are
important to your investment choice.
10-U
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Administration Shares from year to year; and (b) how the average annual
returns of a Fund's Administration Shares compare to those of a broad-based
securities market index. The bar chart and table assume reinvestment of div-
idends and distributions. A Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced.
2
<PAGE>
FUND PERFORMANCE
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADMINISTRATION SHARES
(Inception 4/15/93) % % % %
Six-Month U.S. Treasury Security* % % % %
One-Year U.S. Treasury Security* % % % %
--------------------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
3
<PAGE>
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
(BAR CHART)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------------
<S> <C> <C>
ADMINISTRATION SHARES (Inception 2/28/96) % %
Two-Year U.S. Treasury Security* % %
------------------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
4
<PAGE>
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADMINISTRATION SHARES (Inception
5/20/93) % % % %
Lehman Brothers Three-Year Municipal
Bond Index* % % % %
-----------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
5
<PAGE>
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q "9 %
Worst Quarter
Q "9 %
[BAR CHART]
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1YEAR SINCE INCEPTION
-----------------------------------------------------------------
<S> <C> <C>
ADMINISTRATION SHARES (Inception 2/28/96) % %
Lehman Brothers Aggregate Bond Index* % %
-----------------------------------------------------------------
</TABLE>
*The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified
portfolio of fixed-income securities, including U.S. Treasuries, investment-
grade corporate bonds and mortgage-backed and asset-backed securities. The
Index figures do not reflect any fees or expenses.
6
<PAGE>
Fund Fees and Expenses (Administration Shares)
This table describes the fees and expenses that you may pay if you buy and hold
Administration Shares of a Fund.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT CORE
RATE DURATION DURATION FIXED
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None None
Maximum Deferred Sales
Charge (Load) None None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None
Redemption Fees None None None None
Exchange Fees None None None None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets):/1/
Management Fees/2/ 0.40% 0.50% 0.40% 0.40%
Administration Fees/3/ 0.25% 0.25% 0.25% 0.25%
Other Expenses/4/ 0.13% 0.26% 0.64% 0.25%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses/4/ 0.78% 1.01% 1.29% 0.90%
- -----------------------------------------------------------------------------
</TABLE>
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Short Duration Tax-Free Fund equal to 0.05%. AS A RESULT
OF THE FEE WAIVER, THE CURRENT MANAGEMENT FEE OF THE SHORT DURATION TAX-FREE
FUND IS 0.35% OF SUCH FUND'S AVERAGE DAILY NET ASSETS. THE WAIVER MAY BE TERMI-
NATED AT ANY TIME AT THE OPTION OF THE INVESTMENT ADVISER.
/3/Service Organizations may charge other fees directly to their customers who
are beneficial owners of Administration Shares in connection with their custom-
ers' accounts. Such fees may affect the return customers realize with respect
to their investments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Administration Shares, plus all other ordinary
expenses of the Funds not detailed above. The Investment Adviser has voluntar-
ily agreed to reduce or limit "Other Expenses" of each Fund (excluding manage-
ment fees, transfer agency fees, administration fees, taxes, interest and bro-
kerage fees and litigation, indemnification and other extraordinary expenses)
to the following percentages of each Fund's average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
- ---------------- --------
<S> <C>
Adjustable Rate
Government 0.05%
Short Duration
Government 0%
Short Duration
Tax-Free 0%
Core Fixed
Income 0.10%
</TABLE>
7
<PAGE>
AS A RESULT OF CURRENT WAIVERS AND EXPENSE LIMITATIONS ACTUALLY INCURRED,
"OTHER EXPENSES" AND "TOTAL FUND OPERATING EXPENSES" OF THE FUNDS ARE AS SET
FORTH BELOW. THE WAIVERS AND EXPENSE LIMITATIONS MAY BE TERMINATED AT ANY TIME
AT THE OPTION OF THE INVESTMENT ADVISER. If this occurs "Other Expenses" and
"Total Fund Operating Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TOTAL FUND
OTHER EXPENSES OPERATING EXPENSES
- -------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Government 0.09% 0.74%
- -------------------------------------------------------------
Short Duration Government 0.04% 0.79%
- -------------------------------------------------------------
Short Duration Tax-Free 0.04% 0.64%
- -------------------------------------------------------------
Core Fixed Income 0.14% 0.79%
- -------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Adminis-
tration Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE GOVERNMENT $ 94 $293 $509 $1,131
- ------------------------------------------------------------
SHORT DURATION GOVERNMENT $103 $322 $558 $1,236
- ------------------------------------------------------------
SHORT DURATION TAX-FREE $131 $409 $708 $1,556
- ------------------------------------------------------------
CORE FIXED INCOME $ 92 $287 $498 $1,108
- ------------------------------------------------------------
</TABLE>
In addition to the compensation itemized above, certain Service Organizations
may receive other compensation in connection with the sale and distribution of
Administration Shares or for services to their customers' accounts and/or the
Funds. Such fees, if any, may affect the return such customers realize with
respect to their investments. For additional information regarding such compen-
sation, see "Shareholder Guide" in the Prospectus and "Other Information" in
the Statement of Additional Information ("Additional Statement").
9
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
----------------------------------------------------------
<S> <C>
Goldman Sachs Asset Short Duration Tax-Free Fund
Management ("GSAM") Core Fixed Income Fund
One New York Plaza
New York, New York 10004
----------------------------------------------------------
Goldman Sachs Funds Adjustable Rate Government Fund
Management, L.P. Short Duration Government Fund
("GSFM")
One New York Plaza
New York, New York 10004
----------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. As of February , 1999, GSAM and GSFM, together with their affili-
ates, acted as investment adviser or distributor for assets in excess of
$ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in the U.S. and foreign markets. As permitted by applicable
law, these orders may be directed to any brokers, including Goldman Sachs
and its affiliates. While the Investment Adviser is ultimately responsible
for the management of the Funds, it is able to draw upon the research and
expertise of its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities. In addition, the
Investment Adviser has access to the research and certain proprietary tech-
nical models developed by Goldman Sachs, and will apply quantitative and
qualitative analysis in determining the appropriate allocations among cate-
gories of issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
1-V
<PAGE>
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
CONTRACTUAL RATE OCTOBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.39%
-----------------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------------
GSFM:
-----------------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------------
Short Duration Government 0.50% 0.47%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify its voluntary limitation in the future at
its discretion.
FUND MANAGERS
Fixed-Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $40 billion in fixed-income assets for
retail, institutional and high net worth clients
2-V
<PAGE>
SERVICE PROVIDERS
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
YEARS
FUND PRIMARILY
NAME AND TITLE RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. PORTFOLIO SINCE 1991 MR. BEINNER JOINED THE
Beinner MANAGER-- INVESTMENT ADVISER IN 1990.
MANAGING ADJUSTABLE RATE
DIRECTOR AND GOVERNMENT FUND
CO-HEAD U.S. SHORT DURATION
FIXED INCOME GOVERNMENT FUND
CORE FIXED
INCOME FUND
- -------------------------------------------------------------------------------
James B. Clark PORTFOLIO SINCE 1994 MR. CLARK JOINED THE INVESTMENT
VICE PRESIDENT MANAGER-- ADVISER IN 1994 AFTER WORKING AS
ADJUSTABLE RATE AN INVESTMENT MANAGER IN THE
GOVERNMENT FUND MORTGAGE-BACKED SECURITIES GROUP
SHORT DURATION AT TRAVELERS INSURANCE COMPANY.
GOVERNMENT FUND
- -------------------------------------------------------------------------------
Peter A. Dion PORTFOLIO SINCE 1995 MR. DION JOINED THE INVESTMENT
VICE PRESIDENT MANAGER-- ADVISER IN 1992.
ADJUSTABLE RATE
GOVERNMENT FUND
SHORT DURATION
GOVERNMENT FUND
- -------------------------------------------------------------------------------
C. Richard Lucy PORTFOLIO SINCE 1992 MR. LUCY JOINED THE INVESTMENT
MANAGING MANAGER-- ADVISER IN 1992.
DIRECTOR AND ADJUSTABLE RATE
CO-HEAD U.S. GOVERNMENT FUND
FIXED INCOME SHORT DURATION
GOVERNMENT FUND
CORE FIXED
INCOME FUND
- -------------------------------------------------------------------------------
James P. PORTFOLIO SINCE 1995 MR. MCCARTHY JOINED THE
McCarthy MANAGER-- INVESTMENT ADVISER IN 1995 AFTER
VICE PRESIDENT ADJUSTABLE RATE WORKING FOUR YEARS AT NOMURA
GOVERNMENT FUND SECURITIES, WHERE HE WAS AN
SHORT DURATION ASSISTANT VICE PRESIDENT AND AN
GOVERNMENT FUND AGENCY ADJUSTABLE RATE MORTGAGE
TRADER.
- -------------------------------------------------------------------------------
</TABLE>
3-V
<PAGE>
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
YEARS
FUND PRIMARILY
NAME AND TITLE RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
Elisabeth Shupf PORTFOLIO SINCE 1995 BEFORE REJOINING THE INVESTMENT
Lonsdale MANAGER-- ADVISER IN LATE 1995, MS.
VICE PRESIDENT SHORT DURATION LONSDALE WAS A DIRECTOR OF FITCH
TAX-FREE FUND INVESTORS SERVICE DURING MOST OF
1995, EVALUATING THE CREDIT
RATINGS OF TAX-BACKED ISSUES.
PRIOR TO THAT, SHE WORKED FOR
TEN YEARS IN THE GOLDMAN SACHS
MUNICIPAL FINANCE DEPARTMENT.
- -------------------------------------------------------------------------------
Benjamin S. PORTFOLIO SINCE 1993 MR. THOMPSON JOINED THE
Thompson MANAGER-- INVESTMENT ADVISER IN 1992.
VICE PRESIDENT SHORT DURATION
TAX-FREE FUND
- -------------------------------------------------------------------------------
</TABLE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates 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.
The results of a Fund's investment activities, therefore, may differ
4-V
<PAGE>
SERVICE PROVIDERS
from those of Goldman Sachs and its affiliates and it is possible that a
Fund could sustain losses during periods in which Goldman Sachs and its
affiliates and other accounts achieve significant profits on their trading
for proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. 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.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," leading to computer shutdowns or errors
(commonly known as the "Year 2000 Problem"). To the extent these systems
conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..Currently, the Investment Adviser does not anticipate that the transition
to the 21st century will have any material impact on its ability to
continue to service the Funds at current levels.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
..At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be
sufficient to avoid any adverse effect on the Funds due to the Year 2000
Problem. Furthermore, even if the actions taken by the Fund's Investment
Adviser and
5-V
<PAGE>
other service providers are successful, the Fund may nevertheless suffer
losses if the issuers of securities held by the Fund are adversely affected
by the Year 2000 Problem. Also, it is possible that the normal operation of
the Fund, will, in any event, be disrupted significantly by the failure of
communications and public utility companies, government entities, financial
processors or others to perform their services as a result of the Year 2000
Problem.
6-V
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund or
units of the Goldman Sachs Institutional Liquid Assets Portfolios ("ILA
Portfolios"). Special restrictions may apply for exchanges in certain ILA
Portfolios. See the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. 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.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
INVESTMENT CAPITAL GAINS
INCOME DIVIDENDS DISTRIBUTIONS
---------------- -----------------
FUND DECLARED PAID DECLARED AND PAID
- --------------------------------------------------------------
<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>
From time to time a portion of such dividends may constitute a return of capi-
tal.
7-V
<PAGE>
At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value ("NAV") per share may be represented by realized or
unrealized appreciation of any Fund's portfolio securities. Therefore, sub-
sequent distributions on such shares from such realized appreciation may be
taxable to the investor even if the NAV 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.
8-V
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Administration
Shares.
HOW TO BUY SHARES
How Can I Purchase Administration Shares Of The Funds?
Generally, Administration Shares may be purchased only through institutions
that have agreed to provide account administration services to their custom-
ers who are the beneficial owners of Administration Shares. These institu-
tions are called "Service Organizations." Customers of a Service Organiza-
tion will normally give their purchase instructions to the Service
Organization, and the Service Organization will, in turn, place purchase
orders with Goldman Sachs. Service Organizations will set times by which
purchase orders and payments must be received by them from their customers.
Generally, Administration Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load will be charged.
Purchases of Administration Shares must be settled within three business
days of receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders to
Goldman Sachs and payments in a timely fashion. Service Organizations should
place an order with Goldman Sachs at 800-621-2550 and either:
..Wire federal funds to the Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; OR
..Initiate an Automated Clearing House Network ("ACH") transfer to ensure
receipt by Northern on the next business day; OR
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--Name
of Fund and Class of Shares, c/o Shareholder Services, 4900 Sears Tower,
Chicago, Illinois 60606. Goldman Sachs Trust (the "Trust") will not accept
a check drawn on a foreign bank or a third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Administration Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
1-W
<PAGE>
..Processing orders to purchase, redeem or exchange shares for customers
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..The Service Organization or intermediary will be responsible for transmit-
ting accepted orders to the Trust within the time period agreed upon by
them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to an administration plan adopted by the Trust's Board of Trustees,
Service Organizations are entitled to receive payment for their services
from the Trust of up to 0.25% (on an annualized basis) of the average daily
net assets of the Administration Shares of the Funds, which are attributable
to or held in the name of the Service Organization for its customers.
Service Organizations may also charge fees directly to their customers in
connection with their customer accounts. These fees would be in addition to
any amounts received by the Service Organization from the Trust and may
affect the return earned on an investment in a Fund.
The Investment Adviser, Distributor and/or their affiliates pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to selected Service Organizations and other persons in
connection with the sale and/or servicing of shares of the Funds and other
Goldman Sachs Funds. Subject to applicable NASD regulations, the Investment
Adviser, Distributor and/or their affiliates may also contribute to various
cash and non-cash incentive arrangements to promote the sale of shares. This
additional compensation can vary among Service Organizations depending upon
such factors as the amounts their customers have invested (or may invest) in
particular Goldman Sachs Funds, the particular program involved, or the
amount of reimbursable expenses. Additional compensation based on sales may,
but is currently not expected to, exceed 0.50% (annualized) of the amount
invested.
In addition to Administration Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Administration
Shares. Information regard-
2-W
<PAGE>
SHAREHOLDER GUIDE
ing these other share classes may be obtained from your sales representative
or from Goldman Sachs by calling the number on the back cover of this Pro-
spectus.
What Is My Minimum Investment In The Funds?
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 Adminis-
tration Shares, and may establish other requirements such as a minimum
account balance. A Service Organization may redeem Administration Shares
held by non-complying accounts, and may impose a charge for any special
services.
What Else Should I Know About Share Purchases?
The Funds reserve the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a 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 the
management of a Fund.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's portfolio manager.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Administration
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the Funds' investments may be
valued based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trustees. Debt obligations with a
remaining maturity of 60 days or less are valued at amortized cost.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). This occurs after the determination, if
any, of the income to be declared as a dividend. Fund shares will not be
priced on any day the New York Stock Exchange is closed.
3-W
<PAGE>
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME BY
WHICH ORDERS MUST BE RECEIVED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE IS STOPPED AT A TIME OTHER
THAN 4:00 P.M. NEW YORK TIME.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
When Will Shares Be Issued And Dividends Begin To Be Paid?
SHARES PURCHASED BY FEDERAL FUNDS WIRE OR ACH TRANSFER:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the business day after the purchase order is received; or
(ii) the day that the federal funds wire or ACH transfer is received by
Northern.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
SHARES PURCHASED BY CHECK OR FEDERAL RESERVE DRAFT:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the business day after pay-
ment is received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
HOW TO SELL SHARES
How Can I Sell Administration Shares Of The Funds?
Generally, Administration Shares may be sold (redeemed) only through Service
Organizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. GENERALLY EACH
FUND WILL REDEEM ADMINISTRATION SHARES ON ANY BUSINESS DAY AT THEIR NAV NEXT
DETERMINED AFTER RECEIPT OF AN ORDER IN PROPER FORM. Redemption proceeds may
be sent to recordholders by check or by wire (if the wire instructions are
on record).
4-W
<PAGE>
SHAREHOLDER GUIDE
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------
<S> <C>
BY WRITING: Goldman, Sachs & Co.
Transfer Agent
4900 Sears Tower
Chicago, IL 60606
--------------------------------------
BY TELEPHONE: 800-621-2550
--------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
NOTE: IT MAY BE DIFFICULT TO MAKE TELEPHONE REDEMPTIONS IN TIMES OF DRASTIC
ECONOMIC OR MARKET CHANGES.
How Are Redemption Proceeds Paid?
BY WIRE: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the Federal Reserve Bank is closed on the day that
the redemption proceeds would ordinarily be wired, wiring the redemption
proceeds may be delayed one additional business day.
..Once wire transfer instructions have been given by Goldman Sachs, neither
the Funds, the Trust, nor Goldman Sachs assumes any further responsibility
for the
5-W
<PAGE>
performance of intermediaries or the customer's Service Organization in the
transfer process. If a problem with such performance arises, you should
deal directly with such intermediaries or Service Organizations.
BY CHECK: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request, unless the shares to be sold were recently paid
for by check. In that case, the Funds will pay the redemption proceeds when
the check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Administration Shares of each Fund earn dividends declared on the day the
shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Funds reserve the right to:
..Redeem Administration Shares of any Service Organization whose account bal-
ance is less than $50 as a result of earlier redemptions. The Funds will
not redeem Administration Shares on this basis if the value of the account
falls below the minimum account balance solely as a result of market condi-
tions. The Funds will give 60 days' prior written notice to allow a Service
Organization to purchase sufficient additional Administration Shares of the
Fund in order to avoid such a redemption.
..Pay redemptions by a distribution in kind of securities (instead of cash)
from the Fund. If you receive redemptions in kind, you should expect to
incur transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Administration Shares of a Fund at NAV
for Administration Shares of any other Goldman Sachs Fund.
6-W
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
INSTRUCTIONS FOR EXCHANGING SHARES:
----------------------------------------------------------------------
<S> <C> <C>
BY WRITING: 1. Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names
.The dollar amount to be exchanged
2. Mail the request to: Goldman, Sachs & Co.
Attention: Goldman Sachs Funds--Name of Fund
and Class of Shares, c/o Shareholder
Services,
4900 Sears Tower, Chicago, Illinois 60606
----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Fund):
1. Call 1-800-621-2550 (8:00 a.m. to 6:30 p.m.
New York time)
----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..Telephone exchanges normally will be made only to an identical account.
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market changes.
..The Distributor may use reasonable procedures described under "What Do I
Need To Know About Telephone Redemption Requests?" in an effort to prevent
unauthorized or fraudulent telephone exchange requests.
The exchange privilege may be materially modified or withdrawn at any time
upon 60 days' written notice.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Administration
Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semiannual reports. Service Organizations
will
7-W
<PAGE>
also be provided with a printed confirmation for each transaction in their
account and a monthly account statement. A year-to-date statement for
accounts will be provided upon request made to Goldman Sachs. Service Orga-
nizations are responsible for providing these or other reports to their cus-
tomers who are the beneficial owners of Administration Shares in accordance
with the rules that apply to their accounts with the Service Organizations.
8-W
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Except for exempt-interest dividends paid by the Short Duration Tax-Free
Fund as described below, Fund distributions are taxable to you as ordinary
income (unless your investment is in an IRA or other tax-advantaged account)
to the extent they are attributable to the Fund's net investment income,
certain net realized foreign exchange gains and net short-term capital
gains. They are taxable as long-term capital gains to the extent they are
attributable to the Fund's excess of net long-term capital gains over net
short-term capital losses. The tax status of any distribution is the same
regardless of how long you have been in the Fund and whether you reinvest in
additional shares or take them as cash. Certain distributions paid by a Fund
in January of a given year may be taxable to shareholders as if received the
prior December 31. The tax status of the dividends and distributions for
each calendar year will be detailed in your annual tax statement from the
Fund.
At any time, a portion of a Fund's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Fund's
portfolio securities. Therefore, subsequent distributions on a Fund's shares
may be available to you, even if the NAV of your shares is, as a result,
reduced below the cost of these shares and the distributions represent a
return of the purchase price.
The Core Fixed Income Fund may be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. In general,
the Fund may deduct these taxes in computing its taxable income.
The Short Duration Tax-Free Fund expects to distribute "exempt-interest div-
idends." These dividends will be exempt income for federal income tax pur-
poses. However, distributions, if any, derived from net long-term capital
gains of the Short Duration Tax-Free Fund will generally be taxable to you
as long-term capital gains. Distributions, if any, derived from taxable
interest income, net short-term capital gains and certain net realized for-
eign exchange gains will be taxable to you as ordinary income.
Interest on indebtedness incurred by you to purchase or carry shares of the
Short Duration Tax-Free Fund generally will not be deductible for federal
income tax purposes.
1-X
<PAGE>
Taxation continued
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free Fund may be an item of tax preference for purposes
of determining your federal alternative minimum tax liability. Exempt-inter-
est dividends will also be considered along with other adjusted gross income
in determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
If you receive an exempt-interest dividend on shares that are held by you
for six months or less, any loss on the sale or exchange of the shares will
be disallowed to the extent of such dividend amount.
TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Fund shares may generate a tax liability (unless
your investment is in an IRA or other tax-advantaged account). Depending
upon the purchase or sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods that you hold shares.) Any loss rec-
ognized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activity in certain types of
instruments.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from any Fund (including the Short Dura-
tion Tax-Free Fund) or on the value of the shares held by you. More tax
information is provided in the Additional Statement. You should also consult
your own tax adviser for information regarding all tax consequences applica-
ble to your investments in the Funds.
2-X
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that 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. Credit risk involves the risk that
the issuer could default on its obligations and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). 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. In either case, a change in the
prepayment rate can result in losses to investors.
The Funds may, as described in this Prospectus, invest in (a) derivative
instruments, (b) foreign securities, (c) municipal securities, (d) illiquid
securities and (e) temporary cash investments. These investments will pres-
ent additional risks as described further below.
In addition, the Funds are subject to certain fundamental investment
restrictions that are described in the Additional Statement. Fundamental
investment restrictions of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund as defined in the Additional
Statement. Each Fund's investment objectives and all policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval. If there is a change in a Fund's investment objec-
tive, shareholders should consider whether that Fund remains an appropriate
investment in light of their then current financial positions and needs.
1-P
<PAGE>
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. See "Financial High-
lights" in Appendix B for a statement of the Funds' historical portfolio
turnover rates. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding secu-
rities having a maturity at the date of purchase of one year or less.
B. OTHER PORTFOLIO RISKS
RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency trans-
actions involve additional risk of loss that can result from a lack of cor-
relation between changes in the value of derivative instruments and the
portfolio assets (if any) being hedged, the potential illiquidity of the
markets for derivative instruments, or the risks arising from margin
requirements and related leverage factors associated with such transactions.
The use of these management techniques also involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in secu-
rities prices, interest rates or currency prices. Each Fund may also invest
in derivative investments for non-hedging purposes (that is, to seek to
increase total return), which is considered a speculative practice and pre-
sents even greater risk of loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments 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, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is magni-
fied.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. 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.
2-P
<PAGE>
APPENDIX A
RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that
are not typically associated with U.S. dollar denominated or quoted securi-
ties of U.S. issuers. Foreign investments may be affected by changes in cur-
rency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency block-
age). 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 port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union ("EMU") pre-
sents unique uncertainties, including the legal treatment of certain out-
standing financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro; the fluctuation
of the euro relative to non-euro currencies during the transition period
from January 1, 1999 to December 31, 2000 and beyond; whether the interest
rate, tax and labor regimes of European countries participating in the euro
will converge over time; and whether the conversion of the currencies of
other countries such as the United Kingdom and Denmark into the euro and the
admission of other non-EMU countries such as Poland, Latvia and Lithuania as
members of the EMU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions
before or after the introduction of the euro, and could adversely affect the
value of securities held by the Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets
3-P
<PAGE>
may have substantially less volume than U.S. securities markets and securi-
ties of many foreign issuers are less liquid and more volatile than securi-
ties of comparable domestic issuers. Furthermore, with respect to certain
foreign countries, there is a possibility of nationalization, expropriation
or confiscatory taxation, imposition of withholding or other taxes on divi-
dend or interest payments (or, in some cases, capital gains), limitations on
the removal of funds or other assets of the Funds, and political or social
instability or diplomatic developments which could affect investments in
those countries.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse in the
event of a default. Periods of economic uncertainty may result in volatility
of market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers. A
sovereign debtor's willingness or ability to repay principal and pay inter-
est in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availabil-
ity of sufficient foreign exchange on the date a payment is due, the rela-
tive size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country.
Many emerging countries may be subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in emerging countries. Investing in emerging countries involves
greater risk of loss due to expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investments
and on repatriation of capital invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund. Settlement procedures in emerging
countries are frequently less developed and reliable than those in the
United States and may
4-P
<PAGE>
APPENDIX A
involve a Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have a
negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
.Both domestic and foreign securities that are not readily marketable
.Certain municipal leases and participation interests
.Certain stripped Mortgage-Backed Securities
. Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
5-P
<PAGE>
. Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and, therefore, is liquid
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity of a Fund's portfolio to the extent that quali-
fied 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 liq-
uid market exists.
C. PORTFOLIO SECURITIES AND TECHNIQUES
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS
U.S. Government Securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. Government Securities may be 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 pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government
Securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. Government Securities, where the interest and principal compo-
nents of stripped U.S. Government Securities are traded independently.
Interest in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of U.S. government.
6-P
<PAGE>
APPENDIX A
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. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include 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. In most cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, 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 Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include 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 prin-
cipal payments from a pool of mortgage loans. The market value of SMBS con-
sisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage loans are generally higher than pre-
vailing 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.
Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to
both call risk and extension risk as previously described. Because of these
risks, these securities can have significantly greater price and yield vola-
tility than with traditional fixed-income securities.
The value of Mortgage-Backed Securities that are structured as pass-through
mortgage securities that are collateralized by ARMs are less likely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. This is because interest rate declines may result in accelerated
prepayments of mortgages
7-P
<PAGE>
with the result that proceeds from prepayments will be reinvested at lower
interest rates. On the other hand, during periods of rising interest rates,
the value of ARMs 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 invest-
ments in ARMs may fluctuate more substantially since these limits may pre-
vent the security from fully adjusting its interest rate to the prevailing
market rates.
ASSET-BACKED SECURITIES
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Asset-backed securities present credit risks that
are not presented by Mortgage-Backed Securities. This is 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 possibil-
ity that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
MUNICIPAL SECURITIES
Municipal Securities include bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies 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 alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in the tax rates and policies than taxable
fixed-income securities.
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. Municipal Securities include private
activity bonds, municipal
8-P
<PAGE>
APPENDIX A
leases, certificates of participation, pre-refunded municipal securities and
auction rate securities.
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 con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected. Municipal
lease obligations and certificates of participation are subject to the added
risk that the governmental lessee will fail to appropriate funds to enable
it to meet its payment obligations under the lease. Although these obliga-
tions 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 recover fully a Fund's original investment.
Municipal Securities may be in the form of a tender option bond, which is a
Municipal Security (generally held pursuant to a custodial arrangement) hav-
ing a relatively long maturity and bearing interest at a fixed rate substan-
tially higher than prevailing short-term, tax-exempt rates. The bond is typ-
ically 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 dif-
ference between the bond's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term, tax-exempt rate. Certain tender option bonds may
be illiquid.
In order to enhance the liquidity of Municipal Securities, a Fund may (but
is not required to) acquire the right to sell a security to another party at
a guaranteed price and date. This 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 securi-
ties. Standby commitments may not be available or may not be available on
satisfactory terms.
9-P
<PAGE>
CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES
Corporate debt obligations include bonds, notes, debentures and other obli-
gations of corporations to pay interest and repay principal, and include
securities issued by banks and other financial institutions. A trust pre-
ferred or capital security is a long dated bond (for example, 30 years) with
preferred features. The preferred features are that payment of interest can
be deferred for a specified period without initiating a default event. The
securities are generally senior in claim to standard preferred stock but
junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
FOREIGN CURRENCY TRANSACTIONS
A Fund may, to the extent it invests in foreign securities, purchase or sell
foreign currencies on a cash basis or through forward contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. A Fund may engage in
foreign currency transactions for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, a Fund also may enter into such transactions to seek to increase
total return when the Investment Adviser anticipates fluctuation in the
value of the foreign currency, but securities denominated or quoted in that
currency do not present attractive investment opportunities and are not held
in the Fund's portfolio, which is considered a speculative practice. Some
Funds may also engage in cross-hedging by using forward contracts in a cur-
rency different from that in which the hedged security is denomi-
10-P
<PAGE>
APPENDIX A
nated or quoted if the Investment Adviser determines that there is a pattern
of correlation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). 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.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, 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.
STRUCTURED SECURITIES
Structured securities are securities whose value 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. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce 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 Refer-
ence. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities, and may be more
volatile, less liquid and more difficult to accurately price than less com-
plex securities. Structured securities include, but are not limited to,
inverse floating rate debt securities ("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 var-
ies by a magnitude that exceeds the magnitude
11-P
<PAGE>
of the change in the index rate of interest. The higher the degree of lever-
age of an inverse floater, the greater the volatility of its market value.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
These securities are issued at a discount from their face value because
interest payments are typically postponed until maturity. Pay-in-kind secu-
rities are securities that have interest payable by the delivery of addi-
tional securities. The market prices of these securities 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.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll involves the sale by a Fund of securities for deliv-
ery in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll 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 roll, the use of this technique will
diminish the Fund's investment performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage 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, and do not treat them as borrowings.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
A put option gives the purchaser of the option the right to sell, and the
writer (seller) of the option the obligation to buy, the underlying instru-
ment during the option period. A call option gives the purchaser of the
option the right to buy, and the writer (seller) of the option the obliga-
tion to sell, the underlying instrument
12-P
<PAGE>
APPENDIX A
during the option period. 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. A Fund may also, to the extent it invests in foreign securities,
purchase and sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
brokerage transaction costs. Options written or purchased by the Funds may
be traded on either U.S. or foreign exchanges or over-the-counter. Foreign
and over-the-counter options will present greater possibility of loss
because of their greater liquidity and credit risks.
YIELD CURVE OPTIONS
Each Fund may enter into options on the yield "spread" or differential
between two securities. Such transactions 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.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts are standardized, exchange-traded contracts that provide
for the sale or purchase of a specified financial instrument or currency at
a future time at a specified price. An option on a futures contract gives
the purchaser the right (and the writer of the option the obligation) to
assume a position in a futures contract at a specified exercise price within
a specified period of time. A futures
13-P
<PAGE>
contract may be based on various securities (such as U.S. Government Securi-
ties), foreign currencies, securities indices and other financial instru-
ments and indices. The Funds may engage in futures transactions on both U.S.
and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund invests in foreign securities, currency
exchange rates, or to otherwise manage their term structures and durations
in accordance with their investment objectives and policies. Each Fund may
also enter into closing purchase and sale transactions with respect to such
contracts and options. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums 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. Future contracts and
related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing 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 NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
14-P
<PAGE>
APPENDIX A
..Foreign exchanges may not provide the same protection as U.S. exchanges.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.
When-issued securities are securities that have been authorized but not yet
issued. When-issued securities are purchased in order to secure what is con-
sidered to be an advantageous price and yield to the Fund at the time of
entering into the transaction.
A forward commitment involves entering into a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settle-
ment period.
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 before the settlement date. Conversely, securities sold on a for-
ward commitment basis involves the risk that the value of the securities to
be sold may increase before the settlement date. Although a Fund will gener-
ally 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.
LENDING OF PORTFOLIO SECURITIES
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents or
U.S. Government Securities in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equiva-
lents. If the Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience a delay in the recovery of its securities or possible loss if the
institution with which it has engaged in a securities lending transaction
breaches its agreement with the Fund.
REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and
price. 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. Some Funds may also enter into repurchase
agreements involving certain foreign government securities.
15-P
<PAGE>
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 repurchase agree-
ment are less than the repurchase price and the cost of the Fund associated
with delay and enforcement of the repurchase agreement. In addition, in the
event of bankruptcy of the seller, a Fund could suffer other losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS
The Funds can borrow money from banks and enter into reverse repurchase
agreements with banks and other financial institutions in amounts not
exceeding one-third of its total assets. Reverse repurchase agreements
involve the sale of securities held by a Fund subject to the Fund's agree-
ment to repurchase them at a mutually agreed upon date and price (including
interest). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the Investment Adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by a Fund
decline in value while these transactions are outstanding, the NAV of the
Fund's outstanding shares will decline in value by proportionately more than
the decline in value of the securities. In addition, reverse repurchase
agreements involve the risk that the interest income earned by a Fund (from
the investment of the proceeds) will be less than the interest expense of
the transaction, that the market value of the securities sold by a Fund will
decline below the price the Fund is obligated to pay to repurchase the secu-
rities, and that the securities may not be returned to the Fund.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS
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 simi-
lar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a ref-
erence pool or pools of mortgages. Credit swaps involve the receipt of
floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transac-
tion the right to dispose of or acquire an asset (or group of assets), or
the right to receive or make a payment from the other party, upon the occur-
rence of specified credit events. Currency swaps involve the exchange of the
parties' respective rights to make or receive payments in specified
16-P
<PAGE>
APPENDIX A
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 enti-
tles the purchaser, to the extent that a specified index falls below a pre-
determined 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.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit 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 transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
INVERSE FLOATING RATE DEBT SECURITIES ("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.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, invest in other
investment companies.
17-P
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $ 9.88 $0.53 $(0.17)
1998-Institutional Shares 9.88 0.55 (0.16)
1998-Administration Shares 9.88 0.53 (0.16)
1998-Service Shares 9.88 0.51 (0.16)
1997-Class A Shares 9.83 0.57f 0.05f
1997-Institutional Shares 9.83 0.59f 0.05f
1997-Administration Shares 9.83 0.57f 0.05f
1997-Service Shares (commenced March 27) 9.84 0.33f 0.04f
1996-Class A Shares 9.77 0.55f 0.08f
1996-Institutional Shares 9.77 0.57f 0.08f
1996-Administration Shares 9.77 0.55f 0.08f
1995-Class A Shares (commenced May 15) 9.79 0.27f (0.01)f
1995-Institutional Shares 9.74 0.56f 0.07f
1995-Administration Shares 9.74 0.54f 0.07f
1994-Institutional Shares 10.00 0.43f (0.24)f
1994-Administration Shares 10.00 0.42f (0.26)f
- -------------------------------------------------------------------------------
</TABLE>
1-Y
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET NET NET
REALIZED GAIN INCREASE ASSETS
IN EXCESS ON INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT AND FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $(0.02) $-- $(0.19) $9.69 3.71% 33.64% $ 60,782
(0.55) (0.02) -- (0.18) 9.70 4.09 33.64 441,228
(0.53) (0.02) -- (0.18) 9.70 3.83 33.64 5,999
(0.51) (0.02) -- (0.18) 9.70 3.57 33.64 822
(0.57) -- -- 0.05 9.88 6.43 46.58 43,393
(0.59) -- -- 0.05 9.88 6.70 46.58 463,511
(0.57) -- -- 0.05 9.88 6.43 46.58 2,793
(0.33) -- -- 0.04 9.88 3.81d 46.58 346
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 10,728
(0.57) (0.02) -- 0.06 9.83 6.86 52.36 613,149
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 3,792
(0.27) (0.01) -- (0.02) 9.77 2.74d 24.12 15,203
(0.57) (0.03) -- 0.03 9.77 6.75 24.12 657,358
(0.55) (0.03) -- 0.03 9.77 6.48 24.12 3,572
(0.45) -- -- (0.26) 9.74 1.88 37.81 942,523
(0.42) -- -- (0.26) 9.74 1.63 37.81 6,960
- -----------------------------------------------------------------------------------------
</TABLE>
2-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares 0.80% 5.40% 1.02% 5.18%
1998-Institutional Shares 0.53 5.63 0.53 5.63
1998-Administration Shares 0.78 5.33 0.78 5.33
1998-Service Shares 1.03 5.09 1.03 5.09
1997-Class A Shares 0.74 5.60 1.02 5.32
1997-Institutional Shares 0.49 5.99 0.52 5.96
1997-Administration Shares 0.74 5.73 0.77 5.70
1997-Service Shares (commenced
March 27) 1.05c 5.64c 1.08c 5.61c
1996-Class A Shares 0.70 5.59 1.01 5.28
1996-Institutional Shares 0.45 5.85 0.51 5.79
1996-Administration Shares 0.70 5.59 0.76 5.53
1995-Class A Shares (commenced
May 15) 0.69c 5.87c 1.01c 5.55c
1995-Institutional Shares 0.46 5.77 0.53 5.70
1995-Administration Shares 0.71 5.50 0.78 5.43
1994-Institutional Shares 0.46 4.38 0.49 4.35
1994-Administration Shares 0.71 4.27 0.74 4.24
- ------------------------------------------------------------------------------
</TABLE>
3-Y
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE AT NET INVESTMENT, OPTION
BEGINNING INVESTMENT AND FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $ 9.88 $0.57 $ 0.04
1998-Class B Shares 9.86 0.51 0.03
1998-Class C Shares 9.86 0.49 0.03
1998-Institutional Shares 9.86 0.58 0.06
1998-Administration Shares 9.89 0.55 0.05
1998-Service Shares 9.86 0.55 0.04
1997-Class A Shares (commenced May 1) 9.78 0.31f 0.09f
1997-Class B Shares (commenced May 1) 9.75 0.28f 0.10f
1997-Class C Shares (commenced August
15) 9.83 0.12f 0.02f
1997-Institutional Shares 9.83 0.64f 0.03f
1997-Administration Shares 9.85 0.62f 0.04f
1997-Service Shares 9.82 0.59f 0.04f
1996-Institutional Shares 9.82 0.63f 0.01f
1996-Administration Sharesg 9.86 0.38f --f
1996-Service Shares (commenced April
10) 9.72 0.31f 0.10f
1995-Institutional Shares 9.64 0.66f 0.17f
1995-Administration Sharesg 9.64 0.24f (0.04)f
1994-Institutional Shares 10.14 0.56f (0.46)f
1994-Administration Shares 10.14 0.53f (0.45)f
- -------------------------------------------------------------------------------
</TABLE>
4-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET
IN EXCESS ON INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE PERIOD RETURNB RATEE (IN 000S)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.58) $-- $ -- $ 0.03 $9.91 6.36% 119.89% $ 56,725
(0.52) -- -- 0.02 9.88 5.62 119.89 5,025
(0.50) -- -- 0.02 9.88 5.46 119.89 4,527
(0.60) -- -- 0.04 9.90 6.75 119.89 145,514
(0.58) -- -- 0.02 9.91 6.27 119.89 7,357
(0.56) -- -- 0.03 9.89 6.12 119.89 6,232
(0.30) -- -- 0.10 9.88 4.14d 102.58 9,491
(0.27) -- -- 0.11 9.86 3.94d 102.58 747
(0.11) -- -- 0.03 9.86 1.44d 102.58 190
(0.64) -- -- 0.03 9.86 7.07 102.58 103,729
(0.62) -- -- 0.04 9.89 6.91 102.58 1,060
(0.59) -- -- 0.04 9.86 6.63 102.58 3,337
(0.63) -- -- 0.01 9.83 6.75 115.45 99,944
(0.39) -- -- (0.01) 9.85 4.00d 115.45 252
(0.31) -- -- 0.10 9.82 4.35d 115.45 1,822
(0.65) -- -- 0.18 9.82 8.97 292.56 103,760
(0.21) -- -- (0.01) 9.63 2.10d 292.56 --
(0.56) -- (0.04) (0.50) 9.64 0.99 289.79 193,095
(0.54) -- (0.04) (0.50) 9.64 0.73 289.79 730
- -------------------------------------------------------------------------------------------
</TABLE>
5-Y
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998-Class A Shares 0.81% 5.68% 1.32% 5.17%
1998-Class B Shares 1.41 5.12 1.87 4.66
1998-Class C Shares 1.56 4.64 1.87 4.33
1998-Institutional Shares 0.53 6.06 0.84 5.75
1998-Administration Shares 0.78 5.76 1.09 5.45
1998-Service Shares 1.03 5.56 1.34 5.25
1997-Class A Shares
(commenced May 1) 0.70c 6.05c 1.32c 5.43c
1997-Class B Shares
(commenced May 1) 1.30c 5.52c 1.82c 5.00c
1997-Class C Shares
(commenced May 15) 1.45c 5.52c 1.82c 5.15c
1997-Institutional Shares 0.45 6.43 0.82 6.06
1997-Administration Shares 0.70 6.19 1.07 5.82
1997-Service Shares 0.95 5.92 1.32 5.55
1996-Institutional Shares 0.45 6.44 0.71 6.18
1996-Administration
Sharesg 0.70c 5.97c 0.96c 5.71c
1996-Service Shares
(commenced April 10) 0.95c 6.05c 1.21c 5.79c
1995-Institutional Shares 0.45 6.87 0.72 6.60
1995-Administration
Sharesg 0.70c 7.91c 0.90c 7.71c
1994-Institutional Shares 0.45 5.69 0.59 5.55
1994-Administration Shares 0.70 5.38 0.84 5.24
- -------------------------------------------------------------------------------
</TABLE>
6-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
[This page intentionally left blank]
7-Y
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSN
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE, NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOMEE TRANSACTIONSE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $10.08 $0.36 $0.13
1998-Class B Shares 10.08 0.30 0.12
1998-Class C Shares 10.07 0.28 0.14
1998-Institutional Shares 10.07 0.39 0.13
1998-Administration Shares 10.07 0.36 0.13
1998-Service Shares 10.07 0.34 0.13
1997-Class A Shares (commenced
May 1) 9.94 0.20 0.14
1997-Class B Shares (commenced
May 1) 9.94 0.16 0.14
1997-Class C Shares (commenced
August 15) 10.04 0.07 0.03
1997-Institutional Shares 9.96 0.42 0.11
1997-Administration Shares 9.96 0.39 0.11
1997-Service Shares 9.97 0.37 0.10
1996-Institutional Shares 9.94 0.42 0.02
1996-Administration Shares 9.94 0.39 0.02
1996-Service Shares 9.95 0.37 0.02
1995-Institutional Shares 9.79 0.42 0.15
1995-Administration Shares 9.79 0.40 0.15
1995-Service Shares 9.79 0.37 0.16
1994-Institutional Shares 10.23 0.38 (0.36)
1994-Administration Shares 10.23 0.35 (0.36)
1994-Service Shares (commenced
September 20) 9.86 0.05 (0.07)
- ------------------------------------------------------------------------------
</TABLE>
8-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET NET
IN EXCESS ON INVESTMENT INCREASE NET ASSET ASSETS
FROM NET OF NET OPTION (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET AT END TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE OF PERIOD RETURNB RATE (IN 000S)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.38) -- $ -- $ 0.11 $10.19 4.97% 140.72% $19.881
(0.32) -- -- 0.10 10.18 4.25 140.72 974
(0.31) -- -- 0.11 10.18 4.19 140.72 2,256
(0.41) -- -- 0.11 10.18 5.25 140.72 57,647
(0.38) -- -- 0.11 10.18 4.99 140.72 525
(0.36) -- -- 0.11 10.18 4.73 140.72 2,560
(0.20) -- -- 0.14 10.08 3.39d 194.75 4,023
(0.16) -- -- 0.14 10.08 3.07d 194.75 106
(0.07) -- -- 0.03 10.07 0.97d 194.75 2
(0.42) -- -- 0.11 10.07 5.40 194.75 28,821
(0.39) -- -- 0.11 10.07 5.14 194.75 77
(0.37) -- -- 0.10 10.07 4.77 194.75 2,051
(0.42) -- -- 0.02 9.96 4.50 231.65 34,814
(0.39) -- -- 0.02 9.96 4.24 231.65 48
(0.37) -- -- 0.02 9.97 3.98 231.65 695
(0.42) -- -- 0.15 9.94 5.98 259.52 53,389
(0.40) -- -- 0.15 9.94 5.76 259.52 46
(0.37) -- -- 0.16 9.95 5.59 259.52 454
(0.38) -- (0.08) (0.44) 9.79 0.17 354.00 83,704
(0.35) -- (0.08) (0.44) 9.79 (0.11) 354.00 3,866
(0.05) -- -- (0.07) 9.79 (0.32)d 354.00 440
- ------------------------------------------------------------------------------------------
</TABLE>
9-Y
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
RATIO OF RATIO OF NET RATIO OF NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES TO INCOME TO EXPENSES TO INCOME TO
AVERAGE AVERAGE AVERAGE AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998-Class A Shares 0.71% 3.54% 1.74% 2.51%
1998-Class B Shares 1.31 3.06 2.27 2.10
1998-Class C Shares 1.46 2.82 2.27 2.01
1998-Institutional Shares 0.45 3.92 1.26 3.11
1998-Administration Shares 0.70 3.58 1.51 2.77
1998-Service Shares 0.95 3.44 1.76 2.63
1997-Class A Shares
(commenced May 1) 0.70c 3.81c 1.73c 2.78c
1997-Class B Shares
(commenced May 1) 1.30c 3.31c 2.23c 2.38c
1997-Class C Shares
(commenced August 15) 1.45c 2.60c 2.23c 1.82c
1997-Institutional Shares 0.45 4.18 1.23 3.40
1997-Administration Shares 0.70 3.91 1.48 3.13
1997-Service Shares 0.95 3.66 1.73 2.88
1996-Institutional Shares 0.45 4.21 1.01 3.65
1996-Administration Shares 0.70 3.96 1.26 3.40
1996-Service Shares 0.95 3.74 1.51 3.18
1995-Institutional Shares 0.45 4.31 0.77 3.99
1995-Administration Shares 0.70 4.14 1.02 3.82
1995-Service Shares 0.95 3.87 1.27 3.55
1994-Institutional Shares 0.45 3.74 0.61 3.58
1994-Administration Shares 0.70 3.51 0.86 3.35
1994-Service Shares
(commenced September 20) 0.95c 4.30c 1.11c 4.14c
- -------------------------------------------------------------------------------
</TABLE>
10-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
[This page intentionally left blank]
11-Y
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION,
NET ASSET FUTURES AND
VALUE AT NET FOREIGN CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $10.06 $0.59 $ 0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.90 0.27
1998-Institutional Shares 10.08 1.08 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.99 0.27
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August
15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares (commenced
February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March
13) 9.77 0.38 0.09
1995-Institutional Shares 9.24 0.64 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares (commenced
January 5) 10.00 0.46 (0.76)
- ------------------------------------------------------------------------------
</TABLE>
12-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $(0.02) $(0.06) $0.19 $10.25 8.76% 271.50% $56,267
(0.52) (0.02) (0.06) 0.19 10.28 7.94 271.50 7,209
(0.90) (0.02) (0.06) 0.19 10.28 7.94 271.50 5,587
(1.08) (0.03) (0.06) 0.20 10.28 9.15 271.50 195,730
(0.57) (0.03) (0.06) 0.20 10.27 8.88 271.50 12,743
(0.99) (0.02) (0.06) 0.19 10.28 8.50 271.50 5,263
(0.30) -- -- 0.36 10.06 6.94d 361.27 9,336
(0.27) -- -- 0.37 10.09 6.63d 361.27 621
(0.11) -- -- 0.16 10.09 2.74d 361.27 272
(0.64) -- -- 0.23 10.08 9.19 361.27 79,230
(0.62) -- -- 0.23 10.07 8.92 361.27 6,176
(0.59) -- -- 0.23 10.09 8.65 361.27 1,868
(0.64) -- (0.08) (0.15) 9.85 5.98 414.20 72,061
(0.41) -- -- (0.07) 9.84 3.56d 414.20 702
(0.38) -- -- 0.09 9.86 4.90d 414.20 381
(0.64) -- -- 0.76 10.00 15.72 382.26 55,502
(0.46) -- -- (0.76) 9.24 (3.00)d 285.25 24,508
- ----------------------------------------------------------------------------------------
</TABLE>
13-Y
<PAGE>
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares 0.74% 5.58% 1.31% 5.11%
1998-Class B Shares 1.49 4.82 1.75 4.56
1998-Class C Shares 1.49 4.81 1.75 4.55
1998-Institutional Shares 0.46 5.95 0.72 5.69
1998-Administration Shares 0.71 5.70 0.97 5.44
1998-Service Shares 0.96 5.44 1.22 5.18
1997-Class A Shares (commenced
May 1) 0.70c 6.13c 1.33c 5.50c
1997-Class B Shares (commenced
May 1) 1.45c 5.28c 1.83c 4.90c
1997-Class C Shares (commenced
August 15) 1.45c 4.84c 1.83c 4.46c
1997-Institutional Shares 0.45 6.53 0.83 6.15
1997-Administration Shares 0.70 6.27 1.08 5.89
1997-Service Shares 0.95 6.00 1.33 5.62
1996-Institutional Shares 0.45 6.51 0.83 6.13
1996-Administrative Shares
(commenced February 28) 0.70c 6.41c 1.08c 6.03c
1996-Service Shares (commenced
March 13) 0.95c 6.37c 1.33c 5.99c
1995-Institutional Shares 0.45 6.56 0.96 6.05
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares
(commenced January 5) 0.45c 6.48c 1.46c 5.47c
- -------------------------------------------------------------------------------
</TABLE>
14-Y
<PAGE>
APPENDIX B--FINANCIAL HIGHLIGHTS
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 the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
f Calculated based on the average shares outstanding methodology.
g Short Duration Government Fund Administration shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-com-
menced on February 28, 1996 at $9.86.
15-Y
<PAGE>
Fixed Income Funds
Prospectus (Administration Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during its
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. Information on the operation
of the public reference room may be obtained by calling the SEC at 1-800-
SEC-0330. The Fund's investment company registration number is 811-5349.
[LOGO]
10
<PAGE>
Index
1 General Investment Management Approach
2 Fund Performance
3 Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Core Fixed Income Fund
7 Fund Fees and Expenses
Other Investment Practices and Securities
Principal Risks of the
Funds
25 Service Providers
30 Dividends
32 Shareholder Guide
32 How to Buy Shares
42 How to Sell Shares
51 Taxation
A-1 Appendix A:
Additional Information
on Portfolio Risks,
Securities and
Techniques
B-1 Appendix B:
Financial Highlights
11
<PAGE>
Prospectus CLASS A, B
AND C SHARES
March 1, 1999
GOLDMAN SACHS FIXED INCOME FUNDS
. Goldman Sachs
Adjustable Rate
Government Fund
. Goldman Sachs
Short Duration
Government Fund
(INSERT ARTWORK)
. Goldman Sachs
Short Duration
Tax-Free Fund
. Goldman Sachs
Government
Income Fund
. Goldman Sachs
Municipal
Income Fund
. Goldman Sachs
Core Fixed
Income Fund
. Goldman Sachs
Global Income
Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT . Goldman Sachs
APPROVED OR DISAPPROVED THESE SECURITIES OR High Yield
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. Fund
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT [LOGO OF GOLDMAN
AGENCY. AN INVESTMENT IN A FUND INVOLVES SACHS APPEARS HERE]
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income
and High Yield Funds. Goldman Sachs Funds Management, L.P. serves as invest-
ment adviser to the Adjustable Rate Government and Short Duration Government
Funds. Goldman Sachs Asset Management International serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management, Goldman
Sachs Funds Management, L.P., and Goldman Sachs Asset Management Interna-
tional are each referred to in this Prospectus as the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
ACTIVE MANAGEMENT WITHIN A RISK-MANAGED FRAMEWORK
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. SECURITY SELECTION--In selecting securities for each Fund, the Investment
Adviser capitalizes on the extensive resources of Goldman Sachs, including
fixed-income and equity research professionals.
2. SECTOR ALLOCATION--The Investment Adviser assesses relative value among
sectors (such as U.S. corporate, asset-backed and mortgage-backed securi-
ties) to create investment strategies that meet each Fund's objectives.
3. YIELD CURVE STRATEGIES--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
THE INVESTMENT ADVISER DE-EMPHASIZES INTEREST RATE DURATION AS A MEANS OF
GEN- ERATING INCREMENTAL RETURN. INSTEAD, THE INVESTMENT ADVISER SEEKS TO
ADD VALUE THROUGH SECURITY AND SECTOR SELECTION.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1-L
<PAGE>
General Investment Management Approach continued
Each of the Funds described in this Prospectus has a target duration. 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 other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement 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
interests of a Fund and its shareholders.
2-L
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Six-month to One-year U.S. Treasury Security
Maximum = 2 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 9-month bill
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARKS: Six-Month and One-Year U.S. Treasury Security
3-L
<PAGE>
Goldman Sachs Short Duration Government Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Two-year U.S. Treasury Security plus or minus 0.5 years
Maximum = 3 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 2-year bond
CREDIT QUALITY: U.S. Government Securities and repurchase agreements collat-
eralized by such securities
BENCHMARK: Two-Year U.S. Treasury Security
4-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
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 ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), 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 private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 3-year Municipal Bond Index plus or minus 0.5 years
Maximum = 4 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 3-year bond
CREDIT QUALITY:
Minimum = BBB or Baa by a NRSRO at the time of purchase, or, if unrated,
determined by the Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Three-Year Municipal Bond Index
5-L
<PAGE>
Goldman Sachs Government Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized 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.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Mutual Fund Government/Mortgage Index plus or minus
1 year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY: Non-U.S. Government Securities rated AAA or Aaa by a NRSRO
at the time of purchase or, if unrated, determined by the Investment Adviser
to be of comparable quality
BENCHMARK: Lehman Brothers Mutual Fund Government/Mortgage Index
6-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from certain of which (including the Fund's
distributions of such interest) may be a preference item for purposes of the
federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers 15-Year Municipal Bond Index plus or minus one year
Maximum = 12 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 15-year bond
CREDIT QUALITY:
Minimum = BBB/Baa at the time of purchase; Weighted Average = AA or Aa Secu-
rities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers 15-Year Municipal Bond Index
7-L
<PAGE>
Goldman Sachs Core Fixed Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
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 secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers Aggregate Bond Index plus or minus one year
Maximum = 6 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 5-year bond
CREDIT QUALITY:
Minimum = BBB or Baa; Minimum for non-U.S. dollar denominated securities =
AA or Aa
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: Lehman Brothers Aggregate Bond Index
8-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global Income Fund
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The 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. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other single foreign country. The Fund may also invest up to
10% of its total assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..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
..Commercial paper
..Mortgage-Backed Securities and asset backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
9-L
<PAGE>
Goldman Sachs Global Income Fund continued
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = J.P. Morgan Global Government Bond Index (hedged) plus or minus
2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
CREDIT QUALITY:
Minimum = BBB or Baa at time of purchase; At least 50% of total assets = AAA
or Aaa.
Securities will either be rated by a NRSRO or, if unrated, determined by the
Investment Adviser to be of comparable quality
BENCHMARK: J.P. Morgan Global Government Bond Index (hedged)
10-L
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Fund
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities rated, at the time of invest-
ment, below investment grade. Non-investment grade securities are securities
rated BB, Ba or below by a NRSRO, or, if unrated, determined by the Invest-
ment Adviser to be of comparable quality. The Fund may invest in all types
of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in emerging
countries) which are denominated in currencies other than the U.S. dollar.
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
DURATION (UNDER NORMAL INTEREST RATE CONDITIONS):
Target = Lehman Brothers High Yield Bond Index plus or minus 2.5 years
Maximum = 7.5 years
EXPECTED APPROXIMATE INTEREST RATE SENSITIVITY: 6-year bond
11-L
<PAGE>
Goldman Sachs High Yield Fund continued
CREDIT QUALITY:
At least 65% of total assets = BB or Ba or lower at the time of investment
or, if unrated, determined by the Investment Adviser to be of comparable
quality
NON-INVESTMENT GRADE FIXED INCOME SECURITIES (COMMONLY KNOWN AS "JUNK
BONDS") TEND TO OFFER HIGHER YIELDS THAN HIGHER RATED SECURITIES WITH SIMI-
LAR MATURITIES. NON-INVESTMENT GRADE FIXED INCOME SECURITIES ARE, HOWEVER,
CONSIDERED SPECULATIVE AND GENERALLY INVOLVE GREATER PRICE VOLATILITY AND
GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST THAN HIGHER RATED SECURITIES.
THE FUND MAY PURCHASE THE SECURITIES OF ISSUERS THAT ARE IN DEFAULT.
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and non-convertible
bonds) held by the Fund during the fiscal year ended October 31, 1998:
CREDIT QUALITY
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND'S ASSETS
--------------------------------------------
<S> <C>
AAA/Aaa 4.7%
AA/Aa 0%
A 0.5%
BBB/Baa 0.5%
BB/Ba 8.1%
Below Ba 81.8%
Not rated 0%
Comparable to A 0%
Comparable to BBB/Baa 0%
Comparable to BB/Ba or lower 0.9%
Comparable to Below Ba 3.5%
--------------------------------------------
100.0%
--------------------------------------------
</TABLE>
BENCHMARK: Lehman Brothers High Yield Bond Index
12-L
<PAGE>
[This page intentionally left blank]
13-L
<PAGE>
Other Investment Practices and Securities
Each of the Funds may use active management techniques to manage its duration
and term structure, to manage its exposure (if any) to foreign currencies and
to seek enhanced returns. The table below identifies some of these techniques
that may (but are not required to) be used by the Funds. The table also high-
lights the differences among the Funds in their use of these techniques and
other investment practices and investment securities. Numbers in this table
show allowable usage only; for actual usage, consult the Fund's
annual/semiannual reports. For more information see Appendix A.
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No asset limitation on usage; Limited only by the objectives and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Credit and Interest Rate Swaps . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps . . -- .
Options (including Options on
Futures) . . . .
Repurchase Agreements . . . .
Securities Lending . . . .
Standby Commitments and Tender
Option Bonds -- -- . --
Options on Foreign Currencies -- -- -- --
- ----------------------------------------------------------------------------
</TABLE>
14-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
-- . . .
-- . . .
-- . . .
. . . .
-- . . .
. . . .
-- . . --
-- . . .
. . . .
. . . .
. . . .
. -- -- --
-- . . .
- ---------------------------------------------------------------------------------------------------
</TABLE>
15-L
<PAGE>
10Percent of total assets (italic type)
10Percent of net assets (roman type)
.. No policy limitation on usage; Limited only by the objective and strategies
of the Fund.
- --Not permitted.
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND FUND FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities -- -- -- .
Bank Obligations -- -- -- .
Convertible Securities -- -- -- --
Corporate Debt Obligations and Trust
Preferred Securities -- -- -- .
Emerging Market Securities -- -- -- --
Foreign Securities/1/ -- -- -- --
Foreign Government Securities -- -- -- --
Non-Investment Grade Fixed
Income Securities -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities -- -- -- --
Taxable Municipal Securities -- -- 20 --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./4/ .
- -------------------------------------------------------------------------------
</TABLE>
1 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
2 Investment in non-U.S. dollar-denominated fixed-income securities is lim-
ited to 25% of total assets.
3 High Yield Fund may invest up to 35% of total assets in investment grade
securities.
4 Short-Duration Tax-Free and Municipal Income Funds may invest no more than
20% of net assets in taxable investments.
5 High Yield Fund may for this purpose invest in investment grade securities.
16-L
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- . . .
-- . . .
-- . -- .
-- . . .
-- 10 10 25
-- ./2/ . ./2/
-- . . .
-- -- -- 65+/3/
-- -- -- .
-- . . .
-- . . .
-- . . .
-- . . .
-- . . .
-- -- -- .
-- . . .
20 . -- .
80+ . -- .
./4/ . . ./5/
- ---------------------------------------------------------------------------------------------------
</TABLE>
17-L
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. The following summarizes
important risks that apply to the Funds and may result in a loss of your
investment. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund will achieve its investment
objective.
..Applicable
- --Not Applicable
<TABLE>
<CAPTION>
ADJUSTABLE SHORT- SHORT-
RATE DURATION DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
INVESTMENT RISK FUND FUND FUND FUND
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
Government Securities . . . .
Market . . . .
Management . . . .
Other . . . .
Concentration -- -- -- --
Foreign -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ----------------------------------------------------------------
</TABLE>
18-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
<TABLE>
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME HIGH YIELD
FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
. . . .
-- -- . --
-- . . .
-- -- -- .
. -- -- --
- ---------------------------------------------------------------------------------------------------
</TABLE>
19-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
All Funds:
..INTEREST RATE RISK--The risk that, when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..CREDIT/DEFAULT RISK--The risk that an issuer of fixed-income securities held
by a Fund (which may have low credit ratings) may default on its obligation to
pay interest and repay principal.
..CALL RISK--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..EXTENSION RISK--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..DERIVATIVES RISK--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
instruments, which may be leveraged.
..GOVERNMENT SECURITIES RISK--The risk that the U.S. government will not provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by law.
..MARKET RISK--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..MANAGEMENT RISK--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..OTHER RISKS--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by the
"Year 2000 Problem."
Specific Funds:
..CONCENTRATION RISK--The Global Income 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 investments were
less concentrated, to the risks of adverse securities markets, exchange rates
and social, political or economic events which may occur in those countries.
20-L
<PAGE>
PRINCIPAL RISKS OF THE FUND
..FOREIGN RISKS--The Core Fixed Income, Global Income and High Yield Fund will
be subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less gov-
ernment regulation, less public information and less economic, political and
social stability. The Funds will also be subject to the risk of negative for-
eign currency rate fluctuations. Foreign risks will normally be greatest when
a Fund invests in issuers located in emerging countries.
.."JUNK BOND" RISK--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are considered
predominantly speculative by traditional investment standards. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities may be subject to greater
price volatility due to such factors as specific corporate developments,
interest rate sensitivity, negative perceptions of the junk bond markets
generally and less secondary market liquidity.
..TAX RISK--The Short Duration Tax-Free and Municipal Income Funds may be more
adversely impacted by changes in tax rates and policies than the other Funds.
Because interest income from Municipal Securities is normally 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 sup-
ply, liquidity and marketability of Municipal Securities. This could in turn
affect a Fund's ability to acquire and dispose of Municipal Securities at
desirable yield and price levels.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and Appendix A. Both are
important to your investment choice.
21-L
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Class A Shares from year to year; and (b) how the average annual returns of
a Fund's Class A, B and C Shares* compare to those of a broad-based securi-
ties market index. The bar chart and table assume reinvestment of dividends
and distributions. A Fund's past performance is not necessarily an indica-
tion of how the Fund will perform in the future. The average annual total
return calculation reflects a maximum initial sales charge of 1.5% for Class
A Shares of Adjustable Rate Government Fund; 2.0% for Class A Shares of
Short Duration Government and Short Duration Tax-Free Funds; and 4.5% for
Class A Shares of Government Income, Municipal Income, Core Fixed Income,
Global Income and High Yield Funds; the assumed deferred sales charge for
Class B Shares (2% maximum declining to 0% after three years for the Short
Duration Government and Short Duration Tax-Free Funds and 5% maximum declin-
ing to 0% after six years for the Government Income, Municipal Income, Core
Fixed Income, Global Income and High Yield Funds); and the assumed deferred
sales charge for Class C Shares (1% if redeemed within 12 months of pur-
chase). The bar chart does not reflect the sales loads applicable to Class A
Shares. If the sales loads were reflected, returns would be less. Perfor-
mance reflects expense limitations in effect. If expense limitations were
not in place, a Fund's performance would have been reduced.
* The Adjustable Rate Government Fund does not currently, but may in the
future, offer Class B and Class C Shares.
2
<PAGE>
FUND PERFORMANCE
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A (INCEPTION 5/15/95)
Including Sales Charges % % %
Six-Month U.S. Treasury Security* % % %
One-Year U.S. Treasury Security* % % %
------------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
3
<PAGE>
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
---------------------------------------------------------
<S> <C> <C>
CLASS A (INCEPTION 5/1/97)
Including Sales Charges % %
Two-Year U.S. Treasury Security* % %
---------------------------------------------------------
CLASS B (INCEPTION 5/1/97)
Including Deferred Sales Charge % %
Two-Year U.S. Treasury Security* % %
---------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % %
Two-Year U.S. Treasury Security* % %
---------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
4
<PAGE>
FUND PERFORMANCE
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C>
CLASS A (INCEPTION 5/1/97)
Including Sales Charges % %
Lehman Brothers Three-Year Municipal Bond Index* % %
-------------------------------------------------------------------------
CLASS B (INCEPTION 5/1/97)
Including Deferred Sales Charge % %
Lehman Brothers Three-Year Municipal Bond Index* % %
-------------------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % %
Lehman Brothers Three-Year Municipal Bond Index* % %
-------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
5
<PAGE>
Government Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (INCEPTION 2/10/93)
Including Sales Charges % % % %
Lehman Brothers Mutual Fund
Government /Mortgage Index* % % % %
-------------------------------------------------------------------------
CLASS B (INCEPTION 5/1/96)
Including Deferred Sales Charge % N/A N/A %
Lehman Brothers Mutual Fund
Government /Mortgage Index* % N/A N/A %
-------------------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % N/A N/A %
Lehman Brothers Mutual Fund
Government /Mortgage Index* % N/A N/A %
-------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
6
<PAGE>
FUND PERFORMANCE
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (INCEPTION 7/20/93)
Including Sales Charges % % % %
Lehman Brothers 15-Year Municipal
Bond Index* % % % %
--------------------------------------------------------------------------
CLASS B (INCEPTION 5/1/96)
Including Deferred Sales Charge % N/A N/A %
Lehman Brothers 15-Year Municipal
Bond Index* % N/A N/A %
--------------------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % N/A N/A %
Lehman Brothers 15-Year Municipal
Bond Index* % N/A N/A %
--------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
7
<PAGE>
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
--------------------------------------------------------------
<S> <C> <C>
CLASS A (INCEPTION 5/1/97)
Including Sales Charges % %
Lehman Brothers Aggregate Bond Index* % %
--------------------------------------------------------------
CLASS B (INCEPTION 5/1/97)
Including Deferred Sales Charge % %
Lehman Brothers Aggregate Bond Index* % %
--------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % %
Lehman Brothers Aggregate Bond Index* % %
--------------------------------------------------------------
</TABLE>
* The Lehman Brothers Aggregate Bond Index represents an unmanaged diversi-
fied portfolio of fixed-income securities, including U.S. Treasuries,
investment-grade corporate bonds, and mortgage-backed and asset-backed
securities. The Index figures do not reflect any fees or expenses.
8
<PAGE>
FUND PERFORMANCE
Global Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER
31, 1998 1 YEAR 3 YEARS 5 YEARS SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (INCEPTION 8/2/91)
Including Sales Charges % % % %
J.P. Morgan Global Government
Bond Index (hedged)* % % % %
-------------------------------------------------------------------------
CLASS B (INCEPTION 5/1/96)
Including Deferred Sales Charge % N/A N/A %
J.P. Morgan Global Government
Bond Index (hedged)* % N/A N/A %
-------------------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % N/A N/A %
J.P. Morgan Global Government
Bond Index (hedged)* % N/A N/A %
-------------------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
9
<PAGE>
High Yield Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q '9 %
Worst Quarter
Q '9 %
(INSERT GRAPH)
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIODS ENDING DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C>
CLASS A (INCEPTION 8/1/97)
Including Sales Charges % %
Lehman Brothers High Yield Bond Index* % %
---------------------------------------------------------------
CLASS B (INCEPTION 8/1/97)
Including Deferred Sales Charge % %
Lehman Brothers High Yield Bond Index* % %
---------------------------------------------------------------
CLASS C (INCEPTION 8/15/97)
Including Deferred Sales Charge % %
Lehman Brothers High Yield Bond Index* % %
---------------------------------------------------------------
</TABLE>
* The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not include any fees or expenses.
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (Class A, B and C Shares)
This table describes the fees and expenses that you may pay if you buy and hold
Class A, Class B or Class C Shares of the Funds.
<TABLE>
<CAPTION>
ADJUSTABLE RATE GOVERNMENT FUND
--------------------------------
CLASS A
- ---------------------------------------------------------------------
<S> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR
INVESTMENT):
Maximum Sales Charge (Load) Imposed
on Purchases 1.5%/1/
Maximum Deferred Sales Charge
(Load)/2/ None/1/
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None
Redemption Fees/5/ None
Exchange Fees/5/ None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS):/6/
Management Fees/7/ 0.40%
Distribution and Service Fees/8/ 0.25%
Other Expenses/9/ 0.28%
- ---------------------------------------------------------------------
Total Fund Operating Expenses/9/ 0.93%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND
---------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/6/
Management Fees/7/ 0.65% 0.65% 0.65%
Distribution and Service Fees/8/ 0.25% 1.00% 1.00%
Other Expenses/9/ 0.46% 0.46% 0.46%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses/9/ 1.36% 2.11% 2.11%
- ------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT SHORT DURATION TAX-FREE
FUND FUND
----------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.0%/1/ None None 2.0%/1/ None None
None/1/ 2.0%/3/ 1.0%/4/ None/1/ 2.0%/3/ 1.0%/4/
None None None None None None
None None None None None None
None None None None None None
0.50% 0.50% 0.50% 0.40% 0.40% 0.40%
0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
0.41% 0.41% 0.41% 0.79% 0.79% 0.79%
- --------------------------------------------------------------------------------
1.16% 1.91% 1.91% 1.44% 2.19% 2.19%
- --------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL INCOME FUND CORE FIXED INCOME FUND
----------------------------------- -------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4.5%/1/ None None 4.5%/1/ None None
None/1/ 5.0%/3/ 1.0%/4/ None/1/ 5.0%/3/ 1.0%/4/
None None None None None None
None None None None None None
None None None None None None
0.55% 0.55% 0.55% 0.40% 0.40% 0.40%
0.25% 1.00% 1.00% 0.25% 1.00% 1.00%
0.58% 0.58% 0.58% 0.40% 0.40% 0.40%
- --------------------------------------------------------------------------------
1.38% 2.13% 2.13% 1.05% 1.80% 1.80%
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
GLOBAL INCOME FUND
---------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/6/
Management Fees/7/ 0.90% 0.90% 0.90%
Distribution and Service Fees/8/ 0.50% 1.00% 1.00%
Other Expenses/9/ 0.35% 0.35% 0.35%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses/9/ 1.75% 2.25% 2.25%
- --------------------------------------------------------------------------------
</TABLE>
/1/The maximum sales charge is a percentage of the offering price. Except with
respect to direct purchases of the Adjustable Rate Government Fund, a contin-
gent deferred sales charge ("CDSC") of 1% is imposed on certain redemptions
(within 18 months of purchase) of Class A Shares sold without an initial sales
charge as part of an investment of $1 million or more ($500,000 in the case of
the Short Duration Government and Short Duration Tax-Free Funds).
/2/The maximum CDSC is a percentage of the lesser of the net asset value
("NAV") at the time of redemption or the NAV when the shares were originally
purchased.
/3/With the exception of the Short Duration Government Fund and the Short Dura-
tion Tax-Free Fund, a CDSC is imposed upon Class B Shares redeemed within six
years of purchase at a rate of 5% in the first year, declining to 1% in the
sixth year, and eliminated thereafter. With respect to the Short Duration Gov-
ernment Fund and Short Duration Tax-Free Fund, a CDSC is imposed on shares
redeemed within three years of purchase at a rate of 2.0% in the first year,
declining to 1% in the third year, and eliminated thereafter.
/4/A CDSC of 1% is imposed on shares redeemed within 12 months of purchase.
/5/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or shares of the Goldman Sachs Institu-
tional Liquid Assets Portfolios (the "ILA Portfolios") and free automatic
exchanges pursuant to the Automatic Exchange Program, six free exchanges are
permitted in each 12-month period. A fee of $12.50 may be charged for each sub-
sequent exchange during such period.
/6/The Funds' annual operating expenses have been restated to reflect current
fees.
/7/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Short Duration Tax-Free, Government Income, Municipal
Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and 0.25%, respec-
tively. AS A RESULT OF THE FEE WAIVERS, THE CURRENT MANAGEMENT FEES OF THE
SHORT DURATION TAX-FREE, GOVERNMENT INCOME, MUNICIPAL INCOME AND GLOBAL INCOME
FUNDS ARE 0.35%, 0.54%, 0.50% AND 0.65%, RESPECTIVELY, OF SUCH FUNDS' AVERAGE
DAILY NET ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF
THE INVESTMENT ADVISER.
14
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
HIGH YIELD FUND
--------------------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------
<S> <C> <C>
4.5%/1/ None None
None/1/ 5.0%/3/ 1.0%/4/
None None None
None None None
None None None
0.70% 0.70% 0.70%
0.25% 1.00% 1.00%
0.30% 0.30% 0.30%
-----------------------------------------------------------------------------
1.25% 2.00% 2.00%
=============================================================================
</TABLE>
/8/Goldman Sachs has voluntarily agreed not to impose a portion of the dis-
tribution and service fees attributable to Class B Shares of the Short
Duration Government and Short Duration Tax-Free Funds equal to 0.15%. Cur-
rent distribution and service fees for such Class B Shares are payable at
the rate of 0.85% of average daily net assets.
/9/"Other Expenses" include transfer agency fees equal to 0.19% of the aver-
age daily net assets of each class, plus all other ordinary expenses not
detailed above. The Investment Adviser has voluntarily agreed to reduce or
limit "Other Expenses" of each Fund (excluding management fees, distribu-
tion and service fees, transfer agency fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses) to
the following percentages of each Fund's average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
---------------------------
<S> <C>
Adjustable Rate
Government 0.05%
Short Duration
Government 0%
Short Duration
Tax Free 0%
Government
Income 0%
Municipal Income 0%
Core Fixed
Income 0.10%
Global Income 0%
High Yield 0.02%
</TABLE>
15
<PAGE>
AS A RESULT OF CURRENT WAIVERS AND EXPENSE LIMITATIONS, "OTHER EXPENSES" AND
"TOTAL FUND OPERATING EXPENSES" OF THE FUNDS WHICH ARE ACTUALLY INCURRED ARE AS
SET FORTH BELOW. THE WAIVERS AND EXPENSE LIMITATIONS MAY BE TERMINATED AT ANY
TIME AT THE OPTION OF THE INVESTMENT ADVISER. If this occurs, "Other Expenses"
and "Total Fund Operating Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TOTAL FUND
OTHER EXPENSES OPERATING EXPENSES
----------------------------------------------------------------------
<S> <C> <C> <C>
ADJUSTABLE RATE GOVERNMENT Class A 0.24% 0.89%
----------------------------------------------------------------------
SHORT DURATION GOVERNMENT Class A 0.19% 0.94%
Class B 0.19% 1.54%
Class C 0.19% 1.69%
----------------------------------------------------------------------
SHORT DURATION TAX-FREE Class A 0.19% 0.79%
Class B 0.19% 1.39%
Class C 0.19% 1.54%
----------------------------------------------------------------------
GOVERNMENT INCOME Class A 0.19% 0.98%
Class B 0.19% 1.73%
Class C 0.19% 1.73%
----------------------------------------------------------------------
MUNICIPAL INCOME Class A 0.19% 0.94%
Class B 0.19% 1.69%
Class C 0.19% 1.69%
----------------------------------------------------------------------
CORE FIXED INCOME Class A 0.29% 0.94%
Class B 0.29% 1.69%
Class C 0.29% 1.69%
----------------------------------------------------------------------
GLOBAL INCOME Class A 0.19% 1.34%
Class B 0.19% 1.84%
Class C 0.19% 1.84%
----------------------------------------------------------------------
HIGH YIELD Class A 0.21% 1.16%
Class B 0.21% 1.91%
Class C 0.21% 1.91%
----------------------------------------------------------------------
</TABLE>
16
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Class A,
B or C Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE
GOVERNMENT FUND
Class A Shares $110 $311 $ 529 $1,156
- ----------------------------------------------------------
SHORT DURATION GOVERNMENT
FUND
Class A Shares $138 $388 $ 657 $1,426
Class B Shares
- Assuming complete
redemption at end of
period $394 $700 $1,032 $2,038
- Assuming no redemption $194 $600 $1,032 $2,038
Class C Shares
- Assuming complete
redemption at end of
period $294 $600 $1,032 $2,233
- Assuming no redemption $194 $600 $1,032 $2,233
- ----------------------------------------------------------
SHORT DURATION TAX-FREE
FUND
Class A Shares $166 $475 $ 805 $1,741
Class B Shares
- Assuming complete
redemption at end of
period $422 $785 $1,175 $2,334
- Assuming no redemption $222 $685 $1,175 $2,334
Class C Shares
- Assuming complete
redemption at end of
period $322 $685 $1,175 $2,524
- Assuming no redemption $222 $685 $1,175 $2,524
- ----------------------------------------------------------
GOVERNMENT INCOME FUND
Class A Shares $183 $474 $ 786 $1,673
Class B Shares
- Assuming complete
redemption at end of
period $714 $961 $1,334 $2,250
- Assuming no redemption $214 $661 $1,134 $2,250
Class C Shares
- Assuming complete
redemption at end of
period $314 $661 $1,134 $2,441
- Assuming no redemption $214 $661 $1,134 $2,441
- ----------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL INCOME FUND
Class A Shares $185 $ 480 $ 797 $1,695
Class B Shares
- Assuming complete
redemption at end of
period $716 $ 967 $1,344 $2,271
- Assuming no redemption $216 $ 667 $1,144 $2,271
Class C Shares
- Assuming complete
redemption at end of
period $316 $ 667 $1,144 $2,462
- Assuming no redemption $216 $ 667 $1,144 $2,462
- ---------------------------------------------------------
CORE FIXED INCOME FUND
Class A Shares $152 $ 378 $ 622 $1,322
Class B Shares
- Assuming complete
redemption at end of
period $683 $ 866 $1,175 $1,919
- Assuming no redemption $183 $ 566 $ 975 $1,919
Class C Shares
- Assuming complete
redemption at end of
period $283 $ 566 $ 975 $2,116
- Assuming no redemption $183 $ 566 $ 975 $2,116
- ---------------------------------------------------------
GLOBAL INCOME FUND
Class A Shares $222 $ 594 $ 990 $2,098
Class B Shares
- Assuming complete
redemption at end of
period $728 $1,003 $1,405 $2,459
- Assuming no redemption $228 $ 703 $1,205 $2,459
Class C Shares
- Assuming complete
redemption at end of
period $328 $ 703 $1,205 $2,585
- Assuming no redemption $228 $ 703 $1,205 $2,585
- ---------------------------------------------------------
HIGH YIELD FUND
Class A Shares $172 $ 440 $ 728 $1,549
Class B Shares
- Assuming complete
redemption at end of
period $703 $ 927 $1,278 $2,134
- Assuming no redemption $203 $ 627 $1,078 $2,134
Class C Shares
- Assuming complete
redemption at end of
period $303 $ 627 $1,078 $2,327
- Assuming no redemption $203 $ 627 $1,078 $2,327
- ---------------------------------------------------------
</TABLE>
The hypothetical example assumes that a CDSC 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.
In addition to the compensation itemized above, certain institutions that sell
Fund shares and/or their salespersons may receive other compensation in connec-
tion with the sale and distribution of Class A, Class B and Class C Shares of
the Funds or for services to their customers' accounts and/or the Funds. For
additional information regarding such compensation, see "What Should I Know
When I Purchase Shares Through an Authorized Dealer?"
18
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
INVESTMENT ADVISER FUND
------------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Short Duration Tax-Free Fund
One New York Plaza Government Income Fund
New York, New York 10004 Municipal Income Fund
Core Fixed Income Fund
High Yield Fund
------------------------------------------------------------------------------
Goldman Sachs Funds Management, L.P.
("GSFM") Adjustable Rate Government Fund
One New York Plaza Short Duration Government Fund
New York, New York 10004
------------------------------------------------------------------------------
Goldman Sachs Asset Management International
("GSAMI") Global Income Fund
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of February , 1999, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in the U.S. and foreign markets. As permitted by applicable
law, these orders may be directed to any brokers, including Goldman Sachs
and its affiliates. While the Investment Adviser is ultimately responsible
for the management of the Funds, it is able to draw upon the research and
expertise of its asset management affiliates for portfolio decisions and
management with respect to certain portfolio securities. In addition, the
Investment Adviser has access to the research and certain proprietary tech-
nical models developed by Goldman Sachs, and will apply quantitative and
qualitative analysis in determining the appropriate allocations among cate-
gories of issuers and types of securities.
1-M
<PAGE>
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
CONTRACTUAL RATE OCTOBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.39%
-----------------------------------------------------------------------
Government Income 0.65% 0.52%
-----------------------------------------------------------------------
Municipal Income 0.55% 0.54%
-----------------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------------
High Yield 0.70% 0.68%
-----------------------------------------------------------------------
GSFM:
-----------------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------------
Short Duration Government 0.50% 0.47%
-----------------------------------------------------------------------
GSAM:
-----------------------------------------------------------------------
Global Income 0.90% 0.60%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify its voluntary limitation in the future at
its discretion.
2-M
<PAGE>
SERVICE PROVIDERS
FUND MANAGERS
Fixed Income Portfolio Management Team
..Fixed-income portfolio management is comprised of a deep team of sector
specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $40 billion in fixed-income assets for
retail, institutional and high net worth clients
- --------------------------------------------------------------------------------
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Erica Adelberg PORTFOLIO MANAGER-- SINCE 1995 MS. ADELBERG JOINED THE
VICE PRESIDENT GOVERNMENT INCOME FUND INVESTMENT ADVISER IN
1995, AFTER WORKING AS A
MORTGAGE STRATEGIST AT
GOLDMAN SACHS.
- ---------------------------------------------------------------------------------------------
Jonathan A. PORTFOLIO MANAGER-- SINCE 1991 MR. BEINNER JOINED THE
Beinner ADJUSTABLE RATE INVESTMENT ADVISER IN
MANAGING GOVERNMENT FUND 1990.
DIRECTOR AND SHORT DURATION GOVERNMENT
CO-HEAD U.S. FUND
FIXED INCOME GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James B. Clark PORTFOLIO MANAGER-- SINCE 1994 MR. CLARK JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1994 AFTER WORKING AS AN
SHORT DURATION GOVERNMENT INVESTMENT MANAGER IN
FUND THE MORTGAGE BACK
GOVERNMENT INCOME FUND SECURITIES GROUP AT
TRAVELERS INSURANCE
COMPANY.
- ---------------------------------------------------------------------------------------------
Peter A. Dion PORTFOLIO MANAGER-- SINCE 1995 MR. DION JOINED THE
VICE PRESIDENT ADJUSTABLE RATE INVESTMENT ADVISER IN
GOVERNMENT FUND 1992.
SHORT DURATION GOVERNMENT
FUND
- ---------------------------------------------------------------------------------------------
C. Richard Lucy PORTFOLIO MANAGER-- SINCE 1992 MR. LUCY JOINED THE
MANAGING ADJUSTABLE RATE INVESTMENT ADVISER IN
DIRECTOR AND GOVERNMENT FUND 1992.
CO-HEAD U.S. SHORT DURATION GOVERNMENT
FIXED INCOME FUND
GOVERNMENT INCOME FUND
CORE FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------
James P. PORTFOLIO MANAGER-- SINCE 1995 MR. MCCARTHY JOINED THE
McCarthy ADJUSTABLE RATE INVESTMENT ADVISER IN
VICE PRESIDENT GOVERNMENT FUND 1995 AFTER WORKING FOUR
SHORT DURATION GOVERNMENT YEARS AT NOMURA
FUND SECURITIES, WHERE HE WAS
AN ASSISTANT VICE
PRESIDENT AND AN
ADJUSTABLE RATE MORTGAGE
TRADER.
- ---------------------------------------------------------------------------------------------
</TABLE>
3-M
<PAGE>
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Elisabeth Shupf PORTFOLIO SINCE 1995 BEFORE REJOINING THE
Lonsdale MANAGER -- INVESTMENT ADVISER IN LATE
VICE PRESIDENT SHORT DURATION 1995, MS. LONSDALE WAS A
TAX-FREE FUND DIRECTOR OF FITCH INVESTORS
MUNICIPAL INCOME SERVICE DURING MOST OF
FUND 1995, EVALUATING THE CREDIT
RATINGS OF TAX-BACKED
ISSUES. PRIOR TO THAT, SHE
WORKED FOR TEN YEARS IN THE
GOLDMAN SACHS MUNICIPAL
FINANCE DEPARTMENT.
- ----------------------------------------------------------------------------------
Benjamin S. PORTFOLIO SINCE 1993 MR. THOMPSON JOINED THE
Thompson MANAGER -- INVESTMENT ADVISER IN 1992.
VICE PRESIDENT SHORT DURATION
TAX-FREE FUND
MUNICIPAL INCOME
FUND
- ----------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder PORTFOLIO SINCE 1997 MS. GOLDER JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND SHE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PRIOR TO JOINING THE
INVESTMENT ADVISER, SHE
SPENT SIX YEARS AT SAUDI
INTERNATIONAL BANK AS A
HIGH YIELD CREDIT ANALYST
AND PORTFOLIO MANAGER.
- ----------------------------------------------------------------------------------
Andrew Jessop PORTFOLIO SINCE 1997 MR. JESSOP JOINED THE
VICE PRESIDENT MANAGER -- INVESTMENT ADVISER IN 1997.
HIGH YIELD FUND HE IS RESPONSIBLE FOR
MANAGING HIGH YIELD ASSETS.
PREVIOUSLY, HE WORKED SIX
YEARS MANAGING HIGH YIELD
PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
</TABLE>
4-M
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Michael L. PORTFOLIO SINCE 1997 MR. PASTERNAK IS A PRODUCT
Pasternak MANAGER -- MANAGER FOR HIGH YIELD
VICE PRESIDENT HIGH YIELD FUND ASSETS AND CONTRIBUTES TO
THE MANAGEMENT OF HIGH
YIELD ASSETS. HE JOINED THE
INVESTMENT ADVISER IN 1997.
PRIOR TO THAT, HE SPENT
EIGHT YEARS MANAGING HIGH
YIELD CORPORATE BOND AND
LOAN PORTFOLIOS AT SAUDI
INTERNATIONAL BANK IN
LONDON.
- ----------------------------------------------------------------------------------
Christopher PORTFOLIO SINCE 1997 MR. TESTA JOINED THE
Testa MANAGER -- INVESTMENT ADVISER IN 1994.
VICE PRESIDENT HIGH YIELD FUND HE IS RESPONSIBLE FOR
AND DIRECTOR OF MANAGING HIGH YIELD ASSETS.
CREDIT RESEARCH BEFORE JOINING THE
INVESTMENT ADVISER, HE WAS
A CREDIT ANALYST WITH CS
FIRST BOSTON FROM TO .
PRIOR TO THAT, HE WAS AN
ANALYST FOR METROPOLITAN
LIFE INSURANCE COMPANY
INVESTING IN PRIVATE
PLACEMENTS AND PUBLIC DEBT.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income Investment Management Team
<TABLE>
<CAPTION>
YEARS PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen PORTFOLIO SINCE 1992 MR. FITZGERALD JOINED THE
Fitzgerald MANAGER -- INVESTMENT ADVISER IN 1992.
EXECUTIVE GLOBAL INCOME
DIRECTOR, FUND
MANAGING
DIRECTOR AND
CHIEF
INVESTMENT
OFFICER FOR
INTERNATIONAL
INCOME
- ----------------------------------------------------------------------------------
Andrew Wilson PORTFOLIO SINCE 1995 MR. WILSON JOINED THE
EXECUTIVE MANAGER -- INVESTMENT ADVISER IN 1995.
DIRECTOR GLOBAL INCOME PRIOR TO HIS CURRENT
FUND POSITION, 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.
- ----------------------------------------------------------------------------------
</TABLE>
5-M
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates 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.
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 affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. 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.
6-M
<PAGE>
SERVICE PROVIDERS
YEAR 2000
Many computer systems were designed using only two digits to signify the year
(for example, "98" for "1998"). On January 1, 2000, if these computer systems
are not corrected, they may incorrectly interpret "00" as the year "1900"
rather than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct forward-
looking calculations, these computer problems may occur prior to January 1,
2000. Like other investment companies and financial and business organizations,
the Funds could be adversely affected in their ability to process securities
trades, price securities, provide shareholder account services and otherwise
conduct normal business operations if the computer systems used by the Invest-
ment Adviser or other Fund service providers do not adequately address this
problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken the
following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..Currently, the Investment Adviser does not anticipate that the transition
to the 21st century will have any material impact on its ability to
continue to service the Funds at current levels.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
..At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be
sufficient to avoid any adverse effect on the Funds due to the Year 2000
Problem. Furthermore, even if the actions taken by the Fund's Investment
Adviser and other service providers are successful, the Fund may
nevertheless suffer losses if the issuers of securities held by the Fund
are adversely affected by the Year 2000 Problem. Also, it is possible that
the normal operations of the Fund will, in any event, be disrupted
significantly by the failure of communications and public utility
companies, governmental entities, financial processors or others to perform
their services as a result of the Year 2000 Problem.
7-M
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund or
units of the ILA Portfolios. Special restrictions may apply for exchanges in
certain ILA Portfolios. See the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. 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.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
INVESTMENT INCOME CAPITAL GAINS
DIVIDENDS DISTRIBUTIONS
------------------ -----------------
FUND DECLARED PAID DECLARED AND PAID
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Government DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Short Duration Tax-Free DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Government Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Municipal Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Core Fixed Income DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
Global Income MONTHLY MONTHLY ANNUALLY
- ----------------------------------------------------------------
High Yield DAILY MONTHLY ANNUALLY
- ----------------------------------------------------------------
</TABLE>
8-M
<PAGE>
DIVIDENDS
From time to time a portion of such 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 ("NAV") per share may be represented by undistributed income
(in the case of the Global Income Fund) or realized or unrealized apprecia-
tion of any Fund's portfolio securities. Therefore, subsequent distributions
on such shares from such income or realized appreciation may be taxable to
the investor even if the NAV of the shares is, as a result of the distribu-
tions, reduced below the cost of such shares and the distributions (or por-
tions thereof) represent a return of a portion of the purchase price.
9-M
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Class A, Class B And Class C Shares Of The Funds?
You may purchase shares of the Funds through:
..Goldman Sachs; OR
..Authorized Dealers
You may also purchase shares of the Funds directly from Goldman Sachs Trust
(the "Trust").
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs or your Authorized Dealer the information in the Account
Application attached to this Prospectus.
To Open an Account:
..Complete the enclosed Account Application
..Mail your payment and Account Application to:
YOUR AUTHORIZED DEALER
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within 3 business days) to the Fund
OR
National Financial Data Services, Inc. ("NFDS"), P.O. Box 419711, Kansas
City, MO 64141-6711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds - (name of Fund AND Class of Shares)
- NFDS will not accept a check drawn on a foreign bank or a third-party
check
- Federal funds wire, Automated Clearing House Network ("ACH") transfer or
bank wires should be sent to State Street Bank and Trust Company ("State
Street") (each Funds' custodian). Please call the Funds at 1-800-526-
7384 to get detailed instructions on how to wire your money.
1-N
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
------------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $1,000 $50
------------------------------------------------------------------------------
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) $250 $50
------------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts $250 $50
------------------------------------------------------------------------------
403(b) Plan Accounts $200 $50
------------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $50
------------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $50
------------------------------------------------------------------------------
</TABLE>
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus.*
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INITIAL SALES CHARGE Class A Applies to purchases of less
than $1 million ($500,000 in
the case of Short Duration
Government and Short
Duration Tax-Free Funds)--
varies by size of investment
with a maximum of 4.5%
-----------------------------------------------
Class B None
-----------------------------------------------
Class C None
-----------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE Class A 1.00% on investments of $1
("CDSC") million or more IF you sell
within 18 months (except for
certain redemptions of
Adjustable Rate Government
Class A Shares that were
purchased directly, as
opposed to exchanges)
-----------------------------------------------
Class B 6 year declining CDSC with a
maximum of 5%
(2% in the case of Short
Duration Government and
Short Duration Tax-Free
Funds)
-----------------------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
-----------------------------------------------------------------------
CONVERSION FEATURE Class A None
-----------------------------------------------
Class B Class B Shares convert to
Class A Shares after 8 years
-----------------------------------------------
Class C None
-----------------------------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Funds reserve the right to:
..Refuse to open an account if you fail to (i) provide a social security num-
ber or other taxpayer identification number; or (ii) certify that such num-
ber is correct (if required to do so under applicable law).
* The Adjustable Rate Government Fund does not currently, but may in the
future, offer Class B and Class C Shares.
2-N
<PAGE>
SHAREHOLDER GUIDE
..Reject or restrict any purchase or exchange order by a particular purchaser
(or group of related purchasers). This may occur, for example, when a pat-
tern of frequent purchases, sales or exchanges of shares of a Fund is evi-
dent, or if purchases, sales or exchanges are, or a subsequent abrupt
redemption might be, of a size that would disrupt management of a Fund.
..Modify or waive the minimum investment amounts.
..Modify the manner in which shares are offered.
..Modify the sales charge rates applicable to future purchases of shares.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Portfolio Manager.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV and share class. Each class calculates its NAV as fol-
lows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the Funds' investments may be
valued based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trustees. Debt obligations with a
remaining maturity of 60 days or less are valued at amortized cost.
.NAV per share of each share class is calculated by the Fund's custodian
on each business day as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time). This occurs after the
determination, if any, of the income to be declared as a dividend (except
in the case of the Global Income Fund). Fund shares will not be priced on
any day the New York Stock Exchange is closed.
.When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form, plus any applicable sales charge.
.When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form, less any applicable CDSC.
3-N
<PAGE>
NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME BY
WHICH ORDERS MUST BE RECEIVED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF
REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE IS STOPPED AT A TIME OTHER
THAN 4:00 P.M. NEW YORK TIME.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
COMMON QUESTIONS REGARDING THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
THE OFFERING PRICE OF CLASS A SHARES OF EACH FUND IS THE NEXT DETERMINED NAV
PER SHARE PLUS AN INITIAL SALES CHARGE PAID TO GOLDMAN SACHS AT THE TIME OF
PURCHASE OF SHARES. The sales charge varies depending upon the amount you
purchase. In some cases, described below, the initial sales charge may be
eliminated altogether, and the offering price will be the NAV per share. The
current sales charges and commissions paid to Authorized Dealers for Class A
Shares of the Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds are as follows:
<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>
The current sales charges and commissions paid to Authorized Dealers for
Class A Shares of the Short Duration Government and Short Duration Tax-Free
Funds are as follows:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $250,000 2.00% 2.04% 1.75%
$250,000 up to (but less than)
$500,000 1.50 1.52 1.25
$500,000 or more 0.00** 0.00** ***
---------------------------------------------------------------------------------
</TABLE>
4-N
<PAGE>
SHAREHOLDER GUIDE
The current sales charges and commissions paid to Authorized Dealers of
Class A Shares of the Adjustable Rate Government Fund are as follows:
<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>
* Dealer's reallowance may be changed periodically. During special promo-
tions, the entire sales charge may be reallowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
reallowed may be deemed to be "underwriters" under the Securities Act of
1933.
** No sales charge is payable at the time of purchase of Class A Shares of
$1 million ($500,000 in the case of the Short Duration Government and
Short Duration Tax-Free Funds) or more, but a CDSC of 1% may be imposed
in the event of certain redemptions within 18 months of purchase.
*** The Distributor 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 ($500,000 in the case of the Short Duration Govern-
ment and Short Duration Tax-Free Funds) equal to 1.00% of the amount
under $3 million, 0.50% of the next $2 million, and 0.25% thereafter.
The Distributor may also pay, with respect to all or a portion of the
amount purchased, a commission in accordance with the foregoing schedule
to Authorized Dealers who initiate or are responsible for purchases of
$500,000 or more by certain pension and profit sharing plans, pension
funds and other company-sponsored benefit plans investing in the Funds
which satisfy the criteria set forth below in "When Are Class A Shares
Not Subject to a Sales Load" or $1 million ($500,000 in the case of the
Short Duration Government and Short Duration Tax-Free Funds) or more by
certain "wrap" accounts. Purchases by such plans will be made at NAV
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 pur-
chase was made, a CDSC of 1% may be imposed upon the plan sponsor or the
third party administrator. In addition, Authorized Dealers will remit to
the Distributor 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.
5-N
<PAGE>
What Else Do I Need To Know About Class A Shares' CDSC?
Purchases of $1 million ($500,000 in the case of the Short Duration Govern-
ment and Short Duration Tax-Free Funds) or more of Class A Shares will be
made at NAV with no initial sales charge. However, if you redeem shares
within 18 months after the end of the calendar month in which the purchase
was made, excluding any period of time in which the shares were exchanged
into and remained invested in an ILA Portfolio, a CDSC of 1% may be imposed
unless, in certain cases, your Authorized Dealer enters into an agreement
with the Distributor to return all or an applicable prorated portion of its
commission to the Distributor. The CDSC is waived on redemptions in certain
circumstances. See "In What Situations May the CDSC on Class A, B or C
Shares Be Waived Or Reduced?" below.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to the following individuals and entities:
..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 these individ-
uals;
..Qualified retirement plans of Goldman Sachs;
..Trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor;
..Any employee or registered representative of any Authorized Dealer or their
respective spouses, children and parents;
..Banks, trust companies or other types of depository institutions investing
for their own account or investing for discretionary or non-discretionary
accounts;
..Any state, county or city, or any instrumentality, department, authority or
agency thereof, which is prohibited by applicable investment laws from pay-
ing a sales charge or commission in connection with the purchase of shares
of a Fund;
..Pension and profit sharing plans, pension funds and other company-sponsored
benefit plans that:
.Buy shares worth $500,000 or more; or
.Have 100 or more eligible employees at the time of purchase; or
.Certify that they expect to have annual plan purchases of $200,000 or
more; or
.Are provided administrative services by certain third-party administra-
tors that have entered into a special service arrangement with Goldman
Sachs relating to such plans;
6-N
<PAGE>
SHAREHOLDER GUIDE
.."Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards;
..Registered investment advisers investing for accounts for which they
receive asset-based fees;
..Accounts over which GSAM or its advisory affiliates have investment discre-
tion; or
..Shareholders receiving distributions from a qualified retirement plan
invested in the Goldman Sachs Funds and reinvesting such proceeds in a
Goldman Sachs IRA.
YOU MUST CERTIFY ELIGIBILITY FOR ANY OF THE ABOVE EXEMPTIONS ON YOUR ACCOUNT
APPLICATION AND NOTIFY THE FUND IF YOU NO LONGER ARE ELIGIBLE FOR THE EXEMP-
TION. The Fund will grant you an exemption subject to confirmation of your
entitlement. You may be charged a fee if you effect your transactions
through a broker or agent.
How Can The Sales Charge On Class A Shares Be Reduced?
..RIGHT OF ACCUMULATION: When buying Class A Shares in Goldman Sachs Funds,
your current aggregate investment determines the initial sales load you
pay. You may qualify for reduced sales charges when the current market
value of holdings (shares at current offering price), plus new purchases,
reaches $100,000 or more in the case of the Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds; $250,000 or
more in the case of the Short Duration Government and Short Duration Tax-
Free Funds; and $500,000 or more in the case of the Adjustable Rate Govern-
ment Fund. Class A Shares of any of the Goldman Sachs Funds may be combined
under the Right of Accumulation. To qualify for a reduced sales load, you
or your Authorized Dealer must notify the Fund's Transfer Agent at the time
of investment that a quantity discount is applicable. Use of this service
is subject to a check of appropriate records. The Additional Statement has
more information about the Right of Accumulation.
..STATEMENT OF INTENTION: You may obtain a reduced sales charge by means of a
written Statement of Intention which expresses your non-binding commitment
to invest in $100,000 or more within a period of 13 months in the case of
the Government Income, Municipal Income, Core Fixed Income, Global Income
and High Yield Funds; $250,000 or more in the case of the Short Duration
Government and Short Duration Tax-Free Funds; and $500,000 or more in the
case of the Adjustable Rate Government Fund. Any investments you make dur-
ing the period receive the discounted sales load based on the full amount
of
7-N
<PAGE>
your investment commitment. The Additional Statement has more information
about the Statement of Intention.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
YOU MAY PURCHASE CLASS B SHARES OF THE FUNDS (OTHER THAN THE ADJUSTABLE RATE
GOVERNMENT FUND) AT THE NEXT DETERMINED NAV WITHOUT AN INITIAL SALES CHARGE.
HOWEVER, CLASS B SHARES REDEEMED WITHIN SIX YEARS (THREE YEARS IN THE CASE
OF THE SHORT DURATION GOVERNMENT AND SHORT DURATION TAX-FREE FUNDS) OF PUR-
CHASE WILL BE SUBJECT TO A CDSC AT THE RATES SHOWN IN THE TABLE BELOW BASED
ON HOW LONG YOU HELD YOUR SHARES.
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CDSC
-----------------------------------------------------
GOVERNMENT INCOME, MUNICIPAL
INCOME, GLOBAL INCOME, CORE FIXED SHORT DURATION GOVERNMENT AND
YEAR SINCE PURCHASE INCOME AND HIGH YIELD FUNDS SHORT DURATION TAX-FREE FUNDS
----------------------------------------------------------------------------------------
<S> <C> <C>
First 5% 2%
Second 4% 1%
Third 3% 1%
Fourth 3% None
Fifth 2% None
Sixth 1% None
Seventh and thereafter None None
----------------------------------------------------------------------------------------
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing dis-
tribution-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 2% in the case of the Short Duration Government and
Short Duration Tax-Free Funds and 4% in the case of all other Funds of the
amount invested is paid to Authorized Dealers.
What Should I Know About The Automatic Conversion Of Class B Shares?
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.
If you acquire Class B Shares of a Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
8-N
<PAGE>
SHAREHOLDER GUIDE
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Class A Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Class A Shares will not occur at any
time the Funds are advised that such conversions may constitute taxable
events for federal tax purposes, which the Funds believe is unlikely. If
conversions do not occur as a result of possible taxability, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indeterminate period.
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
YOU MAY PURCHASE CLASS C SHARES OF THE FUNDS (OTHER THAN THE ADJUSTABLE RATE
GOVERNMENT FUND) AT THE NEXT DETERMINED NAV WITHOUT PAYING AN INITIAL SALES
CHARGE. HOWEVER, IF YOU REDEEM CLASS C SHARES WITHIN 12 MONTHS OF PURCHASE,
A CDSC OF 1% WILL BE DEDUCTED FROM THE REDEMPTION PROCEEDS.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is paid by the Distributor to
Authorized Dealers.
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B
AND C SHARES
When Will Shares Be Issued And Dividends Begin To Be Paid?
GLOBAL INCOME FUND: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared which have record dates on or after such
purchase date.
FOR ALL OTHER FUNDS:
..Shares Purchased by Federal Funds Wire or ACH Transfer:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the purchased shares on the later of
(i) the business day after the purchase order is received; or (ii) the
day that the federal funds wire or ACH transfer is received by State
Street.
9-N
<PAGE>
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased by Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the business day after payment is
received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will being to accrue on the business
day after payment is received.
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
..The CDSC is based on the lesser of the NAV of the shares at the time of
redemption or the original offering price (which is the original NAV).
.No CDSC is charged on shares acquired from reinvested dividends or capi-
tal gains distributions.
.No CDSC is charged on the per share appreciation of your account over the
initial purchase price.
.When counting the number of months since a purchase of Class B or
Class C Shares was made, all payments made during a month will be com-
bined and considered to have been made on the first day of that month.
..When redeeming shares subject to a CDSC, market appreciation attributable
to such shares will not be subject to the CDSC.
..To keep your CDSC as low as possible, each time you place a request to sell
shares, the Funds will first sell any shares in your account that do not
carry a CDSC and then the shares in your account that are no longer subject
to a CDSC.
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or
Reduced?
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to:
..Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans (each a "Retirement Plan");
..The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
10-N
<PAGE>
SHAREHOLDER GUIDE
..Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
..Satisfying the minimum distribution requirements of the Code;
..Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
..The separation from service by a participant or beneficiary in a Retirement
Plan;
..The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
..Excess contributions distributed from a Retirement Plan;
..Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
..Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Class A, B and C Shares subject to a systematic withdrawal plan
may be redeemed without a CDSC. The Funds reserve the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B
and C Shares and 10% of the value of your Class A Shares.
How Do I Decide Whether To Buy Class A, B Or C Shares?
THE DECISION AS TO WHICH CLASS TO PURCHASE DEPENDS ON THE AMOUNT YOU INVEST,
THE INTENDED LENGTH OF THE INVESTMENT AND YOUR PERSONAL SITUATION.
..CLASS A SHARES. 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.
..CLASS B SHARES. If you plan to hold your investment for at least six years
(three years in the case of the Short Duration Government and Short Dura-
tion Tax-Free Funds) and would prefer not to pay an initial sales charge,
you might consider purchasing Class B Shares. By not paying a front-end
sales charge, your entire investment in Class B Shares is available to work
for you from the time you make your initial investment. However, the dis-
tribution and service 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 thus, lower performance and lower dividend payments (to the extent div-
idends are paid) than Class A Shares.
A maximum purchase limitation of $250,000 in the aggregate normally
applies to Class B Shares.
..CLASS C SHARES. If you are unsure of the length of your investment or plan
to hold your investment for less than six years and would prefer not to pay
an initial sales charge, you may prefer Class C Shares. By not paying a
front-end
11-N
<PAGE>
sales charge, your entire investment in Class C Shares is available to work
for you from the time you make your initial investment. However, the dis-
tribution and service fee paid by Class C Shares will cause your Class C
Shares to have a higher expense ratio and thus, lower performance and lower
dividend payments (to the extent dividends are paid) than Class A Shares
(or Class B Shares after conversion to Class A Shares).
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will therefore pay higher distribution fees indefinitely.
A maximum purchase limitation of $1,000,000 ($500,000 in the case of the
Short Duration Government and Short Duration Tax-Free Funds) in the aggre-
gate normally applies to purchases of Class C Shares.
NOTE: AUTHORIZED DEALERS MAY RECEIVE DIFFERENT COMPENSATION FOR SELLING
CLASS A, CLASS B OR CLASS C SHARES.
In addition to Class A, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are sub-
ject to different fees and expenses (which affect performance), have dif-
ferent minimum investment requirements and are entitled to different serv-
ices. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on
the cover of this Prospectus.
HOW TO SELL SHARES
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. EACH FUND WILL REDEEM ITS SHARES UPON REQUEST ON
ANY BUSINESS DAY AT THE NAV NEXT DETERMINED AFTER RECEIPT OF SUCH REQUEST IN
PROPER FORM, SUBJECT TO ANY APPLICABLE CDSC. You may request that redemption
proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
12-N
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
INSTRUCTIONS FOR REDEMPTIONS:
-----------------------------------------------------------------------
<S> <C> <C>
BY WRITING: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 49711
Kansas City, MO 64141-6711
-----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Funds):
.Call 1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the
$50,000 limit
-----------------------------------------------------------------------
</TABLE>
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
..You are requesting in writing to redeem shares in an amount over $50,000;
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
13-N
<PAGE>
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself or herself as the owner of an account or the owner's regis-
tered representative where the owner has not declined in writing to use this
service. Thus, you risk possible losses if a telephone redemption is not
authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable proce-
dures specified by the Trust to confirm that such instructions are genuine.
If reasonable procedures are not employed, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
..All telephone requests are recorded.
..Proceeds of telephone redemption requests will be sent only to your address
of record or authorized bank account designated in the Account Application
(unless you provide written instructions and a signature guarantee, indi-
cating another address) and exchanges of shares will be made only to an
identical account.
..Telephone redemptions will not be accepted during the 30-day period follow-
ing any change in your address of record.
..The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tele-
phone redemptions on your behalf.
..The telephone redemption option may be modified or terminated at any time.
NOTE: IT MAY BE DIFFICULT TO MAKE TELEPHONE REDEMPTIONS IN TIMES OF DRASTIC
ECONOMIC OR MARKET CHANGES.
How Are Redemption Proceeds Paid?
BY WIRE: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay) following receipt of a
properly executed wire transfer redemption request. If the Federal Reserve
Bank is
14-N
<PAGE>
SHAREHOLDER GUIDE
closed on the day that the redemption proceeds would ordinarily be wired,
wiring the redemption proceeds may be delayed one additional business day.
..A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
..To change the bank designated on your Account Application to receive your
redemption proceeds, you must send written instructions (with your signa-
ture guaranteed) to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
BY CHECK: You may elect to receive your redemption proceeds by check.
Redemption proceeds paid by check will normally be mailed to the address of
record within three business days of a properly executed redemption request,
unless you are selling shares you recently paid for by check. In that case,
the funds will pay you when your check has cleared, which may take up to 15
days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Shares of each Fund (other than the Global Income Fund) earn dividends
declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Funds reserve the right to:
..Redeem your shares if your account balance is less than $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Pay redemptions by a distribution in kind of securities (instead of cash)
from a Fund. If you receive redemption proceeds in kind, you should expect
to incur transaction costs upon the disposition of those securities.
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of a Fund and reinvest a portion or all of the redemp-
tion proceeds (plus any additional amounts needed to round off purchases to
the nearest full share). To be eligible for this privilege, you must hold
the shares you want
15-N
<PAGE>
to redeem for at least 30 days and you must reinvest the share proceeds
within 90 days after you redeem. You may reinvest as follows:
.Class A or B Shares--Class A Shares of the same Fund or any other Goldman
Sachs Fund
.Class C Shares--Class C Shares of the same Fund or any other Goldman
Sachs Fund
..You should obtain and read the applicable prospectuses before investing in
any other Funds.
..If you pay a CDSC upon redemption of Class A or Class C Shares and then
reinvest in Class A or Class C Shares as described above, your account will
be credited with the amount of the CDSC you paid. The reinvested shares
will, however, continue to be subject to a CDSC. The holding period of the
shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subse-
quent redemption. For Class B Shares, you may reinvest the redemption pro-
ceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemp-
tion of the Class B Shares will not be credited to your account.
..The reinvestment privilege may be exercised at any time in connection with
transactions in which the proceeds are reinvested at NAV in a tax-sheltered
retirement plan. In other cases, the reinvestment privilege may be exer-
cised once per year upon receipt of a written redemption request.
..You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Exchange My Investment From One Fund to Another?
You may exchange shares of a Fund at NAV without the imposition of an ini-
tial sales charge or CDSC at the time of exchange for shares of the same
class or an equivalent class of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days'
written notice to you.
16-N
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
INSTRUCTIONS FOR EXCHANGING SHARES:
----------------------------------------------------------------------
<S> <C>
BY WRITING: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and class of shares
.The dollar amount you want to sell
.Obtain a signature guarantee
.Mail the request to:
Goldman Sachs Funds,
Shareholder Services, c/o NFDS,
P.O. Box 419711,
Kansas City, MO 64141-6711
or for overnight delivery--
Goldman Sachs Funds
c/o NFDS
330 West 9th St.
Poindexter Bldg.
1st Floor
Kansas City, MO 64105
----------------------------------------------------------------------
BY TELEPHONE: (if you have elected the telephone redemption
privileges either on your Account Application or
in writing to the Fund):
.Call 1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
----------------------------------------------------------------------
</TABLE>
..You should keep in mind the following factors when making or considering an
exchange:
.You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.Six free exchanges are allowed in each 12 month period.
.There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
.A $12.50 fee may be charged for each subsequent exchange.
.The exchanged shares may later be exchanged for shares of the same class
(or an equivalent class) of the original Fund at the next determined NAV
without the imposition of an initial sales charge or CDSC if the amount
in the Fund resulting from such exchanges is less than the largest amount
on which you have previously paid the applicable sales charge.
.When you exchange shares subject to a CDSC, no CDSC will be charged at
that time. The exchanged shares will be subject to the CDSC of the shares
originally held. For purposes of determining the amount of the applicable
CDSC, the length of time a shareholder has owned the shares will be mea-
sured from the date the shareholder acquired the original shares subject
to a CDSC and will not be affected by a subsequent exchange.
17-N
<PAGE>
.Eligible investors may exchange certain classes of shares for another
class of shares of the same Fund. For further information, call Goldman
Sachs at 1-800-526-7384.
.All exchanges which represent an initial investment in a Fund must sat-
isfy the minimum initial investment requirements of that Fund.
.Exchanges are available only in states where exchanges may be legally
made.
.It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market changes.
.Goldman Sachs and NFDS may use reasonable procedures described under
"What Do I Need To Know About Telephone Redemption Request?" in an effort
to prevent unauthorized or fraudulent telephone exchange requests.
.Telephone exchanges normally will be made only to an identical account.
Shares may be exchanged among accounts with different names, addresses
and social security or other taxpayer identification numbers only if the
exchange instructions are in writing and accompanied by a signature
guarantee.
--------------------------------------------------------------
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which an investor may be subject
to tax, followed by a purchase of shares received in the exchange. You
should consult your tax adviser concerning the tax consequences of an
exchange.
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application.
Can My Dividends And Distributions From A Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by a Fund in shares of the same class or an equivalent class of any
other Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge or CDSC will be imposed.
..You may elect cross-reinvestment into an identical account or an account
registered in a different name or with a different address, social security
number or taxpayer identification number provided that the account has been
properly
18-N
<PAGE>
SHAREHOLDER GUIDE
established, appropriate signatures obtained and the minimum initial
investment has been satisfied.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge is imposed.
..Shares subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
..Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
..Minimum dollar amount: $50 per month.
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
Cross-reinvestments and automatic exchanges are subject to the following
conditions:
..You must hold $5,000 or more in the Fund which is paying the dividend or
from which the exchange is being made.
..You must invest an amount in the Fund into which cross-reinvestments or
automatic exchanges are being made that is equal to that Fund's minimum
initial investment or continue to cross-reinvest or to make automatic
exchanges until such minimum initial investment is met.
..You should obtain and read the prospectus of the Fund into which dividends
are invested or automatic exchanges are made.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
..It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class A, Class B or Class C
Shares because of the sales charge imposed on your purchases of Class A
Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares.
..You must have a minimum balance of $5,000 in a Fund.
..Checks are mailed on or about the 25th day of each month.
..Each systematic withdrawal is a redemption and therefore a taxable transac-
tion.
..The CDSC applicable to Class A, Class B or Class C Shares redeemed under
the systematic withdrawal plan may be waived.
19-N
<PAGE>
What Types of Reports Will I Be Sent Regarding My Investment?
You will receive an annual report containing audited financial statements
and a semi-annual report. To eliminate unnecessary duplication, only one
copy of such reports will be sent to shareholders with the same mailing
address. If you would like a duplicate copy to be mailed to you, please con-
tact Goldman Sachs at 800-526-7384. You will also be provided with a printed
confirmation for each transaction in your account and an individual quar-
terly account statement. A year-to-date statement for your account will be
provided upon request made to Goldman Sachs. If your account is held in
"street name" you may receive your statement on a different schedule. The
Funds do not generally provide sub-accounting services.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge additional fees not described in this Prospectus to their customers
for such services.
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your 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 your transactions, you 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 you to obtain historical purchase information about the
shares in the account from the Authorized Dealer.
The Investment Adviser, Distributor and/or their affiliates pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to selected Authorized Dealers and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Subject to applicable NASD regulations,
the Investment Adviser, Distributor and/or their affiliates may also con-
tribute to various cash and non-cash incentive arrangements to promote the
sale of shares. This additional compensation can vary among Authorized Deal-
ers depending upon such factors as the amounts their customers have invested
(or may invest) in particular Goldman Sachs Funds, the particular program
involved, or the amount of reimbursable expenses. Additional compensation
based on sales may, but is currently not expected to, exceed 0.50%
(annualized) of the amount invested.
20-N
<PAGE>
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust to
designate other intermediaries to accept such orders. In these cases:
..A Fund will be deemed to have received an order that is in proper form when
the order is accepted by an Authorized Dealer or intermediary on a business
day, and the order will be priced at the Fund's NAV per share (adjusted for
any applicable sales charge) next determined after such acceptance.
..Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to ascertain
whether they are authorized to accept orders for the Trust.
21-N
<PAGE>
FUND FEES AND EXPENSES
What Are the Different Distribution and Service Fees Paid by Class A, B and
C Shares?
The Trust has adopted distribution and service plans (each a "Plan") under
which Class A, Class B and Class C Shares bear distribution and service fees
paid to Authorized Dealers and Goldman Sachs. Because these fees are paid
out of the Fund's assets on an ongoing basis, over time, these fees will
increase the cost of your investment and may cost you more than paying other
types of sales and service charges. If the fees received by Goldman Sachs
pursuant to the Plans exceed its expenses, Goldman Sachs may realize a
profit from this arrangement.
DISTRIBUTION SERVICES AND FEES
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributed to
Class A, Class B and Class C Shares.*
The distribution fees payable are subject to the requirements of Rule 12b-1
under the 1940 Act, and may be used (among other things) for:
.. 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;
.. Interest and other costs associated with the financing of such compensation
and expenses;
.. Printing of prospectuses for prospective shareholders;
.. Preparation and distribution of sales literature or advertising of any
type; and
.. All other expenses incurred in connection with activities primarily
intended to result in the sale of Class A, Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year. Goldman Sachs pays the distri-
bution fees on a quarterly basis.
* Currently, Goldman Sachs voluntarily limits such fees to 0.60% of the
average daily net assets attributed to Class B Shares of the Short
Duration Government and the Short Duration Tax-Free Funds. Goldman Sachs
may modify or discontinue such waivers in the future at its discretion.
19
<PAGE>
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributed to Class A (Global Income Fund only), Class B or Class C Shares.
This fee is for personal and account maintenance services, and may be used
to make payments to Goldman Sachs, Authorized Dealers and their officers,
sales representatives and employees for responding to inquiries of, and fur-
nishing assistance to, shareholders regarding ownership of their shares or
their accounts or similar services not otherwise provided on behalf of the
Funds.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the service fee as an ongoing commission, to Authorized Dealers after the
shares have been held for one year. In connection with the sale of Class A
and B Shares of the Short Duration Government and Short Duration Tax-Free
Funds, Goldman Sachs begins paying the 0.25% ongoing Service fee, if any, to
Authorized Dealers after the shares have been held for one year. Distribu-
tion and service fees are paid by Goldman Sachs to Authorized Dealers on a
quarterly basis.
20
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Except for exempt-interest dividends paid by the Short Duration Tax-Free and
Municipal Income Funds as described below, Fund distributions are taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) to the extent they are attributable to the Fund's net
investment income, certain net realized foreign exchange gains, and net
short-term capital gains. They are taxable as long-term capital gain to the
extent they are attributable to the Fund's excess of net long-term capital
gains over net short-term capital losses. The tax status of any distribution
is the same regardless of how long you have been in the Fund and whether you
reinvest in additional shares or take them as cash. Certain distributions
paid by a Fund in January of a given year may be taxable to shareholders as
if received the prior December 31. The tax status of the dividends and dis-
tributions for each calendar year will be detailed in your annual tax state-
ment from the Fund.
At any time, a portion of a Fund's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Fund's
portfolio securities. Therefore, subsequent distributions on a Fund's shares
may be taxable to you, even if the NAV of your shares is, as a result,
reduced below the cost of those shares and the distributions represent a
return of the purchase price.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. As an alternative, the Global Income Fund (but not
the other Funds) may make an election to treat a proportionate amount of
such taxes as constituting a distribution to you, which would allow you
either to (1) credit such proportionate amount of taxes against your U.S.
federal income tax liability or (2) take such amount as an itemized deduc-
tion.
The Short Duration Tax-Free and Municipal Income Funds expect to distribute
"exempt-interest dividends." These dividends will be exempt income for fed-
eral income tax purposes. However, distributions, if any, derived from net
long-term capital gains of the Short Duration Tax-Free and Municipal Income
Funds will generally be taxable to you as long-term capital gains. Distribu-
tions, if any, derived from taxable interest income, net short-term capital
gains
1-O
<PAGE>
TAXATION
and certain net realized foreign exchange gains will be taxable to you as
ordinary income.
Interest on indebtedness incurred by you to purchase or carry shares of the
Short Duration Tax-Free and Municipal Income Funds generally will not be
deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free and Municipal Income Funds may be an item of tax
preference for purposes of determining your federal alternative minimum tax
liability. Exempt-interest dividends will also be considered along with
other adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal income
taxes.
If you receive an exempt-interest dividend on shares that are held by you
for six months or less, any loss on the sale or exchange of the shares will
be disallowed to the extent of such dividend amount.
TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Fund shares may generate a tax liability (unless
your investment is in an IRA or other tax-advantaged account). Depending
upon the purchase or sale price of the shares you sell or exchange, you may
have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the shares and the amount you receive
for them. (To aid in computing your tax basis, you generally should retain
your account statements for the periods that you hold shares.) Any loss rec-
ognized on shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received
with respect to the shares.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activity in some type of instru-
ments.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from any Fund (including the Short Dura-
tion Tax-Free and Municipal Income Funds) or on the value of the shares held
by you. More tax information is provided in the Additional Statement. You
should also consult your own tax adviser for information regarding all tax
consequences applicable to your investments in the Funds.
2-O
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that 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. Credit risk involves the risk that
the issuer could default on its obligations and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). 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. In either case, a change in the
prepayment rate can result in losses to investors.
The Funds may, as described in this Prospectus, invest in (a) derivative
instruments, (b) foreign securities, (c) municipal securities, (d) illiquid
securities and (e) temporary cash investments. These investments will pres-
ent additional risks as described further below.
In addition, the Funds are subject to certain fundamental investment
restrictions that are described in the Additional Statement. Fundamental
investment restrictions of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund as defined in the Additional
Statement. Each Fund's investment objectives and all policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval. If there is a change in a Fund's investment objec-
tive, shareholders should consider whether that Fund remains an appropriate
investment in light of their then current financial positions and needs.
1-P
<PAGE>
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. See "Financial High-
lights" in Appendix B for a statement of the Funds' historical portfolio
turnover rates. The portfolio turnover rate is calculated by dividing the
lesser of the dollar amount of sales or purchases of portfolio securities by
the average monthly value of a Fund's portfolio securities, excluding secu-
rities having a maturity at the date of purchase of one year or less.
B. OTHER PORTFOLIO RISKS
RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency trans-
actions involve additional risk of loss that can result from a lack of cor-
relation between changes in the value of derivative instruments and the
portfolio assets (if any) being hedged, the potential illiquidity of the
markets for derivative instruments, or the risks arising from margin
requirements and related leverage factors associated with such transactions.
The use of these management techniques also involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in secu-
rities prices, interest rates or currency prices. Each Fund may also invest
in derivative investments for non-hedging purposes (that is, to seek to
increase total return), which is considered a speculative practice and pre-
sents even greater risk of loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments 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, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is magni-
fied.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. 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.
2-P
<PAGE>
APPENDIX A
RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that
are not typically associated with U.S. dollar denominated or quoted securi-
ties of U.S. issuers. Foreign investments may be affected by changes in cur-
rency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency block-
age). 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 port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union ("EMU") pre-
sents unique uncertainties, including the legal treatment of certain out-
standing financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of
exchange rates for currencies being converted into the euro; the fluctuation
of the euro relative to non-euro currencies during the transition period
from January 1, 1999 to December 31, 2000 and beyond; whether the interest
rate, tax and labor regimes of European countries participating in the euro
will converge over time; and whether the conversion of the currencies of
other countries such as the United Kingdom and Denmark into the euro and the
admission of other non-EMU countries such as Poland, Latvia and Lithuania as
members of the EMU may have an impact on the euro. These or other factors,
including political and economic risks, could cause market disruptions
before or after the introduction of the euro, and could adversely affect the
value of securities held by the Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets
3-P
<PAGE>
may have substantially less volume than U.S. securities markets and securi-
ties of many foreign issuers are less liquid and more volatile than securi-
ties of comparable domestic issuers. Furthermore, with respect to certain
foreign countries, there is a possibility of nationalization, expropriation
or confiscatory taxation, imposition of withholding or other taxes on divi-
dend or interest payments (or, in some cases, capital gains), limitations on
the removal of funds or other assets of the Funds, and political or social
instability or diplomatic developments which could affect investments in
those countries.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse in the
event of a default. Periods of economic uncertainty may result in volatility
of market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers. A
sovereign debtor's willingness or ability to repay principal and pay inter-
est in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availabil-
ity of sufficient foreign exchange on the date a payment is due, the rela-
tive size of the debt service burden to the economy as a whole, the sover-
eign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country.
Many emerging countries may be subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in emerging countries. Investing in emerging countries involves
greater risk of loss due to expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investments
and on repatriation of capital invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund. Settlement procedures in emerging
countries are frequently less developed and reliable than those in the
United States and may
4-P
<PAGE>
APPENDIX A
involve a Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for a Fund to value its portfolio securities and
could cause the Fund to miss attractive investment opportunities, to have a
portion of its assets uninvested or to incur losses due to the failure of a
counterparty to pay for securities the Fund has delivered or the Fund's
inability to complete its contractual obligations.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities mar-
kets (such as the United States, Japan and most Western European countries).
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have a
negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
.Both domestic and foreign securities that are not readily marketable
.Certain municipal leases and participation interests
.Certain stripped Mortgage-Backed Securities
. Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
5-P
<PAGE>
. Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and, therefore, is liquid
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity of a Fund's portfolio to the extent that quali-
fied 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 liq-
uid market exists.
C. PORTFOLIO SECURITIES AND TECHNIQUES
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS
U.S. Government Securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. government agencies, instrumentalities or spon-
sored enterprises. U.S. Government Securities may be 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 pur-
chase certain obligations of the issuer (such as the Federal National Mort-
gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government
Securities also include Treasury receipts, zero coupon bonds and other
stripped U.S. Government Securities, where the interest and principal compo-
nents of stripped U.S. Government Securities are traded independently.
Interest in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of U.S. government.
6-P
<PAGE>
APPENDIX A
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. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include 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. In most cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, 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 Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include 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 prin-
cipal payments from a pool of mortgage loans. The market value of SMBS con-
sisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage loans are generally higher than pre-
vailing 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.
Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to
both call risk and extension risk as previously described. Because of these
risks, these securities can have significantly greater price and yield vola-
tility than with traditional fixed-income securities.
The value of Mortgage-Backed Securities that are structured as pass-through
mortgage securities that are collateralized by ARMs are less likely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. This is because interest rate declines may result in accelerated
prepayments of mortgages
7-P
<PAGE>
with the result that proceeds from prepayments will be reinvested at lower
interest rates. On the other hand, during periods of rising interest rates,
the value of ARMs 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 invest-
ments in ARMs may fluctuate more substantially since these limits may pre-
vent the security from fully adjusting its interest rate to the prevailing
market rates.
ASSET-BACKED SECURITIES
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Asset-backed securities present credit risks that
are not presented by Mortgage-Backed Securities. This is 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 possibil-
ity that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
MUNICIPAL SECURITIES
Municipal Securities include bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies 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 alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in the tax rates and policies than taxable
fixed-income securities.
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. Municipal Securities include private
activity bonds, municipal
8-P
<PAGE>
APPENDIX A
leases, certificates of participation, pre-refunded municipal securities and
auction rate securities.
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 con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected. Municipal
lease obligations and certificates of participation are subject to the added
risk that the governmental lessee will fail to appropriate funds to enable
it to meet its payment obligations under the lease. Although these obliga-
tions 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 recover fully a Fund's original investment.
Municipal Securities may be in the form of a tender option bond, which is a
Municipal Security (generally held pursuant to a custodial arrangement) hav-
ing a relatively long maturity and bearing interest at a fixed rate substan-
tially higher than prevailing short-term, tax-exempt rates. The bond is typ-
ically 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 dif-
ference between the bond's fixed coupon rate and the rate, as determined by
a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at
par on the date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears interest at
the prevailing short-term, tax-exempt rate. Certain tender option bonds may
be illiquid.
In order to enhance the liquidity of Municipal Securities, a Fund may (but
is not required to) acquire the right to sell a security to another party at
a guaranteed price and date. This 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 securi-
ties. Standby commitments may not be available or may not be available on
satisfactory terms.
9-P
<PAGE>
CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES
Corporate debt obligations include bonds, notes, debentures and other obli-
gations of corporations to pay interest and repay principal, and include
securities issued by banks and other financial institutions. A trust pre-
ferred or capital security is a long dated bond (for example, 30 years) with
preferred features. The preferred features are that payment of interest can
be deferred for a specified period without initiating a default event. The
securities are generally senior in claim to standard preferred stock but
junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
FOREIGN CURRENCY TRANSACTIONS
A Fund may, to the extent it invests in foreign securities, purchase or sell
foreign currencies on a cash basis or through forward contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. A Fund may engage in
foreign currency transactions for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, a Fund also may enter into such transactions to seek to increase
total return when the Investment Adviser anticipates fluctuation in the
value of the foreign currency, but securities denominated or quoted in that
currency do not present attractive investment opportunities and are not held
in the Fund's portfolio, which is considered a speculative practice. Some
Funds may also engage in cross-hedging by using forward contracts in a cur-
rency different from that in which the hedged security is denomi-
10-P
<PAGE>
APPENDIX A
nated or quoted if the Investment Adviser determines that there is a pattern
of correlation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). 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.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, 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.
STRUCTURED SECURITIES
Structured securities are securities whose value 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. Structured securities may be posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce 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 Refer-
ence. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities, and may be more
volatile, less liquid and more difficult to accurately price than less com-
plex securities. Structured securities include, but are not limited to,
inverse floating rate debt securities ("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 var-
ies by a magnitude that exceeds the magnitude
11-P
<PAGE>
of the change in the index rate of interest. The higher the degree of lever-
age of an inverse floater, the greater the volatility of its market value.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
These securities are issued at a discount from their face value because
interest payments are typically postponed until maturity. Pay-in-kind secu-
rities are securities that have interest payable by the delivery of addi-
tional securities. The market prices of these securities 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.
MORTGAGE DOLLAR ROLLS
A mortgage dollar roll involves the sale by a Fund of securities for deliv-
ery in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll 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 roll, the use of this technique will
diminish the Fund's investment performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage 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, and do not treat them as borrowings.
OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES
A put option gives the purchaser of the option the right to sell, and the
writer (seller) of the option the obligation to buy, the underlying instru-
ment during the option period. A call option gives the purchaser of the
option the right to buy, and the writer (seller) of the option the obliga-
tion to sell, the underlying instrument
12-P
<PAGE>
APPENDIX A
during the option period. 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. A Fund may also, to the extent it invests in foreign securities,
purchase and sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
brokerage transaction costs. Options written or purchased by the Funds may
be traded on either U.S. or foreign exchanges or over-the-counter. Foreign
and over-the-counter options will present greater possibility of loss
because of their greater liquidity and credit risks.
YIELD CURVE OPTIONS
Each Fund may enter into options on the yield "spread" or differential
between two securities. Such transactions 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.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts are standardized, exchange-traded contracts that provide
for the sale or purchase of a specified financial instrument or currency at
a future time at a specified price. An option on a futures contract gives
the purchaser the right (and the writer of the option the obligation) to
assume a position in a futures contract at a specified exercise price within
a specified period of time. A futures
13-P
<PAGE>
contract may be based on various securities (such as U.S. Government Securi-
ties), foreign currencies, securities indices and other financial instru-
ments and indices. The Funds may engage in futures transactions on both U.S.
and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund invests in foreign securities, currency
exchange rates, or to otherwise manage their term structures and durations
in accordance with their investment objectives and policies. Each Fund may
also enter into closing purchase and sale transactions with respect to such
contracts and options. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums 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. Future contracts and
related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing 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 NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
14-P
<PAGE>
APPENDIX A
..Foreign exchanges may not provide the same protection as U.S. exchanges.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.
When-issued securities are securities that have been authorized but not yet
issued. When-issued securities are purchased in order to secure what is con-
sidered to be an advantageous price and yield to the Fund at the time of
entering into the transaction.
A forward commitment involves entering into a contract to purchase or sell
securities for a fixed price at a future date beyond the customary settle-
ment period.
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 before the settlement date. Conversely, securities sold on a for-
ward commitment basis involves the risk that the value of the securities to
be sold may increase before the settlement date. Although a Fund will gener-
ally 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.
LENDING OF PORTFOLIO SECURITIES
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents or
U.S. Government Securities in an amount at least equal to the market value
of the securities loaned. Cash collateral may be invested in cash equiva-
lents. If the Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience a delay in the recovery of its securities or possible loss if the
institution with which it has engaged in a securities lending transaction
breaches its agreement with the Fund.
REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the
seller's agreement to repurchase them at a mutually agreed upon date and
price. 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. Some Funds may also enter into repurchase
agreements involving certain foreign government securities.
15-P
<PAGE>
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 repurchase agree-
ment are less than the repurchase price and the cost of the Fund associated
with delay and enforcement of the repurchase agreement. In addition, in the
event of bankruptcy of the seller, a Fund could suffer other losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
BORROWINGS AND REVERSE REPURCHASE AGREEMENTS
The Funds can borrow money from banks and enter into reverse repurchase
agreements with banks and other financial institutions in amounts not
exceeding one-third of its total assets. Reverse repurchase agreements
involve the sale of securities held by a Fund subject to the Fund's agree-
ment to repurchase them at a mutually agreed upon date and price (including
interest). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the Investment Adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by a Fund
decline in value while these transactions are outstanding, the NAV of the
Fund's outstanding shares will decline in value by proportionately more than
the decline in value of the securities. In addition, reverse repurchase
agreements involve the risk that the interest income earned by a Fund (from
the investment of the proceeds) will be less than the interest expense of
the transaction, that the market value of the securities sold by a Fund will
decline below the price the Fund is obligated to pay to repurchase the secu-
rities, and that the securities may not be returned to the Fund.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS
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 simi-
lar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a ref-
erence pool or pools of mortgages. Credit swaps involve the receipt of
floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transac-
tion the right to dispose of or acquire an asset (or group of assets), or
the right to receive or make a payment from the other party, upon the occur-
rence of specified credit events. Currency swaps involve the exchange of the
parties' respective rights to make or receive payments in specified
16-P
<PAGE>
APPENDIX A
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 enti-
tles the purchaser, to the extent that a specified index falls below a pre-
determined 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.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit 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 transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
INVERSE FLOATING RATE DEBT SECURITIES ("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.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, invest in other
investment companies.
17-P
<PAGE>
NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed-
income securities are considered predominantly speculative by traditional
investment standards. In some cases, these obligations may be highly specu-
lative and have poor prospects for reaching investment grade standing. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality (commonly known as "junk bonds") are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate developments, interest rate sensitivity, negative perceptions of the
junk bond markets generally and less secondary market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to expand. Such issuers are often highly leveraged
and generally less able than more established or less leveraged entities to
make scheduled payments of principal and interest in the event of adverse
developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds
which invest in higher-rated securities. Issuers of non-investment grade
fixed-income securities may not be able to make use of more traditional
methods of financing and their ability to service debt obligations may be
affected more adversely than issuers of higher-rated securities by economic
downturns, specific corporate developments or the issuer's inability to meet
specific projected business forecasts. Negative publicity about the junk
bond market and investor perceptions regarding lower rated securities,
whether or not based on fundamental analysis, may depress the prices for
such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such
1-Q
<PAGE>
securities. Investment by a Fund in defaulted securities poses additional
risk of loss should nonpayment of principal and interest continue in respect
of such securities. Even if such securities are held to maturity, recovery
by a Fund of its initial investment and any anticipated income or apprecia-
tion is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could contract under adverse market or economic condi-
tions, independent of any specific adverse changes in the condition of a
particular issuer. These factors may have an adverse effect on the market
price and a Fund's ability to dispose of particular portfolio investments. A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality. Investments
in non-investment grade and comparable unrated obligations will be more
dependent on the Investment Adviser's credit analysis than would be the case
with investments in investment-grade debt obligations.
LOAN PARTICIPATIONS
A loan participation is an interest in a loan to a U.S. or foreign company
or other borrower which is administered and sold by a financial intermedi-
ary. A Fund may only invest in loans to issuers in whose obligations it may
otherwise invest. Loan participation interests may take the form of a direct
or co-lending relationship with the corporate borrower, an assignment of an
interest in the loan by a co-lender or another participant, or a participa-
tion in the seller's share of the loan. When a Fund acts as co-lender in
connection with a participation interest or when it acquires certain partic-
ipation interests, the Fund will have direct recourse against the borrower
if the borrower fails to pay scheduled principal and interest. In cases
where the Fund lacks direct recourse, it will look to the agent bank to
enforce appropriate credit remedies against the borrower. In these cases,
the Fund
2-Q
<PAGE>
may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation
(such as commercial paper) of such borrower. Moreover, under the terms of
the loan participation, the Fund may be regarded as a creditor of the agent
bank (rather than of the underlying corporate borrower), so that the Fund
may also be subject to the risk that the agent bank may become insolvent.
PREFERRED STOCK, WARRANTS AND RIGHTS
Preferred stocks are securities that represent an ownership interest provid-
ing the holder with claims on the issuer's earnings and assets before common
stock owners but after bond owners. Unlike debt securities, the obligations
of an issuer of preferred stock, including dividend and other payment obli-
gations, may not typically be accelerated by the holders of such preferred
stock on the occurrence of an event of default or other non-compliance by
the issuer with the terms of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the war-
rant. The holders of warrants and rights have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.
3-Q
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $ 9.88 $0.53 $(0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
1997 - Class A Shares 9.83 0.57f 0.05f
1997 - Institutional Shares 9.83 0.59f 0.05f
1997 - Administration Shares 9.83 0.57f 0.05f
1997 - Service Shares (commenced March
27) 9.84 0.33f 0.04f
1996 - Class A Shares 9.77 0.55f 0.08f
1996 - Institutional Shares 9.77 0.57f 0.08f
1996 - Administration Shares 9.77 0.55f 0.08f
1995 - Class A Shares (commenced May 15) 9.79 0.27f (0.01)f
1995 - Institutional Shares 9.74 0.56f 0.07f
1995 - Administration Shares 9.74 0.54f 0.07f
1994 - Institutional Shares 10.00 0.43f (0.24)f
1994 - Administration Shares 10.00 0.42f (0.26)f
- -------------------------------------------------------------------------------
</TABLE>
1-R
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET NET NET
REALIZED GAIN INCREASE ASSETS
IN EXCESS ON INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT AND FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $(0.02) $-- $(0.19) $9.69 3.71% 33.64% $ 60,782
(0.55) (0.02) -- (0.18) 9.70 4.09 33.64 441,228
(0.53) (0.02) -- (0.18) 9.70 3.83 33.64 5,999
(0.51) (0.02) -- (0.18) 9.70 3.57 33.64 822
(0.57) -- -- 0.05 9.88 6.43 46.58 43,393
(0.59) -- -- 0.05 9.88 6.70 46.58 463,511
(0.57) -- -- 0.05 9.88 6.43 46.58 2,793
(0.33) -- -- 0.04 9.88 3.81d 46.58 346
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 10,728
(0.57) (0.02) -- 0.06 9.83 6.86 52.36 613,149
(0.55) (0.02) -- 0.06 9.83 6.60 52.36 3,792
(0.27) (0.01) -- (0.02) 9.77 2.74d 24.12 15,203
(0.57) (0.03) -- 0.03 9.77 6.75 24.12 657,358
(0.55) (0.03) -- 0.03 9.77 6.48 24.12 3,572
(0.45) -- -- (0.26) 9.74 1.88 37.81 942,523
(0.42) -- -- (0.26) 9.74 1.63 37.81 6,960
- -----------------------------------------------------------------------------------------
</TABLE>
2-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.80% 5.40% 1.02% 5.18%
1998 - Institutional Shares 0.53 5.63 0.53 5.63
1998 - Administration Shares 0.78 5.33 0.78 5.33
1998 - Service Shares 1.03 5.09 1.03 5.09
1997 - Class A Shares 0.74 5.60 1.02 5.32
1997 - Institutional Shares 0.49 5.99 0.52 5.96
1997 - Administration Shares 0.74 5.73 0.77 5.70
1997 - Service Shares (commenced
March 27) 1.05c 5.64c 1.08c 5.61c
1996 - Class A Shares 0.70 5.59 1.01 5.28
1996 - Institutional Shares 0.45 5.85 0.51 5.79
1996 - Administration Shares 0.70 5.59 0.76 5.53
1995 - Class A Shares (commenced
May 15) 0.69c 5.87c 1.01c 5.55c
1995 - Institutional Shares 0.46 5.77 0.53 5.70
1995 - Administration Shares 0.71 5.50 0.78 5.43
1994 - Institutional Shares 0.46 4.38 0.49 4.35
1994 - Administration Shares 0.71 4.27 0.74 4.24
- -------------------------------------------------------------------------------
</TABLE>
3-R
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE AT NET INVESTMENT, OPTION
BEGINNING INVESTMENT AND FUTURES
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $ 9.88 $0.57 $ 0.04
1998-Class B Shares 9.86 0.51 0.03
1998-Class C Shares 9.86 0.49 0.03
1998-Institutional Shares 9.86 0.58 0.06
1998-Administration Shares 9.89 0.55 0.05
1998-Service Shares 9.86 0.55 0.04
1997-Class A Shares (commenced May
1) 9.78 0.31f 0.09f
1997-Class B Shares (commenced May
1) 9.75 0.28f 0.10f
1997-Class C Shares (commenced May
15) 9.83 0.12f 0.02f
1997-Institutional Shares 9.83 0.64f 0.03f
1997-Administration Shares 9.85 0.62f 0.04f
1997-Service Shares 9.82 0.59f 0.04f
1996-Institutional Shares 9.82 0.63f 0.01f
1996-Administration Sharesg 9.86 0.38f --f
1996-Service Shares (commenced
April 10) 9.72 0.31f 0.10f
1995-Institutional Shares 9.64 0.66f 0.17f
1995-Administration Sharesg 9.64 0.24f (0.04)f
1994-Institutional Shares 10.14 0.56f (0.46)f
1994-Administration Shares 10.14 0.53f (0.45)f
- ------------------------------------------------------------------------------
</TABLE>
4-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET
IN EXCESS ON INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE PERIOD RETURNB RATEE (IN 000S)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.58) $-- $ -- $ 0.03 $9.91 6.36% 119.89% $ 56,725
(0.52) -- -- 0.02 9.88 5.62 119.89 5,025
(0.50) -- -- 0.02 9.88 5.46 119.89 4,527
(0.60) -- -- 0.04 9.90 6.75 119.89 145,514
(0.58) -- -- 0.02 9.91 6.27 119.89 7,357
(0.56) -- -- 0.03 9.89 6.12 119.89 6,232
(0.30) -- -- 0.10 9.88 4.14d 102.58 9,491
(0.27) -- -- 0.11 9.86 3.94d 102.58 747
(0.11) -- -- 0.03 9.86 1.44d 102.58 190
(0.64) -- -- 0.03 9.86 7.07 102.58 103,729
(0.62) -- -- 0.04 9.89 6.91 102.58 1,060
(0.59) -- -- 0.04 9.86 6.63 102.58 3,337
(0.63) -- -- 0.01 9.83 6.75 115.45 99,944
(0.39) -- -- (0.01) 9.85 4.00d 115.45 252
(0.31) -- -- 0.10 9.82 4.35d 115.45 1,822
(0.65) -- -- 0.18 9.82 8.97 292.56 103,760
(0.21) -- -- (0.01) 9.63 2.10d 292.56 --
(0.56) -- (0.04) (0.50) 9.64 0.99 289.79 193,095
(0.54) -- (0.04) (0.50) 9.64 0.73 289.79 730
- -------------------------------------------------------------------------------------------
</TABLE>
5-R
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998-Class A Shares 0.81% 5.68% 1.32% 5.17%
1998-Class B Shares 1.41 5.12 1.87 4.66
1998-Class C Shares 1.56 4.64 1.87 4.33
1998-Institutional Shares 0.53 6.06 0.84 5.75
1998-Administration Shares 0.78 5.76 1.09 5.45
1998-Service Shares 1.03 5.56 1.34 5.25
1997-Class A Shares
(commenced May 1) 0.70c 6.05c 1.32c 5.43c
1997-Class B Shares
(commenced May 1) 1.30c 5.52c 1.82c 5.00c
1997-Class C Shares
(commenced May 15) 1.45c 5.52c 1.82c 5.15c
1997-Institutional Shares 0.45 6.43 0.82 6.06
1997-Administration Shares 0.70 6.19 1.07 5.82
1997-Service Shares 0.95 5.92 1.32 5.55
1996-Institutional Shares 0.45 6.44 0.71 6.18
1996-Administration
Sharesg 0.70c 5.97c 0.96c 5.71c
1996-Service Shares
(commenced April 10) 0.95c 6.05c 1.21c 5.79c
1995-Institutional Shares 0.45 6.87 0.72 6.60
1995-Administration
Sharesg 0.70c 7.91c 0.90c 7.71c
1994-Institutional Shares 0.45 5.69 0.59 5.55
1994-Administration Shares 0.70 5.38 0.84 5.24
- -------------------------------------------------------------------------------
</TABLE>
6-R
<PAGE>
[This page intentionally left blank]
7-R
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSA
NET REALIZED
AND UNREALIZED
GAIN (LOSS)
NET ASSET ON INVESTMENT,
VALUE, NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOMEE TRANSACTIONSE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $10.08 $0.36 $0.13
1998 - Class B Shares 10.08 0.30 0.12
1998 - Class C Shares 10.07 0.28 0.14
1998 - Institutional Shares 10.07 0.39 0.13
1998 - Administration Shares 10.07 0.36 0.13
1998 - Service Shares 10.07 0.34 0.13
1997 - Class A Shares (commenced May 1) 9.94 0.20 0.14
1997 - Class B Shares (commenced May 1) 9.94 0.16 0.14
1997 - Class C Shares (commenced August
15) 10.04 0.07 0.03
1997 - Institutional Shares 9.96 0.42 0.11
1997 - Administration Shares 9.96 0.39 0.11
1997 - Service Shares 9.97 0.37 0.10
1996 - Institutional Shares 9.94 0.42 0.02
1996 - Administration Shares 9.94 0.39 0.02
1996 - Service Shares 9.95 0.37 0.02
1995 - Institutional Shares 9.79 0.42 0.15
1995 - Administration Shares 9.79 0.40 0.15
1995 - Service Shares 9.79 0.37 0.16
1994 - Institutional Shares 10.23 0.38 (0.36)
1994 - Administration Shares 10.23 0.35 (0.36)
1994 - Service Shares (commenced
September 20) 9.86 0.05 (0.07)
- ------------------------------------------------------------------------------
</TABLE>
8-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED GAIN NET NET
IN EXCESS ON INVESTMENT, INCREASE ASSETS
FROM NET OF NET OPTION (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT AND FUTURES IN NET VALUE, TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE END OF PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.38) -- $ -- $0.11 $10.19 4.97% 140.72% $19,881
(0.32) -- -- 0.10 10.18 4.25 140.72 974
(0.31) -- -- 0.11 10.18 4.19 140.72 2,256
(0.41) -- -- 0.11 10.18 5.25 140.72 57,647
(0.38) -- -- 0.11 10.18 4.99 140.72 525
(0.36) -- -- 0.11 10.18 4.73 140.72 2,560
(0.20) -- -- 0.14 10.08 3.39d 194.75 4,023
(0.16) -- -- 0.14 10.08 3.07d 194.75 106
(0.07) -- -- 0.03 10.07 0.97d 194.75 2
(0.42) -- -- 0.11 10.07 5.40 194.75 28,821
(0.39) -- -- 0.11 10.07 5.14 194.75 77
(0.37) -- -- 0.10 10.07 4.77 194.75 2,051
(0.42) -- -- 0.02 9.96 4.50 231.65 34,814
(0.39) -- -- 0.02 9.96 4.24 231.65 48
(0.37) -- -- 0.02 9.97 3.98 231.65 695
(0.42) -- -- 0.15 9.94 5.98 259.52 58,389
(0.40) -- -- 0.15 9.94 5.76 259.52 46
(0.37) -- -- 0.16 9.95 5.59 259.52 454
(0.38) -- (0.08) (0.44) 9.79 0.17 354.00 83,704
(0.35) -- (0.08) (0.44) 9.79 (0.11) 354.00 3,866
(0.05) -- -- (0.07) 9.79 (0.32)d 354.00 440
- -----------------------------------------------------------------------------------------------
</TABLE>
9-R
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares 0.71% 3.54% 1.74% 2.51%
1998 - Class B Shares 1.31 3.06 2.27 2.10
1998 - Class C Shares 1.46 2.82 2.27 2.01
1998 - Institutional Shares 0.45 3.92 1.26 3.11
1998 - Administration Shares 0.70 3.58 1.51 2.77
1998 - Service Shares 0.95 3.44 1.76 2.63
1997 - Class A Shares (commenced
May 1) 0.70c 3.81c 1.73c 2.78c
1997 - Class B Shares (commenced
May 1) 1.30c 3.31c 2.23c 2.38c
1997 - Class C Shares (commenced
August 15) 1.45c 2.60c 2.23c 1.82c
1997 - Institutional Shares 0.45 4.18 1.23 3.40
1997 - Administration Shares 0.70 3.91 1.48 3.13
1997 - Service Shares 0.95 3.66 1.73 2.88
1996 - Institutional Shares 0.45 4.21 1.01 3.65
1996 - Administration Shares 0.70 3.96 1.26 3.40
1996 - Service Shares 0.95 3.74 1.51 3.18
1995 - Institutional Shares 0.45 4.31 0.77 3.99
1995 - Administration Shares 0.70 4.14 1.02 3.82
1995 - Service Shares 0.95 3.87 1.27 3.55
1994 - Institutional Shares 0.45 3.74 0.61 3.58
1994 - Administration Shares 0.70 3.51 0.86 3.35
1994 - Service Shares (commenced
September 20) 0.95c 4.30c 1.11c 4.14c
- -------------------------------------------------------------------------------
</TABLE>
10-R
<PAGE>
[This page intentionally left blank]
11-R
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONSN
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.59 $0.81 $0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares (commenced
August 15) 14.38 0.17 0.22
1997 - Institutional Shares
(commenced August 15) 14.37 0.20 0.22
1997 - Service Shares (commenced
August 15) 14.37 0.20 0.21
1996 - Class A shares 14.47 0.92 (0.11)
1996 - Class B shares (commenced May
1) 4.11 0.41 0.26
1995 - Class A shares 13.47 0.94 1.00
1994 - Class A shares 14.90 0.85 (1.28)
- -------------------------------------------------------------------------------
</TABLE>
12-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
IN EXCESS OF
FROM NET NET REALIZED
REALIZED GAIN GAIN ON NET
IN EXCESS ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
FROM NET OF NET OPTION AND OPTION AND (DECREASE) VALUE PORTFOLIO
INVESTMENT INVESTMENT FUTURES FUTURES IN NET AT END TOTAL TURNOVER
INCOME INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE OF PERIOD RETURNK RATEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.81) $(0.07) $(0.06) $ -- $0.32 $14.91 8.98% 315.43%
(0.72) (0.05) (0.06) -- 0.31 14.92 8.09 315.43
(0.74) (0.03) (0.06) -- 0.31 14.91 8.09 315.43
(0.87) (0.05) (0.06) -- 0.31 14.90 9.19 315.43
(0.80) (0.05) (0.06) -- 0.29 14.88 8.53 315.43
(0.90) -- (0.07) -- 0.23 14.59 8.72 395.75
(0.79) -- (0.07) -- 0.24 14.61 7.96 395.75
(0.17) -- -- -- 0.22 14.60 2.72d 395.75
(0.20) -- -- -- 0.22 14.59 2.94d 395.75
(0.19) -- -- -- 0.22 14.59 2.85d 395.75
(0.92) -- -- -- (0.11) 14.36 5.80 485.09
(0.41) -- -- -- 0.26 14.37 4.85d 485.09
(0.94) -- -- -- 1.00 14.47 14.90 449.53
(0.85) (0.02) (0.12) (0.01) (1.43) 13.47 (2.98) 654.90
- ---------------------------------------------------------------------------------------------
</TABLE>
13-R
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
AT END OF NET EXPENSES INCOME EXPENSES INCOME
PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
(IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares $101,015 0.76% 5.53% 1.53% 4.76%
1998 - Class B Shares 16,125 1.51 4.76 2.05 4.22
1998 - Class C Shares 9,639 1.51 4.59 2.05 4.05
1998 - Institutional
Shares 2,642 0.51 5.82 1.05 5.28
1998 - Service Shares 2 1.01 5.48 1.55 4.94
1997 - Class A Shares 68,859 0.50 6.38 1.82 5.06
1997 - Class B Shares 8,041 1.25 5.59 2.32 4.52
1997 - Class C Shares
(commenced August 15) 1,196 1.25c 5.45c 2.32c 4.38c
1997 - Institutional
Shares (commenced
August 15) 1,894 0.25c 7.03c 1.32c 5.96c
1997 - Service Shares
(commenced August 15) 2 0.75c 6.49c 1.82c 5.42c
1996 - Class A shares 30,603 0.50 6.42 1.89 5.03
1996 - Class B shares
(commenced May 1) 234 1.25c 5.65c 2.39c 4.51c
1995 - Class A shares 29,503 0.47 6.67 2.34 4.80
1994 - Class A shares 14,452 0.11 6.06 2.86 3.31
- ----------------------------------------------------------------------------------------------
</TABLE>
14-R
<PAGE>
[This page intentionally left blank]
15-R
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/N/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENT,
VALUE AT NET OPTION AND
BEGINNING INVESTMENT FUTURES
OF PERIOD INCOME TRANSACTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $14.99 $0.65 $0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class C Shares (commenced
August 15) 14.85 0.12 0.14
1997 - Institutional Shares
(commenced August 15) 14.84 0.15 0.16
1997 - Service Shares (commenced
August 15) 14.84 0.14 0.15
1996 - Class A shares 14.17 0.65 0.20
1996 - Class B shares (commenced May
1) 14.03 0.27 0.34
1995 - Class A shares 13.08 0.67 1.09
1994 - Class A shares 14.64 0.73 (1.51)
- -------------------------------------------------------------------------------
</TABLE>
16-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATE (IN 000S)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.64) $-- $(0.03) $0.48 $15.47 7.79% 56.51% $91,158
(0.52) -- (0.03) 0.47 15.47 6.91 56.51 6,722.
(0.52) -- (0.03) 0.48 15.47 6.98 56.51 2,862
(0.68) -- (0.03) 0.47 15.47 8.00 56.51 6,154
(0.61) -- (0.03) 0.49 15.48 7.68 56.51 2
(0.67) -- -- 0.62 14.99 9.23 153.12 64,553
(0.56) -- -- 0.63 15.00 8.48 153.12 1,750
(0.12) -- -- 0.14 14.99 1.75d 153.12 130
(0.15) -- -- 0.16 15.00 2.10d 153.12 351
(0.14) -- -- 0.15 14.99 1.93d 153.12 2
(0.65) -- -- 0.20 14.37 6.13 344.13 52,267
(0.27) -- -- 0.34 14.37 4.40d 344.13 255
(0.67) -- -- 1.09 14.17 13.79 335.55 53,797
(0.73) -- (0.05) (1.56) 13.08 (5.51) 357.54 47,373
- ---------------------------------------------------------------------------------------
</TABLE>
17-R
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF
NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 0.87% 4.25% 1.64% 3.48%
1998 - Class B Shares 1.62 3.44 2.16 2.90
1998 - Class C Shares 1.62 3.38 2.16 2.84
1998 - Institutional
Shares 0.58 4.41 1.12 3.87
1998 - Service Shares 1.08 4.21 1.62 3.67
1997 - Class A Shares 0.85 4.60 1.62 3.83
1997 - Class B Shares 1.60 3.74 2.12 3.22
1997 - Class C Shares
(commenced August 15) 1.60c 3.24c 2.12c 2.72c
1997 - Institutional
Shares (commenced
August 15) 0.60c 4.41c 1.12c 3.89c
1997 - Service Shares
(commenced August 15) 1.10c 4.24c 1.62c 3.72c
1996 - Class A shares 0.85 4.58 1.55 3.88
1996 - Class B shares
(commenced May 1) 1.60c 3.55c 2.05c 3.10c
1995 - Class A shares 0.76 4.93 1.49 4.20
1994 - Class A shares 0.45 5.28 1.55 4.18
- -----------------------------------------------------------------------------------
</TABLE>
18-R
<PAGE>
[This page intentionally left blank]
19-R
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION,
NET ASSET FUTURES AND-
VALUE AT NET FOREIGN CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares $10.06 $0.59 $0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.90 0.27
1998-Institutional Shares 10.08 1.08 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.99 0.27
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August
15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares
(commenced February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March
13) 9.77 0.38 0.09
1995-Institutional Shares 9.24 0.64 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares (commenced
January 5) 10.00 0.46 (0.76)
- ------------------------------------------------------------------------------
</TABLE>
20-R
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET
REALIZED NET NET
GAIN ON INCREASE ASSETS
IN EXCESS INVESTMENT, (DECREASE) NET ASSET AT END
FROM NET OF NET OPTION AND IN NET VALUE, PORTFOLIO OF
INVESTMENT INVESTMENT FUTURES ASSET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS VALUE PERIOD RETURNB RATEE (IN 000S)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.59) $(0.02) $(0.06) $0.19 $10.25 8.76% 271.50% $56,267
(0.52) (0.02) (0.06) 0.19 10.28 7.94 271.50 7,209
(0.90) (0.02) (0.06) 0.19 10.28 7.94 271.50 5,587
(1.08) (0.03) (0.06) 0.20 10.28 9.15 271.50 195,730
(0.57) (0.03) (0.06) 0.20 10.27 8.88 271.50 12,743
(0.99) (0.02) (0.06) 0.19 10.28 8.50 271.50 5,263
(0.30) -- -- 0.36 10.06 6.94d 361.27 9,336
(0.27) -- -- 0.37 10.09 6.63d 361.27 621
(0.11) -- -- 0.16 10.09 2.74d 361.27 272
(0.64) -- -- 0.23 10.08 9.19 361.27 79,230
(0.62) -- -- 0.23 10.07 8.92 361.27 6,176
(0.59) -- -- 0.23 10.09 8.65 361.27 1,868
(0.64) -- (0.08) (0.15) 9.85 5.98 414.20 72,061
(0.41) -- -- (0.07) 9.84 3.56d 414.20 702
(0.38) -- -- 0.09 9.86 4.90d 414.20 381
(0.64) -- -- 0.76 10.00 15.72 382.26 55,502
(0.46) -- -- (0.76) 9.24 (3.00)d 285.25 24,508
- ----------------------------------------------------------------------------------------
</TABLE>
21-R
<PAGE>
APPENDIX B
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET NET
NET INVESTMENT RATIO OF INVESTMENT
EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares 0.74% 5.58% 1.21% 5.11%
1998-Class B Shares 1.49 4.82 1.75 4.56
1998-Class C Shares 1.49 4.81 1.75 4.55
1998-Institutional Shares 0.46 5.95 0.72 5.69
1998-Administration Shares 0.71 5.70 0.97 5.44
1998-Service Shares 0.96 5.44 1.22 5.18
1997-Class A Shares (commenced
May 1) 0.70c 6.13c 1.33c 5.50c
1997-Class B Shares (commenced
May 1) 1.45c 5.28c 1.83c 4.90c
1997-Class C Shares (commenced
August 15) 1.45c 4.84c 1.83c 4.46c
1997-Institutional Shares 0.45 6.53 0.83 6.15
1997-Administration Shares 0.70 6.27 1.08 5.89
1997-Service Shares 0.95 6.00 1.33 5.62
1996-Institutional Shares 0.45 6.51 0.83 6.13
1996-Administrative Shares
(commenced February 28) 0.70c 6.41c 1.08c 6.03c
1996-Service Shares (commenced
March 13) 0.95c 6.37c 1.33c 5.99c
1995-Institutional Shares 0.45 6.56 0.96 6.05
FOR THE PERIOD ENDED OCTOBER 31,
1994-Institutional Shares
(commenced January 5) 0.45c 6.48c 1.46c 5.47c
- -------------------------------------------------------------------------------
</TABLE>
22-R
<PAGE>
[This page intentionally left blank]
23-R
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS/A/
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT,
OPTION, FUTURES
NET ASSET AND FOREIGN
VALUE, NET CURRENCY
BEGINNING INVESTMENT RELATED
OF PERIOD INCOME TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares $15.10 $0.72f $0.90f
1998 - Class B Shares 15.08 0.63f 0.92f
1998 - Class C Shares 15.06 0.63f 0.91f
1998 - Institutional Shares 15.09 0.82f 0.90f
1998 - Service Shares 15.09 0.74f 0.91f
1997 - Class A shares 14.53 0.59 0.77
1997 - Class B shares 14.53 0.72 0.56
1997 - Class C shares (commenced August
15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March
12) 14.69 0.53 0.39
1996 - Class A shares 14.45 0.71 0.80
1996 - Class B shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional shares 14.45 1.15 0.42
1995 - Class A shares 13.43 0.89 1.07
1995 - Institutional shares
(commenced August 1) 14.09 0.22 0.40
1994 - Class A shares 15.07 0.84 (1.49)
- -----------------------------------------------------------------------------
</TABLE>
24-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
NET REALIZED
GAIN ON NET
IN EXCESS INVESTMENT, INCREASE NET ASSET NET ASSETS
FROM NET OF NET OPTION AND FROM (DECREASE) VALUE, PORTFOLIO AT END OF
INVESTMENT INVESTMENT FUTURES PAID IN IN NET END OF TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE PERIOD RETURNB RATE (IN 000S)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(1.01) $-- $(0.06) $ -- $0.55 $15.65 11.21% 229.91% $217,362
(0.94) -- (0.06) -- 0.55 15.63 10.66 229.91 8,135
(0.94) -- (0.06) -- 0.54 15.60 10.65 229.91 4,090
(1.11) -- (0.06) -- 0.55 15.64 11.95 229.91 178,532
(1.04) -- (0.06) -- 0.55 15.64 11.43 229.91 1,058
(0.79) -- -- -- 0.57 15.10 9.66 383.72 167,096
(0.73) -- -- -- 0.55 15.08 9.04 383.72 3,465
(0.19) -- -- -- 0.26 15.06 3.03d 383.72 496
(0.87) -- -- -- 0.57 15.09 10.26 383.72 60,929
(0.52) -- -- -- 0.40 15.09 6.42d 383.72 151
(1.43) -- -- -- 0.08 14.53 11.05 232.15 198,665
(0.36) -- -- -- 0.50 14.53 6.24d 232.15 256
(1.50) -- -- -- 0.07 14.52 11.55 232.15 54,254
(0.94) -- -- -- 1.02 14.45 15.08 265.86 245,835
(0.26) -- -- -- 0.36 14.45 4.42d 265.86 31,619
(0.22) -- (0.16) (0.61) (1.64) 13.43 (4.49) 343.74 396,584
- -----------------------------------------------------------------------------------------------
</TABLE>
25-R
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF NET RATIO OF NET
RATIO OF INVESTMENT RATIO OF INVESTMENT
NET EXPENSES INCOME EXPENSES INCOME
TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED
OCTOBER 31,
1998 - Class A Shares 1.31% 4.71% 1.75% 4.27%
1998 - Class B Shares 1.83 4.19 2.24 3.78
1998 - Class C Shares 1.83 4.20 2.24 3.79
1998 - Institutional
Shares 0.66 5.40 1.07 4.99
1998 - Service Shares 1.16 4.92 1.57 4.51
1997 - Class A shares 1.17 5.19 1.60 4.76
1997 - Class B shares 1.71 4.76 2.10 4.37
1997 - Class C shares
(commenced August 15) 1.71c 4.98c 2.10c 4.59c
1997 - Institutional
Shares 0.65 5.72 1.04 5.33
1997 - Service Shares
(commenced March 12) 1.15c 5.33c 1.54c 4.94c
1996 - Class A shares 1.16 5.81 1.64 5.33
1996 - Class B shares
(commenced May 1) 1.70c 5.16c 2.14c 4.72c
1996 - Institutional
shares 0.65 6.35 1.11 5.89
1995 - Class A shares 1.29 6.23 1.58 5.94
1995 - Institutional
shares
(commenced August
1) 0.65c 6.01c 1.08c 5.58c
1994 - Class A shares 1.28 5.73 1.53 5.48
- --------------------------------------------------------------------------------------
</TABLE>
26-R
<PAGE>
[This page intentionally left blank]
27-R
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS/A/
NET REALIZED
AND UNREALIZED
NET ASSET GAIN (LOSS) ON
VALUE, NET INVESTMENT AND
BEGINNING INVESTMENT FOREIGN CURRENCY
OF PERIOD INCOME RELATED TRANSACTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1998 - Class A Shares $ 9.97 $0.82 $(0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares (commenced
August 1) 10.00 0.17 (0.02)
1997 - Class B Shares (commenced
August 1) 10.00 0.15 (0.02)
1997 - Class C Shares (commenced
August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares (commenced
August 1) 10.00 0.17 (0.02)
- -----------------------------------------------------------------------------
</TABLE>
28-R
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
FROM
FROM IN EXCESS NET REALIZED NET INCREASE NET ASSETS
NET OF NET GAIN ON (DECREASE) NET ASSET PORTFOLIO AT END OF
INVESTMENT INVESTMENT INVESTMENT IN NET VALUE, END TOTAL TURNOVER PERIOD
INCOME INCOME TRANSACTIONS ASSET VALUE OF PERIOD RETURNB RATE (IN 000S)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.78) $ -- $-- $(0.81) $9.16 (0.70)% 113.44% $401,626
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 29,256
(0.70) -- -- (0.81) 9.16 (1.43) 113.44 8,532
(0.81) -- -- (0.80) 9.17 (0.32) 113.44 97,547
(0.76) -- -- (0.80) 9.17 (0.79) 113.44 447
(0.17) (0.01) -- (0.03) 9.97 1.50d 44.80d 325,911
(0.15) (0.01) -- (0.03) 9.97 1.31d 44.80d 10,308
(0.14) (0.01) -- -- 9.97 1.46d 44.80d 1,791
(0.18) (0.01) -- (0.03) 9.97 1.58d 44.80d 2
(0.17) (0.01) -- (0.03) 9.97 1.46d 44.80d 2
- --------------------------------------------------------------------------------------------
</TABLE>
29-R
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
RATIO OF RATIO OF
RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET EXPENSES INCOME EXPENSES TO INCOME
TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
OCTOBER 31,
1998 - Class A Shares 1.09% 8.25% 1.36% 7.98%
1998 - Class B Shares 1.84 7.61 1.88 7.57
1998 - Class C Shares 1.84 7.61 1.88 7.57
1998 - Institutional
Shares 0.84 9.47 0.88 9.43
1998 - Service Shares 1.34 9.17 1.38 9.13
FOR THE PERIOD ENDED
OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 0.95c 7.06c 1.57c 6.44c
1997 - Class B Shares
(commenced August 1) 1.70c 6.28c 2.07c 5.91c
1997 - Class C Shares
(commenced August 15) 1.70c 6.17c 2.07c 5.80c
1997 - Institutional
Shares
(commenced August
1) 0.70c 7.16c 1.07c 6.79c
1997 - Service Shares
(commenced August 1) 1.20c 6.69c 1.57c 6.32c
- --------------------------------------------------------------------------------------------
</TABLE>
30-R
<PAGE>
APPENDIX B
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 were taken into
account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions.
f Calculated based on the average shares outstanding methodology.
g Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
31-R
<PAGE>
Fixed Income Funds
Prospectus (Class A, B and C Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during its
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-526-7384.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-526-7384
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. Information on the operation
of the public reference room may be obtained by calling the SEC at 1-800-
SEC-0330. The Fund's investment company registration number is 811-5349.
[LOGO]
21
<PAGE>
Index
<TABLE>
<C> <C> <S>
General Investment Management Approach
2 Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Government Income Fund
7 Goldman Sachs Municipal Income Fund
8 Goldman Sachs Core Fixed Income Fund
9 Goldman Sachs Global Income Fund
10 Goldman Sachs High Yield Fund
Other Investment Practices and Securities
Principal Risks of the Fund
Fund Performance
</TABLE>
<TABLE>
<S> <C> <C>
12 Fund Fees and Expenses
Service Providers
Dividends
Shareholder Guide
How To Buy Shares
How To Sell Shares
Taxation
A-1 Appendix
Additional Information on
Portfolio Risks, Securities
and Techniques
B-1 Appendix
Financial Highlights
</TABLE>
22
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
CLASS B SHARES
CLASS C SHARES
SERVICE SHARES
INSTITUTIONAL SHARES
ADMINISTRATION SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
GOLDMAN SACHS HIGH YIELD 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 prospectuses for the Class A, Class B, Class C, Service and
Institutional Shares of Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short Duration Tax-Free
Fund, Goldman Sachs Government Income Fund, Goldman Sachs Municipal Income Fund,
Goldman Sachs Core Fixed Income Fund, Goldman Sachs Global Income Fund and
Goldman Sachs High Yield Fund, and the prospectus for the Administration Shares
of Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs Short Duration
Government Fund, Goldman Sachs Short Duration Tax-Free Fund and Goldman Sachs
Core Fixed Income Fund, each dated March 1, 1999, as may be further amended
and/or supplemented from time to time (the "Prospectuses"). The Prospectuses may
be obtained without charge from Goldman, Sachs & Co. by calling the telephone
number, or writing to one of the addresses, listed below or from institutions
("Service Organizations") that hold Administration Shares for the benefit of
their customers. Goldman Sachs Adjustable Rate Government Fund currently does
not offer Class B or Class C Shares.
The audited financial statements and related report of Arthur Andersen LLP,
independent public accountants, for each Fund contained in each Fund's 1998
annual report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Fund's Annual Report are incorporated
herein by reference.
B-1
<PAGE>
The date of this Additional Statement is March 1, 1999.
TABLE OF CONTENTS
INTRODUCTION................................................................
INVESTMENT OBJECTIVES AND POLICIES..........................................
OTHER INVESTMENT OBJECTIVES AND PRACTICES...................................
INVESTMENT RESTRICTIONS.....................................................
MANAGEMENT..................................................................
PORTFOLIO TRANSACTIONS......................................................
SHARES OF THE TRUST.........................................................
NET ASSET VALUE.............................................................
TAXATION....................................................................
PERFORMANCE INFORMATION.....................................................
OTHER INFORMATION...........................................................
FINANCIAL STATEMENTS........................................................
OTHER INFORMATION REGARDING REDEMPTIONS,
EXCHANGES AND DIVIDENDS....................................................
DISTRIBUTION AND SERVICE PLANS..............................................
SERVICE PLAN................................................................
ADMINISTRATION PLAN.........................................................
APPENDIX A..................................................................
APPENDIX B..................................................................
B-2
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
INVESTMENT ADVISER TO GOLDMAN SACHS MANAGEMENT INTERNATIONAL
SHORT DURATION TAX-FREE FUND, INVESTMENT ADVISER TO GOLDMAN SACHS
GOLDMAN SACHS GOVERNMENT GLOBAL INCOME FUND
INCOME FUND, GOLDMAN SACHS 133 PETERBOROUGH COURT
MUNICIPAL INCOME FUND, LONDON EC4A 2BB, ENGLAND
Goldman Sachs Core Fixed
INCOME FUND AND GOLDMAN
Sachs High Yield Fund GOLDMAN, SACHS & CO.
ONE NEW YORK PLAZA DISTRIBUTOR
NEW YORK, NEW YORK 10004 85 BROAD STREET
NEW YORK, NY 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
INVESTMENT ADVISER TO GOLDMAN SACHS GOLDMAN, SACHS & CO.
ADJUSTABLE RATE GOVERNMENT FUND TRANSFER AGENT
AND GOLDMAN SACHS SHORT DURATION 4900 SEARS TOWER
GOVERNMENT FUND CHICAGO, ILLINOIS 60606
One New York Plaza
NEW YORK, NEW YORK 10004
TOLL FREE (IN U.S.) .......800-621-2550
B-3
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end management investment
company. The Trust is a successor to a Massachusetts business trust that was
merged with the Trust on April 30, 1997. 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 the following series, among others: Goldman Sachs
Adjustable Rate Government Fund ("Adjustable Rate Government Fund"), Goldman
Sachs Short Duration Government Fund ("Short Duration Government Fund"), Goldman
Sachs Short Duration Tax-Free Fund ("Short Duration Tax-Free Fund"), Goldman
Sachs Government Income Fund ("Government Income Fund"), Goldman Sachs Municipal
Income Fund ("Municipal Income Fund"), Goldman Sachs Core Fixed Income Fund
("Core Fixed Income Fund"), Goldman Sachs Global Income Fund ("Global Income
Fund") and Goldman Sachs High Yield Fund ("High Yield Fund") (each referred to
herein as a "Fund" and collectively as the "Funds"). Each Fund other than the
Global Income Fund is a diversified, open-end management investment company.
The Global Income Fund is a non-diversified open-end management investment
company. Short Duration Government Fund, Short Duration Tax-Free Fund and Core
Fixed Income are each authorized to issue six classes of shares: Class A Shares,
Class B Shares, Class C Shares, Service Shares, Institutional Shares and
Administration Shares. Government Income Fund, Municipal Income Fund, Global
Income Fund and High Yield Fund are authorized to issue five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Service Shares and Institutional
Shares. Adjustable Rate Government Fund is authorized to issue four classes of
shares: Class A Shares, Service Shares, Institutional Shares and Administration
Shares. Additional series may be added in the future from time to time.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Investment Adviser to
Short Duration Tax-Free Fund, Government Income Fund, Municipal Income Fund,
Core Fixed Income Fund and High Yield Fund. Goldman Sachs Asset Management
International ("GSAMI"), an affiliate of Goldman Sachs, serves as Investment
Adviser to the Global Income Fund. Goldman Sachs Funds Management, L.P.
("GSFM"), an affiliate of Goldman Sachs, serves as the Investment Adviser to
Adjustable Rate Government Fund and Short Duration Government Fund. GSAM, GSAMI
and GSFM are each sometimes referred to herein as the "Investment Adviser" and
collectively herein as the "Investment 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-4
<PAGE>
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectuses. See the
Prospectuses 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.
INVESTMENT OBJECTIVES AND POLICIES
ADJUSTABLE RATE GOVERNMENT FUND AND SHORT DURATION GOVERNMENT FUND
Adjustable Rate Government Fund and Short Duration Government Fund are both
designed for investors who seek a high level of current income, relative
stability of principal and the high credit quality of securities issued or
guaranteed by the U.S. government, 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 Government and Short Duration Government Funds 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 Government and Short Duration
-------------------
Government Funds seek a higher current yield than that offered by money market
funds or 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. The Adjustable Rate and Short
Duration Government Funds each seek to provide such high current income without
sacrificing credit quality.
Relative Low Volatility of Principal. Adjustable Rate Government 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, 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
B-5
<PAGE>
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
Government 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, 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.
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
B-6
<PAGE>
analyze yield spreads, implied volatility and the shape of the yield curve. In
planning the Government Income Fund's portfolio investment strategies, the
Investment Adviser is able to draw upon the economic and fixed-income research
resources of Goldman Sachs. The Investment 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 in making market timing decisions, the Investment
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.
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;
B-7
<PAGE>
. 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 Fixed Income Fund
Core Fixed Income 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 (the "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 Fixed Income 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.
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 by a nationally recognized statistical ratings organization
("NRSRO"). 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
or such information and has no liability to any person for any loss arising from
results obtained from the use of the Index data.
Core Fixed Income Fund's overall returns are generally likely to move in
the opposite direction from interest rates. Therefore, when interest rates
decline, Core Fixed Income
B-8
<PAGE>
Fund's return is likely to increase. Conversely, when interest rates increase,
Core Fixed Income Fund's return is likely to decline. However, the Investment
Adviser believes that, given the flexibility of managers to invest in a
diversified portfolio of securities, Core Fixed Income 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 Fixed Income Fund than from shorter-term
investments.
A number of investment strategies will be used to achieve the Core Fixed
Income 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. 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 Investment Adviser will usually 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 Fixed Income 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 Fixed Income 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 Fixed Income Fund's portfolio investment
strategies, the Investment Adviser is able to draw upon the economic and fixed-
income research resources of Goldman Sachs. The Investment 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 Fixed Income Fund's investment portfolio. In determining Core
Fixed Income Fund's investment strategy and making market timing decisions, the
Investment Adviser will have access to input from Goldman Sachs' economists,
fixed-income analysts and mortgage specialists.
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
B-9
<PAGE>
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
managers 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 Investment 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 Investment 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 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.
B-10
<PAGE>
HIGH YIELD FUND
High Yield Fund's Investment Process. A number of investment strategies
-------------------------------------
are used to seek to achieve the Fund's investment objective, including market
sector selection, determination of yield curve exposure, and issuer selection.
In addition, the Investment Adviser will attempt to take advantage of pricing
inefficiencies in the fixed-income markets. GSAM starts the investment process
with economic analysis based on research generated by the Goldman Sachs Global
Economic Research Group and others to determine broad growth trends, industry-
specific events and market forecasts. The market value of non-investment grade
fixed income securities tends to reflect individual developments within a
company to a greater extent than higher rated corporate debt or Treasury bonds
that react primarily to fluctuations in interest rates. Therefore, determining
the creditworthiness of issuers is critical. To that end, the High Yield Fund's
portfolio managers have access to Goldman, Sachs & Co.'s highly regarded Credit
Research and Global Investment Research Departments, as well as analysis from
the firm's High Yield Research Group, a dedicated group of 14 professionals in
the high yield and emerging market corporate bond research area, consisting of
industry and regional market specialists. In addition, the Fund's portfolio
managers may review the opinions of the two largest independent credit rating
agencies, Standard & Poor's Ratings Group and Moody's Investors Services, Inc.
High Yield Fund's portfolio managers and credit analysts also conduct their own
in-depth analysis of each issue considered for inclusion in the Fund's
portfolio. The portfolio managers and credit analysts evaluate such factors as
a company's competitive position, the strength of its balance sheet, its ability
to withstand economic downturns and its potential to generate ample cash flow to
service its debt. The ability to analyze accurately a company's future cash flow
by correctly anticipating the impact of economic, industry-wide and specific
events are critical to successful high yield investing. GSAM's goal is to
identify companies with the potential to strengthen their balance sheets by
increasing their earnings, reducing their debt or effecting a turnaround. GSAM
analyzes trends in a company's debt picture (i.e., the level of its interest
coverage) as well as new developments in its capital structure on an ongoing
basis. GSAM believes that this constant reassessment is more valuable than
relying on a "snapshot" view of a company's ability to service debt at one or
two points in time.
High Yield Fund's portfolio is diversified among different sectors and
industries on a global basis in an effort to reduce overall risk. While GSAM
will avoid excessive concentration in any one industry, the Fund's specific
industry weightings are the result of individual security selection. Emerging
market debt considered for the High Yield Fund's portfolio will be selected by
specialists knowledgeable about the political and economic structure of those
economies.
Return on and Risks of High Yield Securities. Over the past decade, high
---------------------------------------------
yield bonds have delivered consistently higher yields and total return (and
higher volatility) than either investment grade corporate bonds or U.S. Treasury
bonds. However, because these non-investment grade securities involve higher
risks in return for higher income, they are best suited to long-term investors
who are financially secure enough to withstand volatility and the risks
associated with such investments. See "Other Investments and Practices."
Different types of fixed income securities may react differently to changes in
the economy. High yield bonds, like stocks, tend to perform best when the
economy is strong, inflation is low and companies
B-11
<PAGE>
experience healthy profits, which can lead to higher stock prices and higher
credit ratings. Government bonds are likely to appreciate more in a weaker
economy when interest rates are declining. In certain types of markets, adding
some diversification in the high yield asset class may help to increase returns
and decrease overall portfolio risk.
For high yield, non-investment grade securities, as for most investments,
there is a direct relationship between risk and return. Along with their
potential to deliver higher yields and greater capital appreciation than most
other types of fixed income securities, high yield securities are subject to
higher risk of loss, greater volatility and are considered speculative by
traditional investment standards. The most significant risk associated with
high yield securities is credit risk: the risk that the company issuing a high
yield security may have difficulty in meeting its principal and/or interest
payments on a timely basis. As a result, extensive credit research and
diversification are essential factors in managing risk in the high yield arena.
To a lesser extent, high yield bonds are also subject to interest rate risk:
when interest rates increase, the value of fixed income securities tends to
decline.
OTHER INVESTMENT OBJECTIVES 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) right of the issuer to
borrow from the Treasury (such as securities of Federal Home Loan Banks), (b)
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 (c) 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 regarded as illiquid.
Each Fund may also purchase U.S. Government
B-12
<PAGE>
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 invest in custodial receipts in respect of securities issued
or guaranteed as to principal and interest by the U.S. government, its agencies
instrumentalities, political subdivisions or authorities. Such custodial
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued or guaranteed as to principal and interest
by the U.S. government, its agencies, instrumentalities, political subdivisions
or authorities. 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, Short Duration Government, Core Fixed Income Global
Income, High Yield and Government Income Funds (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, if a Fund purchases Mortgaged Backed Securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases Mortgage-
Backed Securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent
B-13
<PAGE>
that a Fund invests in Mortgage-Backed securities, its Investment Adviser may
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. 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.
Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. ARMs also have the risk of prepayments. 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 resulting in lower
yields to a Fund. 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 more slowly. As with fixed-rate mortgages, ARM prepayment rates
vary in both stable and changing interest rate environments. 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.
B-14
<PAGE>
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury bill rate,
the 180-day Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate, 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.
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
B-15
<PAGE>
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 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. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guarantee, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
Fannie Mae Certificates. Fannie Mae is a stockholder-owned corporation
-----------------------
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool")
B-16
<PAGE>
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 participation in mortgage loans (a "Freddie Mac
Certificate group") purchased by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled
principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.
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,
B-17
<PAGE>
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 both
--------------------------------
government guaranteed and privately issued 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 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.
These securities may be issued by U.S. government agencies and instrumentalities
such as Fannie Mae or sponsored enterprises
B-18
<PAGE>
such as Freddie Mac or, in the case of Core Fixed Income, 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.
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 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.
B-19
<PAGE>
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments
of the Mortgage Assets are then required to be applied to one or more other
classes of the Certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to
create PAC tranches, one or more tranches generally must be created that absorb
most of the volatility in the underlying Mortgage Assets. These tranches tend to
have market prices and yields that are much more volatile than other PAC
classes.
Stripped Mortgage-Backed Securities. The Taxable Funds may invest in
-----------------------------------
Stripped Mortgage-Backed Securities ("SMBS"), which are derivative multiclass
mortgage securities, issued or guaranteed by the U.S. government, its agencies
or instrumentalities. Core Fixed Income, Government Income Fund and Global
Income 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 Investment 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. 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. A Fund's
investment in SMBS may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.
B-20
<PAGE>
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES
Privately issued Mortgage-Backed Securities are generally backed by pools
of conventional (i.e., non-government guaranteed or insured) mortgage
loans.
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
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-21
<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 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.
B-22
<PAGE>
ASSET-BACKED SECURITIES
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Core Fixed Income, Government Income, High Yield and Global Income Funds
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. To the extent that a Fund
invests in asset-backed securities, the values of such Fund's portfolio
securities will vary with changes in market interest rates generally and the
differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional 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. 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, but 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.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be
to issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a
B-23
<PAGE>
loan agreement. One of the co-lenders usually agrees to act as the agent bank
with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form
of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or
a participation in the seller's share of the loan. When the High Yield Fund
acts as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay scheduled
principal and interest. In cases where the High Yield Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit remedies
against the borrower. In these cases, the High Yield Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. For example, in the event of the bankruptcy or
insolvency of the corporate borrower, a loan participation may be subject to
certain defenses by the borrower as a result of improper conduct by the agent
bank. Moreover, under the terms of the loan participation, the High Yield Fund
may be regarded as a creditor of the agent bank (rather than of the underlying
corporate borrower), so that the High Yield Fund may also be subject to the risk
that the agent bank may become insolvent. The secondary market, if any, for
these loan participations is limited and any loan participations purchased by
the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to
diversification of the High Yield Fund's portfolio investments, the issuer of a
loan participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured securities may provide that in certain circumstances no
principal is due at maturity and, therefore, result in the loss of a Fund's
investment. Structured securities may be positively or negatively indexed, so
that appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in the
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
B-24
<PAGE>
Each Fund may invest in zero coupon bonds, deferred interest and capital
appreciation bonds and pay-in-kind ("PIK") securities. 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, capital appreciation bonds and PIK securities
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.
PIK securities may be debt obligations or preferred shares that provide the
issuer with the option of paying interest or dividends on such obligations in
cash or in the form of additional securities rather than cash. Similar to zero
coupon bonds and deferred interest bonds, PIK securities are designed to give an
issuer flexibility in managing cash flow. PIK securities that are debt
securities can either be senior or subordinated debt and generally trade flat
(i.e., without accrued interest). The trading price of PIK debt securities
generally reflects the market value of the underlying debt plus an amount
representing accrued interest since the last interest payment.
Zero coupon, deferred interest, capital appreciation and PIK 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. A portion of the discount with respect to stripped tax-exempt
securities or their coupons may be taxable. 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
B-25
<PAGE>
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.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations, may
not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of the
preferred stock. Often, however, on the occurrence of any such event of default
or non-compliance by the issuer, preferred stockholders will be entitled to gain
representation on the issuer's board of directors or increase their existing
board representation. In addition, preferred stockholders may be granted voting
rights with respect to certain issues on the occurrence of any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
CORPORATE DEBT OBLIGATIONS
Core Fixed Income, Global Income, Government Income and High Yield Funds
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.
Fixed income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capacity to pay interest and
repay principal. Medium to lower rated and comparable non-rated securities tend
to offer higher yields than higher rated securities with the
B-26
<PAGE>
same maturities because the historical financial condition of the issuers of
such securities may not have been as strong as that of other issuers. Since
medium to lower rated securities generally involve greater risks of loss of
income and principal than higher rated securities, investors should consider
carefully the relative risks associated with investment in securities which
carry medium to lower ratings and in comparable unrated securities. In addition
to the risk of default, there are the related costs of recovery on defaulted
issues. The Funds' Investment Advisers will attempt to reduce these risks
through portfolio diversification and by analysis of each issuer and its ability
to make timely payments of income and principal, as well as broad economic
trends and corporate developments.
TRUST PREFERREDS. The Government Income, Core Fixed Income, Global Income
----------------
and High Yield Funds may invest in trust preferred securities. A trust
preferred or capital security is a long dated bond (for example 30 years) with
preferred features. The preferred features are that payment of interest can be
deferred for a specified period without initiating a default event. From a
bondholder's viewpoint, the securities are senior in claim to standard preferred
but are junior to other bondholders. From the issuer's viewpoint, the
securities are attractive because their interest is deductible for tax purposes
like other types of debt instruments.
HIGH YIELD SECURITIES. Bonds rated BB or below by Standard & Poor's
---------------------
Ratings Group ("Standard & Poor's") or Ba or below by Moody's Investor Service,
Inc. ("Moody's") (or comparable rated and unrated securities) are commonly
referred to as "junk bonds" and are considered speculative, and the ability of
their issuers to make principal and interest payments may be questionable. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such bonds will entail greater risks than those associated with investment
grade bonds (i.e., bonds rated AAA, AA, A or BBB by Standard and Poor's or Aaa,
Aa, A or Baa by Moody's). Analysis of the creditworthiness of issuers of high
yield securities may be more complex than for issuers of higher quality debt
securities, and the ability of a Fund to achieve its investment objective may,
to the extent of its investments in high yield securities, be more dependent
upon such creditworthiness analysis than would be the case if the Fund were
investing in higher quality securities. See Appendix B for a description of the
corporate bond and preferred stock ratings by Standard & Poor's, Moody's, Fitch
IBCA, Inc. and Duff & Phelps.
The amount of high yield, fixed-income securities proliferated in the 1980s
and early 1990s as a result of increased merger and acquisition and leveraged
buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest.
The market values of high yield, fixed-income securities tends to reflect
those individual corporate developments to a greater extent than do those of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Issuers of such high yield securities may not be able
to make use of more traditional methods of financing and their ability to
service debt obligations may be more adversely affected than issuers of higher
rated securities
B-27
<PAGE>
by economic downturns, specific corporate developments or the issuers' inability
to meet specific projected business forecasts. These non-investment grade
securities also tend to be more sensitive to economic conditions than higher-
rated securities. Negative publicity about the junk bond market and investor
perceptions regarding lower-rated securities, whether or not based on
fundamental analysis, may depress the prices for such securities.
Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which High Yield Fund
invests, the yields and prices of such securities may tend to fluctuate more
than those for higher-rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the High Yield Fund's net asset value.
The risk of loss from default for the holders of high yield, fixed-income
securities is significantly greater than is the case for holders of other debt
securities because such high yield Fixed-Income securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by the High Yield Fund in already
defaulted securities poses an additional risk of loss should nonpayment of
principal and interest continue in respect of such securities. Even if such
securities are held to maturity, recovery by the High Yield Fund of its initial
investment and any anticipated income or appreciation is uncertain. The High
Yield Fund may be required to liquidate other portfolio securities to satisfy
the High Yield Fund's annual distribution obligations in respect of accrued
interest income on securities which are subsequently written off, even though
the High Yield Fund has not received any cash payments of such interest. The
Investment Adviser employs its own credit research and analysis, which includes
a study of existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to dispose
of or to retain non-investment grade and comparable unrated securities whose
credit ratings or credit quality may have changed.
The secondary market for high yield, fixed-income securities is
concentrated in relatively few markets and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as and is more volatile than the secondary market for higher-rated
securities. In addition, the trading volume for high-yield, fixed-income
securities is generally lower than that of higher rated securities and the
secondary market for high yield, fixed-income securities could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
B-28
<PAGE>
adverse effect on the High Yield Fund's ability to dispose of particular
portfolio investments. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating the High Yield Fund's net asset value. A less liquid secondary
market also may make it more difficult for the High Yield Fund to obtain precise
valuations of the high yield securities in its portfolio.
Certain proposed and recently enacted federal laws could adversely affect
the secondary market for high yield securities and the financial condition of
issuers of these securities. The form of proposed legislation and the
probability of such legislation being enacted is uncertain.
Non-investment grade or high-yield, fixed-income securities also present
risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the issuer to call
or repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, the High Yield Fund may have to replace such
security with a lower-yielding security, resulting in a decreased return for
investors. In addition, if the High Yield Fund experiences unexpected net
redemptions of the High Yield Fund's shares, it may be forced to sell its
higher-rated securities, resulting in a decline in the overall credit quality of
the High Yield Fund's portfolio and increasing the exposure of the High Yield
Fund to the risks of high yield securities. The High Yield Fund may also incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on a portfolio security.
Credit ratings issued by credit rating agencies are designed to evaluate
the safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in non-investment
grade and comparable unrated obligations will be more dependent on the
Investment Adviser's credit analysis than would be the case with investments in
investment-grade debt obligations. The Investment Adviser employs its own
credit research and analysis, which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Investment Adviser continually monitors the investments in the
High Yield Fund's portfolio and evaluates whether to dispose of or to retain
non-investment grade and comparable unrated securities whose credit ratings or
credit quality may have changed.
BANK OBLIGATIONS
Government Income, Global Income, High Yield and Core Fixed Income Funds
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.
B-29
<PAGE>
Banks are subject to extensive 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
generally permitted to engage in a wider variety of 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 Fixed Income, Municipal Income, High Yield and Short Duration Tax-Free
Funds may invest in bonds, notes, commercial paper 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 Investment Adviser, excluded from gross income for federal
income tax purposes. The Core Fixed Income, Municipal Income, High Yield and
Short Duration Tax-Free Funds 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 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.
B-30
<PAGE>
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 Investment 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, Municipal
Income, High Yield and Core Fixed Income Funds. 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.
The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement features
available to the issuers or holders of such Municipal Securities.
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.
While the Municipal Income Fund and Short Duration Tax-Free Fund, under
normal market conditions, invest substantially all of their assets in Municipal
Securities, the recognition of certain accrued market discount income (if the
Funds acquire Municipal Securities or other obligations at a market discount),
income from investments other than Municipal Securities and any capital gains
generated from the disposition of investments, will result in taxable income.
In addition to federal income tax, shareholders may be subject to state, local
or foreign taxes on distributions of such income received from the Funds.
MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
------------------------------------------------------------------------
INTERESTS. The Core Fixed Income, High Yield, 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
B-31
<PAGE>
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. To the
extent that a Fund invests in unrated municipal leases or participates in such
leases, the credit quality rating and risk of cancellation of such unrated
leases will be monitored on an ongoing basis.
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 Investment Adviser,
pursuant to 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 Investment
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 Investment 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 Fixed Income, High Yield, 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 Investment 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
B-32
<PAGE>
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 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, Municipal Income, High
----------------------
Yield, and Core Fixed Income 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
B-33
<PAGE>
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 Core Fixed Income'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 Investment 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 Investment 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 Fixed Income, High Yield, 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 par value at
specified intervals. The dividend is reset by "Dutch" auction in which bids are
made by broker-dealers and
B-34
<PAGE>
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. A Fund
will take the time remaining until the next scheduled auction date into account
for purpose of determining the securities' duration.
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 Short Duration Tax-Free, Municipal Income, Core Fixed
---------
Income and High Yield 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 (non-
governmental) 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 Short Duration Tax-Free, Municipal Income, Core Fixed Income and High
Yield 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 or AAA from 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. 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. The Municipal Securities
invested in by the High Yield Fund will not be subject to this requirement.
B-35
<PAGE>
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 Investment Adviser understands that the Internal Revenue 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 Internal Revenue
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 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.
B-36
<PAGE>
FOREIGN INVESTMENTS
Core Fixed Income, High Yield 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, and because the Funds may
have currency exposure independent of their securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes in
foreign currency rates. 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. Investment in Foreign
Securities may offer potential benefits that are not available from investing
exclusively in U.S. dollar-denominated domestic issues. Foreign countries may
have economic policies or business cycles different from those of the U.S. and
markets for foreign fixed-income securities do not necessarily move in a manner
parallel to U.S. markets. Investments in the securities of foreign issuers
usually involve currencies of foreign countries, and since the Core Fixed
Income, High Yield and Global Income Funds may temporarily hold funds in bank
deposits in foreign currencies during completion of investment programs, such
Funds 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. To the extent that a Fund is fully
invested in Foreign Securities while also maintaining currency positions, it may
be exposed to greater combined risk. A Fund also may be subject to currency
exposure independent of its securities positions. While the Global Income 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.
Currency exchange rates may fluctuate significantly over short periods of
time. They 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 intervention by 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. A
Fund's net currency positions may expose it to risks independent of its
securities positions. In addition, if the payment declines in value against the
U.S. dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends.
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
B-37
<PAGE>
values of the underlying currencies. In addition, the Funds may invest in
securities denominated in other currency "baskets".
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, 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. Fixed
commissions on foreign securities exchanges are generally higher than negotiated
commissions on U.S. exchanges, 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 and unlisted 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
periods when a portion of the assets of Core Fixed Income, High Yield Fund or
Global Income Fund is uninvested and no return is earned on such assets. The
inability of Core Fixed Income, High Yield 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
Fixed Income, High Yield Fund or Global Income Fund due to subsequent declines
in value of the portfolio securities, or, if Core Fixed Income, High Yield 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 Fixed Income, High Yield or
Global Income Funds' 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.
INVESTING IN EMERGING COUNTRIES
MARKET CHARACTERISTICS. Debt securities of most emerging markets issuers
----------------------
may be less liquid and are generally subject to greater price volatility than
securities of issuers in the U.S. and other developed countries. The markets
for securities of emerging markets may have substantially less volume than the
market for similar securities in the U.S. and may not be able to absorb, without
price disruptions, a significant increase in trading volume or trade size.
Additionally, market making and arbitrage activities are generally less
extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The less liquid the market, the more
difficult it may be for the Fund to price accurately its portfolio
B-38
<PAGE>
securities or to dispose of such securities at the times determined to be
appropriate. The risks associated with reduced liquidity may be particularly
acute to the extent that a Fund needs cash to meet redemption requests, to pay
dividends and other distributions or to pay its expenses.
A Fund's purchase and sale of portfolio securities in certain Emerging
Countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Securities markets of emerging markets may also have less efficient
clearance and settlement procedures than U.S. markets, making it difficult to
conduct and complete transactions. Delays in the settlement could result in
temporary periods when a portion of a Fund's assets is uninvested and settlement
could result in temporary periods when a portion of the Fund's assets is
uninvested and no return is earned thereon. Inability to make intended security
purchases could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities could result either in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability of the Fund to the purchaser.
Transaction costs, including brokerage commissions and dealer mark-ups, in
emerging markets may be higher than in the U.S. and other developed securities
markets. As legal systems in emerging markets develop, foreign investors may be
adversely affected by new or amended laws and regulations. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law.
ECONOMIC, POLITICAL AND SOCIAL FACTORS. Emerging markets may be subject to
--------------------------------------
a greater degree of economic, political and social instability than the U.S.,
Japan and most Western European countries, and unanticipated political and
social developments may affect the value of a Fund's investments in emerging
markets and the availability to the Fund of additional investments in such
countries. Moreover, political and economic structures in many emerging markets
may be undergoing significant evolution and rapid development. Instability may
result from, among other things: (i) authoritarian governments or military
involvement in political and economic decision-making, including changes or
attempted changes in government through extra-constitutional means; (ii) popular
unrest associated with demands for improved economic, political and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection and conflict. Many
emerging markets have experienced in the past, and continue to experience, high
rates of inflation. In certain countries inflation has at times accelerated
rapidly to hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding financial assets in
those countries. The economies of many emerging markets are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners. In addition,
the economies of some emerging markets may differ unfavorably from the U.S.
economy in such respects as growth of gross
B-39
<PAGE>
domestic product, rate of inflation, capital reinvestment, resources, self-
sufficiency and balance of payments position.
Restrictions on Investment and Repatriation. Certain emerging markets
-------------------------------------------
require governmental approval prior to investments by foreign persons or limit
investments by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the issuer available for
purchase by nationals. Repatriation of investment income and capital from
certain emerging markets is subject to certain governmental consents. Even
where there is no outright restriction on repatriation of capital, the mechanics
of repatriation may affect the operation of a Fund.
Sovereign Debt Obligations. Investments in sovereign debt obligations
--------------------------
involves special risks not present in corporate debt obligations. The issuer of
the sovereign debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due, and
a Fund may have limited recourse in the event of a default. During periods of
economic uncertainty, the market prices of sovereign debt, and a Fund's net
asset value, may be more volatile than prices of debt obligations of U.S.
issuers. In the past, the governments of certain emerging markets have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of the third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts.
Forward Foreign Currency Exchange Contracts. Core Fixed Income, High Yield
-------------------------------------------
and Global Income Funds 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 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, High Yield Fund
and Core Fixed Income 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.
B-40
<PAGE>
Global Income, High Yield or Core Fixed Income Funds may enter into forward
foreign currency exchange contracts in several circumstances. First, when
Global Income, High Yield or Core Fixed Income enter into a contract for the
purchase or sale of a security quoted or denominated in a foreign currency, or
when Global Income, High Yield or Core Fixed Income anticipate the receipt in a
foreign currency of a dividend or interest payment on such a security which it
holds, Global Income, High Yield or Core Fixed Income 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, High Yield or Core Fixed Income will attempt to protect themselves
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 Investment 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, High Yield and Core Fixed Income Funds 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
Investment Advisers determine that there is a pattern of correlation between the
two currencies. The Global Income, High Yield and Core Fixed Income Funds may
also purchase and sell forward contracts to seek to increase total return when
the Investment Advisers anticipate 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 a Fund's
portfolio.
Global Income, High Yield and Core Fixed Income Funds' custodian will place
cash or liquid assets, into a segregated account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts requiring the Fund to purchase foreign
currencies and 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 Fund's commitments
with respect to such contracts. The segregated accounts will be marked-to-
market on a daily basis. Although the contracts are not
B-41
<PAGE>
presently regulated by the Commodity Futures Trading 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, Core Fixed Income and High Yield Funds
will not enter into a forward contract with a term of greater than one
year.
While Global Income, Core Fixed Income and High Yield Funds 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, Core
Fixed Income and High Yield Funds 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, Core Fixed Income and High Yield Funds.
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.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
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
forward foreign currency exchange contracts, currency swaps or other privately
negotiated currency instruments unless the credit quality of the unsecured
senior debt or the claims-paying ability of the counterparty is considered to be
investment grade by the Investment Adviser. 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.
INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND INTEREST
RATE CAPS, FLOORS AND COLLARS
Each Fund may enter into interest rate swaps, credit swaps, caps, floors
and collars. In addition, Core Fixed Income, Adjustable Rate, Government
Income, Short Duration Government, Global Income and High Yield Funds may enter
into mortgage swaps; and Core Fixed Income, High Yield and Global Income Funds
may enter into currency swaps. Each Fund may enter into swap transactions for
hedging purposes or 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.
B-42
<PAGE>
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. Credit swaps involve the
receipt of floating or fixed rate payments in exchange for assuming potential
credit losses of an underlying security. Credit swaps give one party to a
transaction the right to dispose of or acquire an asset (or group of assets), or
the right to receive or make a payment from the other party, upon the occurrence
of specified credit events. 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, credit 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. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and their
Investment Advisers believe that transactions do not constitute senior
securities under the Act and, accordingly, will not treat them as being subject
to a Fund's borrowing restrictions.
The Funds will not enter into any interest rate, mortgage or credit 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. The Core
Fixed Income, Global Income and High Yield Funds will not enter into any
currency swap transactions unless the unsecured commercial paper, senior debt or
claimspaying ability of the other party thereto is rated investment grade by S&P
or Moody's, or, if unrated by such rating organization, determined to be of
comparable quality by the Investment Adviser. 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.
B-43
<PAGE>
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 Investment Advisers, under the supervision of the Board of Trustees, are
responsible for determining and monitoring the liquidity of the Funds'
transactions in swaps, caps, floors and collars.
The use of interest rate, mortgage, credit 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 Investment 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 such 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 such Fund will own the securities subject to the
option so long as the option is outstanding or such Fund will use the other
methods described below. The Fund's purpose in writing covered call options is
to realize greater income than would be realized on portfolio securities
transactions alone. However, 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. All put options written by a
Fund would be covered, which means that such Fund would have deposited with its
custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
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 assets, as
permitted by applicable law, either of which, in the case of Global Income Fund,
Core Fixed Income or High Yield Fund, may be quoted or denominated in any
currency, in a segregated account 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
B-44
<PAGE>
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 assets, as permitted
by applicable law, with a value equal to the exercise price in a segregated
account with their custodian or by using the other methods described above.
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.
Purchasing Options. Each Fund may also purchase put and call options on
------------------
any securities in which it may invest or options on any securities index
composed of securities in which it may invest. A Fund would also be able to
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 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
B-45
<PAGE>
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 Investment 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 Fixed Income,
----------------------------------------------------
Global Income and High Yield Funds 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 U.S. dollar value of foreign portfolio securities and
against increases in the U.S. dollar cost of foreign securities to be acquired.
Global Income, Core Fixed Income and High Yield Funds may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to seek to hedge against changes in exchange rates for a different
currency with a pattern of correlation. 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,
Global Income, Fixed Income and High Yield Funds may purchase call options on
currency to seek to increase total return when the Investment Advisers
anticipate 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 the Fund's portfolios.
B-46
<PAGE>
A call option written by Core Fixed Income, Global Income and High Yield
Funds 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 Fixed Income, Global Income and High Yield Funds 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 Fixed Income, Global Income and High Yield Funds 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 Fixed
Income, Global Income and High Yield Funds, 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 be offset by countervailing changes in the value of underlying
currency.
In addition to using options for the hedging purposes described above, Core
Fixed Income, Global Income and High Yield Funds may use options on currency to
seek to increase total return. Global Income, High Yield and Core Fixed Income
Funds 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, High Yield and Core Fixed Income Funds may forego the
opportunity to profit from an increase in the market value of the underlying
currency. Also, when writing put options, Global Income, High Yield and Core
Fixed Income Funds accept, 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.
B-47
<PAGE>
Global Income, High Yield and Core Fixed Income Funds 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, High Yield and Core
Fixed Income Funds 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, High Yield and Core Fixed
Income Funds would realize either no gain or a loss on the purchase of the call
option. Put options may be purchased by the Global Income, High Yield and Core
Fixed Income Funds for the purpose of benefiting from a decline in the value of
currencies which it does not own. Global Income, High Yield and Core Fixed
Income Funds 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,
High Yield and Core Fixed Income Funds would realize either no gain or a loss on
the purchase of the put option.
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. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
Yield Curve Options. Each Fund may enter into options on the yield
-------------------
"spread" or differential between two securities. Such transactions 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.
A Fund may purchase or write yield curve options 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 the Fund 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 in an effort to increase current income
if, in the judgment of the Investment 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 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.
B-48
<PAGE>
Yield curve options written by a Fund will be "covered." A call (or put)
option is covered if the Fund holds another call (or put) option on the spread
between the same two securities and maintains in a segregated account with its
custodian cash or liquid assets 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
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 will have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening 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 may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by a Fund in options on securities and 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 of 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 or the
B-49
<PAGE>
Funds' Investment 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.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the applicable Investment Adviser's
ability to predict future price fluctuations and the degree of correlation
between the options and securities markets.
Futures Contracts and Options on Futures Contracts
To seek to increase total return or to hedge against changes in interest
rates or securities prices or, in the case of Core Fixed Income, High Yield 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 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, Core Fixed Income and High Yield Funds 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 Fixed Income, Global
Income and High Yield Funds may each seek to offset anticipated changes in the
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
B-50
<PAGE>
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 to seek 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 Fixed Income, High Yield 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 seek to hedge against fluctuations in the
value of securities denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the Investment Advisers, 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 Funds 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 Investment 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, 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
B-51
<PAGE>
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 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 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.
In addition to the bona fide hedging definition, a CFTC regulation permits
the Funds to engage in other futures transactions if the aggregate initial
margin and premiums required to establish such positions in futures contracts
and options on futures do 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
B-52
<PAGE>
cash or liquid assets, as permitted by applicable law, 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. The profitability of a
Fund's trading in futures to seek to increase total return depends upon the
ability of the Investment Adviser to analyze correctly the futures markets.
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 to hedge a Fund's portfolio are various futures on
U.S. Government Securities, securities indices and foreign currencies. 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.
MORTGAGE DOLLAR ROLLS
The Taxable Funds (other than High Yield Fund) 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 assets, as permitted by applicable law,
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.
B-53
<PAGE>
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
Investment 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 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 rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock.
Unlike debt securities, the obligations of an issuer of preferred stock,
including dividend and other payment obligations, may not typically be
accelerated by the holders of preferred stock on the occurrence of an event of
default (such as a covenant default or filing of a bankruptcy petition) or other
non-compliance by the issuer with the terms of the preferred stock. Often,
however, on the occurrence of any such event of default or non-compliance by the
issuer, preferred stockholders will be entitled to gain representation on the
issuer's board of directors or increase their existing board representation. In
addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
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 at an amount at least equal to the market value of the securities
loaned. A Fund would be required to have 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 would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive 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
B-54
<PAGE>
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
applicable Investment Adviser to be of good standing, and when, in the judgment
of the applicable Investment Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If an
Investment Adviser determines to make securities loans, it is intended that the
value of the securities loaned would not exceed one-third of the value of the
total assets of each Fund.
Restricted and Illiquid Securities
Each Fund may purchase securities that are not registered or are 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 include repurchase agreements maturing in more than seven
days, 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 Investment Advisers the daily function of
determining and monitoring the liquidity of the Funds' portfolio securities.
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 may
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction make 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 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 may also sell securities it has
committed to purchase before those securities are delivered to the Fund on the
settlement date. The Funds may also
B-55
<PAGE>
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 and liquid assets in
an amount sufficient to meet the purchase price. Alternatively, each Fund may
enter into offsetting contracts for the forward sale of other securities that it
owns. 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 5% of its net 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 Investment
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 Investment Adviser or any of
its affiliates acts as Investment Adviser, the management fees payable by the
Fund to the Investment Adviser will be reduced by an amount equal to the Fund's
proportionate share of the management fees paid by such money market fund to the
Investment Adviser or its affiliates.
The Core Fixed Income, High Yield and Global Income Funds may also purchase
shares of investment companies investing primarily in foreign securities,
including "country funds." Country Funds have portfolios consisting primarily
of securities of issuers located in one foreign country or region. The Core
Fixed Income, High Yield and Global Income Funds may invest in World Equity
Benchmark Shares ("WEB") and similar securities that invest in securities
included in foreign securities indices.
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 is 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.
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
B-56
<PAGE>
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 Investment 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. The Trustees have reviewed and approved certain
counterparties whom they believe to be creditworthy and have authorized the
Funds to enter into repurchase agreements with such counterparties. 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 management agreements with the Investment 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.
REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow money for investment purposes by entering into
transactions called reverse repurchase agreements. Under these arrangements, a
Fund will sell portfolio securities to dealers in U.S. Government Securities or
members of the Federal Reserve System, with an agreement to repurchase the
security on an agreed date, price and interest payment. The Core Fixed Income,
Global Income and High Yield Funds may also enter into reverse repurchase
agreements involving certain foreign government securities. Reverse repurchase
agreements involve the possible risk that the value of portfolio securities a
Fund relinquishes may decline below the price a Fund must pay when the
transaction closes. Borrowings may magnify the potential for gain or loss on
amounts invested resulting in an increase in the speculative character of a
Fund's outstanding shares.
When a Fund enters into a reverse repurchase agreement, it places in a
separate custodial account either liquid assets or other high grade debt
securities that have a value equal to or greater than the repurchase price. The
account is then continuously monitored by the Investment
B-57
<PAGE>
Adviser to make sure that an appropriate value is maintained. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act.
NON-DIVERSIFIED STATUS
Since the Global Income Fund is "non-diversified" under the 1940 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.
B-58
<PAGE>
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.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority as defined in the Act of the outstanding voting securities
of the affected 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 Municipal Securities, are considered by the
Trust not to be fundamental and accordingly may be changed without shareholder
approval. See Principal Investment Securities and Techniques 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
Trust or a Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Trust or a Fund are present or represented by proxy
or, (b) more than 50% of the shares of the Trust or a Fund.
For the purposes of the limitations (except for the 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 Investment 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, A FUND MAY NOT:
(1) make any investment inconsistent with the Fund's classification as a
diversified company under the Act. This restriction does not,
however, apply to any Fund classified as a non-diversified company
under the Act.
(2) invest more than 25% of its total assets in the securities of one or
more issuers conducting their principal business activities in the
same industry (excluding the U.S. government or its agencies or
instrumentalities). (For the purposes of this restriction, state and
municipal governments and their agencies, authorities and
instrumentalities are not deemed to be industries; 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
B-59
<PAGE>
related to financing the activities of their parents). This
restriction does not apply to investments in municipal securities
which have been pre-refunded by the use of obligations of the U.S.
Government or any of its agencies or instrumentalities. Each of the
Municipal Income and Short Duration Tax-Free Funds 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. These municipal securities
include (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 and (c) industrial development obligations;
(3) borrow money, except (a) the Fund may borrow from banks (as defined
in the Act) or through reverse repurchase agreements in amounts up
to 33 1/3% of its total assets (including the amount borrowed), (b)
the Fund may, to the extent permitted by applicable law borrow up to
an additional 5% of its total assets for temporary purposes, (c) the
Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities, (d) the
Fund may purchase securities on margin to the extent permitted by
applicable law and (e) the Fund may engage in transactions in
mortgage dollar rolls which are accounted for as financings;
(4) make loans, except through (a) the purchase of debt obligations 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 as permitted by
applicable law;
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be an
underwriting;
(6)(a) for each Fund other than Core Fixed Income, purchase, hold or deal
in real estate, although a Fund may purchase and sell securities
that are secured by real estate or interests therein, securities of
real estate investment trusts and mortgage-related securities and
may hold and sell real estate acquired by a Fund as a result of the
ownership of securities;
(6)(b) in the case of the Core Fixed Income, 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;
B-60
<PAGE>
(7) invest in commodities or commodity contracts, except that the Fund
may invest in currency and financial instruments and contracts that
are commodities or commodity contracts; and
(8) issue senior securities to the extent such issuance would violate
applicable law.
Notwithstanding any other fundamental investment restriction or policy,
each Fund may invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same fundamental investment
objective, restrictions and policies as the Fund.
In addition, to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of Shareholders.
A Fund may not:
(1) Invest in companies for the purpose of exercising control or
management.
(2) Invest more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements maturing in 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.
(3) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(4) Make short sales of securities, except short sales against the box.
MANAGEMENT
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
B-61
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Ashok N. Bakhru, 56 Chairman Chairman of the Board and
1325 Ave. of the Americas & Trustee Trustee--Goldman Sachs Variable
New York, NY 10019 Insurance Trust (registered investment
company) (since 1997); Executive Vice
President Finance and Administration
and Chief Financial Officer, Coty Inc.
(since April 1996); President, ABN
Associates (July 1994-March 1996);
Senior Vice President of Scott Paper
Company (until June 1994); Director of
Arkwright Mutual Insurance Company
(1994-Present); Trustee of International
House of Philadelphia (1989-Present);
Member of Cornell University Council
(1992-Present); Trustee of the Walnut
Street Theater (1992-Present).
*David B. Ford, 52 Trustee Trustee-Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Director, Commodities
Corp. LLC (since April 1997); Managing
Director, J. Aron & Company (since
November 1996); Managing Director,
Goldman, Sachs & Co. Investment Banking
Division (since November 1996);
Director, CIN Management (investment
adviser) (since August 1996); Chief
Executive Officer & Managing Director
and Director, Goldman Sachs Asset
Management International (since November
1995 and December 1994, respectively);
Co-Head, Goldman, Sachs & Co. Asset
Management Division (since November
1995); Co-Head and Director, Goldman
Sachs Funds Management Inc. (since
November 1995 and December 1994,
respectively); Chairman and Director,
Goldman Sachs Asset Management Japan
Limited (since November 1994).
</TABLE>
B-62
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Douglas C. Grip, 36 Trustee Managing Director, Goldman, Sachs & Co.
One New York Plaza & President Asset Management Division (since
New York, NY 10004 November 1997); Trustee and
President--Goldman Sachs Variable
Insurance Trust (registered investment
company) (since 1997); President,
Goldman Sachs Fund Group(since April
1996); President, MFS Retirement
Services Inc., of Massachusetts
Financial Services (prior thereto).
*John P. McNulty, 46 Trustee Trustee-Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Managing Director, Goldman
Sachs (since 1996); General Partner, J.
Aron & Company (since November 1995);
Director and Co-Head, Goldman Sachs
Funds Management Inc. (since November
1995); Director, Goldman Sachs Asset
Management International (since January
1996); Director, Global Capital
Reinsurance (since 1989); Director,
Commodities Corp. LLC (since April
1997); Limited Partner of Goldman, Sachs
& Co.(1994 - November 1995).
</TABLE>
B-63
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Mary P. McPherson, 63 Trustee Trustee-Goldman Sachs Variable Insurance
The Andrew W. Mellon Foundation Trust (registered investment company)
140 East 62nd Street (since 1997); Vice President and Senior
New York, NY 10021 Program Officer, The Andrew W. Mellon
Foundation (since October 1997);
President Emeritus of Bryn Mawr College
(1978-1997); Director of Josiah Macy,
Jr. Foundation (since 1977); Director of
the Philadelphia Contributionship (since
1985); Director of Amherst College
(since 1986); Director of Dayton Hudson
Corporation (1988-1997); Director of the
Spenser Foundation (since 1993); and
member of PNC Advisory Board (since
1993).
*Alan A. Shuch, 49 Trustee Trustee-Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Limited Partner, Goldman,
Sachs & Co.(since 1994); Consultant to
Goldman Sachs Asset Management (since
1994); Director, Chief Operating Officer
and Vice President of Goldman Sachs
Funds Management, Inc. (from November
1993 - November 1994); President and
Chief Operating Officer, GSAM Japan
Limited (November 1993 November 1994);
Director, Goldman Sachs Asset Management
International (November 1993 - November
1994); General Partner, Goldman, Sachs &
Co. Investment Banking (December 1986
November 1994).
</TABLE>
B-64
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Jackson W. Smart, Jr. 68 Trustee Trustee-Goldman Sachs Variable Insurance
One Northfield Plaza Suite 218 Trust (registered investment company)
Northfield, IL 60093 (since 1997); 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) (November 1988 December
1997); Director, Federal Express
Corporation (NYSE) (since 1976);
Director, Evanston Hospital Corporation
(since 1980).
William H. Springer, 69 Trustee Director, Walgreen Co. (a retail drug
701 Morningside Drive store business) (since April 1998);
Lake Forest, IL 60045 Trustee-Goldman Sachs Variable Insurance
Trust (registered investment company)
(since 1997); Director of Baker,
Fentress & Co. (a closed-end,
non-diversified management investment
company) (April 1992 - present);
Trustee, Northern Institutional Funds
(since April 1984).
Richard P. Strubel, 59 Trustee Trustee-Goldman Sachs Variable Insurance
737 N. Michigan Ave., Suite 1405 Trust (registered investment company)
Chicago, IL 60611 (since 1997); Director of Kaynar
Technologies Inc. (since March 1997);
Managing Director, Tandem Partners,
Inc. (since 1990); President and Chief
Executive Officer, Microdot, Inc. (a
diversified manufacturer of fastening
systems and connectors) (January 1984
October 1994); Trustee, Northern
Institutional Funds (since December
1982).
</TABLE>
B-65
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
*Nancy L. Mucker, 49 Vice President Vice President-Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President,
Goldman, Sachs & Co. (since April 1985);
Co-Manager of Shareholder Servicing of
GSAM (since November 1989).
*John M. Perlowski, 34 Treasurer Treasurer-Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Vice President,
Goldman, Sachs & Co. Incorporated (since
July 1995); Director, Investors Bank and
Trust (November 1993 - July 1995).
*James A. Fitzpatrick, 38 Vice President Vice President-Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President of
Goldman Sachs Asset Management (since
April 1997); Vice President and General
Manager, First Data Corporation -
Investor Services Group (prior thereto).
*Jesse Cole, 35 Vice President Vice President, GSAM (June 1998 to
4900 Sears Tower Present); Vice President-Goldman Sachs
Chicago, IL 60606 Variable Insurance Trust (registered
investment company) (since 1998); Vice
President, AIM Management Group, Inc.
(investment advisor) (April 1996-June
1998); Assistant Vice President, The
Northern Trust Company (June 1987-April
1996)
*Philip V. Giuca, Jr., 36 Assistant Treasurer Assistant Treasurer-Goldman Sachs
10 Hanover Square Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Vice
President, Goldman, Sachs & Co. (May
1992-Present); Tax Accountant, Goldman,
Sachs & Co. (December 1990-May 1992).
</TABLE>
B-66
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -------------------
<S> <C> <C>
*Anne Marcel, 40 Vice President Vice President, GSAM (June
4900 Sears Tower 1998-Present); Vice President-Goldman
Chicago, IL 60606 Sachs Variable Insurance Trust
(registered investment company) (since
1998); Vice President, Stein Roe &
Farnham, Inc. (October 1992-June 1998).
*Michael J. Richman, 38 Secretary Secretary-Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); General Counsel
of the Funds Group of Goldman Sachs
Asset Management (since December 1997);
Associate General Counsel of Goldman
Sachs Asset Management (February 1994 -
December 1997); Vice President and
Assistant General Counsel of Goldman,
Sachs & Co. (since June 1992); Counsel
to the Funds Group, GSAM (June 1992
December 1997); Partner, Hale and Dorr
(September 1991 - June 1992).
*Howard B. Surloff, 33 Assistant Secretary Assistant Secretary-Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Associate General
Counsel to the Funds Group (since
December 1997); Assistant General
Counsel and Vice President, Goldman,
Sachs & Co.(since November 1993 and May
1994, respectively); Counsel to the
Funds Group, Goldman Sachs Asset
Management (November 1993 - December
1997); Associate of Shereff, Friedman,
Hoffman & Goodman (prior thereto).
</TABLE>
B-67
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- ----------------------
<S> <C> <C>
*Valerie A. Zondorak, 32 Assistant Secretary Assistant Secretary-Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Assistant General
Counsel to the Funds Group (since
December 1997); Vice President and
Assistant General Counsel, Goldman,
Sachs & Co.(since March 1997 and
December 1997, respectively); Counsel to
the Funds Group, Goldman Sachs Asset
Management (March 1997 - December 1997);
Associate of Shereff, Friedman, Hoffman
& Goodman (prior thereto).
*Steven E. Hartstein, 35 Assistant Secretary Associate, Goldman, Sachs & Co.
85 Broad Street (December 1998-present); Assistant
New York, NY 10004 Secretary-Goldman Sachs Variable
Insurance Trust (registered investment
company) (since 1997); Legal Products
Analyst, Goldman, Sachs & Co.
(June 1993-December 1998).
*Deborah A. Farrell, 27 Assistant Secretary Assistant Secretary-Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Legal
Assistant, Goldman, Sachs & Co. (since
January 1996); Executive Secretary,
Goldman, Sachs & Co. (January 1994--
January 1996); Legal Secretary, Cleary,
Gottlieb, Steen and Hamilton (September
1990--January 1994).
</TABLE>
B-68
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address with Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Kaysie P. Uniacke, 37 Assistant Secretary Assistant Secretary-Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Managing Director, Goldman Sachs Asset
Management (since 1997), Vice President
and Senior Portfolio Manager, Goldman
Sachs Asset Management (since 1988).
*Elizabeth D. Anderson, 29 Assistant Secretary Assistant Secretary-Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Portfolio Manager, GSAM (since April
1996); Junior Portfolio Manager, Goldman
Sachs Asset Management (1995--April
1996); Funds Trading Assistant, GSAM
(1993 - 1995); Compliance Analyst,
Prudential Insurance (1991 - 1993).
</TABLE>
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 February 1, 1999,
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, 1998:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Aggregate Accrued as from Goldman
Compensation Part of Sachs Trust and the
from the Trust's Goldman Sachs
Funds/1/ Expenses fund complex
----- -------- (including the
Funds)/2/
-----
Name of Trustees
<S> <C> <C> <C>
Ashok N. Bakhru $ $0 $97,750
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
</TABLE>
B-69
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mary P. McPherson 0 70,500
Alan A. Shuch 0 0 0
Jackson W. Smart 0 70,500
William H. Springer 0 70,500
Richard P. Strubel 0 70,500
</TABLE>
- -------------------------
/1/ Reflects amount paid by Goldman Sachs Trust during fiscal year ended October
31, 1998.
/2/ The Goldman Sachs fund complex consists of the Goldman Sachs Trust and
Goldman Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of
45 mutual funds, including eight fixed-income funds, on October 31, 1998.
Goldman Sachs Variable Insurance Trust consisted of 8 mutual funds.
Class A Shares of the Fund may be sold at net asset value without
payment of any sales charge to Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including rehired 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. The sales load waivers are due to the nature of the investors
and the reduced sales effort that is needed to obtain such investments.
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 Short Duration
Tax-Free Fund, Government Income Fund, Municipal Income Fund, Core Fixed Income
and High Yield Fund pursuant to a management agreement. GSFM, One New York
Plaza, New York, New York 10004, serves as the Investment Adviser to Adjustable
Rate Government Fund and Short Duration Government Fund pursuant to a
management agreement. GSFM, a Delaware limited partnership, is an affiliate of
Goldman Sachs. GSAMI, 133 Peterborough Court, London EC4A 2BB, England, serves
as Investment Adviser to Global Income Fund pursuant to a management agreement.
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. GSAMI is also an affiliate of Goldman Sachs. See "Service Providers"
in the Funds' Prospectuses for a description of the applicable Investment
Adviser's duties as Investment Adviser.
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 also 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
B-70
<PAGE>
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 City, Milan, Montreal, Osaka, Paris, Sao
Paulo, 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. Goldman Sachs has agreed to permit the Funds to use the
name "Goldman Sachs" or a derivative thereof as part of each Fund's name for as
long as a Fund's Management Agreement is in effect.
The Investment 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
$200 million, the Goldman Sachs Global Investment Research Department covers
approximately 2,000 companies, including approximately 1,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Investment Advisers. The
Investment Advisers manage money for some of the world's largest institutional
investors.
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 Investment 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 Investment 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 Investment Adviser, which
managed approximately $____ billion in tax-free securities in 1998, has
assembled an experienced team of professionals for selection of the Tax Exempt
Funds' portfolio securities.
In structuring Adjustable Rate Government Fund's and Short Duration
Government Fund's respective securities portfolio, the Investment Adviser will
review the existing overall economic and mortgage market trends. The Investment
Adviser will then study yield spreads, the implied volatility and the shape of
the yield curve. The Investment 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 Government 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 SMBS).
B-71
<PAGE>
With respect to the Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund, Core Fixed Income Fund and High Yield
Fund, the applicable Investment Adviser expects to utilize Goldman Sachs'
sophisticated option-adjusted analytics to help make strategic asset allocations
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 Investment 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 Investment 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 Investment 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
Investment Advisers will first evaluate the absolute level of a security's OAS
considering its liquidity and its interest rate, volatility and prepayment
sensitivity. The Investment Advisers will then analyze its value relative to
alternative investments and to its own investments. The Investment Advisers will
also measure a security's interest rate risk by computing an option adjusted
duration (OAD). The Investment Advisers believe a security's OAD is a better
measurement of its price sensitivity than cash flow duration, which
systematically misstates portfolio duration. The Investment Advisers also
evaluate returns for different mortgage market sectors and evaluate the credit
risk of individual securities. This sophisticated technical analysis allows the
Investment 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
Investment 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 Investment Advisers will use OAS analytics to choose what they believe
is an appropriate portfolio of investments for Adjustable Rate Government Fund,
Short Duration Government Fund, Government Income Fund and Core Fixed Income
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 Investment
Advisers will also take into account important market criteria like the
available supply and relative liquidity of various mortgage securities in
structuring the portfolio.
The Investment 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
B-72
<PAGE>
Securities could suggest tactical trading opportunities for the Funds. The
Investment 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 Investment 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 Investment 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
Investment 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 Investment
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 Investment Adviser will have access to the Global Asset
Allocation Model. The model is based on the observation that the prices of all
financial assets, including foreign currencies, will adjust until investors
globally are comfortable holding the pool of outstanding assets. Using the
model, the Investment Adviser will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' professionals expectations to produce an
B-73
<PAGE>
optimal currency and asset allocation for the level of risk suitable for the
Fund's investment objective and criteria.
The Management Agreements provide that GSAM, GSFM and GSAMI, in their
capacity as Investment Advisers may each render similar services to others so
long as the services under the Management Agreements are not impaired thereby.
The Management Agreements were 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 22, 1998. The
applicable Fund's Management Agreement was approved by the shareholders of
Adjustable Rate Government Fund on October 30, 1991, the shareholders of Short
Duration Government Fund on March 27, 1989, the sole initial shareholder of
Short Duration Tax-Free Fund on September 25, 1992, the sole initial shareholder
of Core Fixed Income on October 29, 1993, and the shareholders of each other
Fund on April 21, 1997. Each Management Agreement will remain in effect until
June 30, 1999 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 Management Agreement will terminate automatically if assigned (as
defined in the Act). Each Management 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 Investment Adviser or by the Investment Adviser on 60 days' written
notice of the Trust.
Pursuant to the Management Agreements, the Investment Advisers are entitled
to receive the fees set forth below, payable monthly based on such Fund's
average daily net assets. In addition, the Investment Advisers are voluntarily
limiting their management fees for certain Funds to the annual rates also listed
below:
<TABLE>
<CAPTION>
Management Fee Management Fee without
with Limitations Limitations
---------------- -----------
Fund
----
<S> <C> <C>
GSAM
Municipal Income .50% .55%
Government Income .54% .65%
Short Duration Tax-Free .35% .40%
Core Fixed Income .40% .40%
High Yield .70% .70%
GSFM
Short Duration Government .50% .50%
Adjustable Rate Government .40% .40%
GSAMI
Global Income .65% .90%
</TABLE>
B-74
<PAGE>
With respect to the Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining both advisory and administration
services (and subadvisory services in the case of Global Income Fund) was
adopted effective April 30, 1997. The Management Agreements for the other Funds
previously combined such services. The contractual rate set forth in the table
is the rate payable under the Management Agreements (and, in the case of
Government Income, Municipal Income and Global Income Funds, is identical to the
aggregate advisory, subadvisory and administration fee rate payable by such
Funds under the previously separate investment advisory, subadvisory and
administration agreements).
For the fiscal years ended October 31, 1998, 1997, and 1996, the amounts of
the investment advisory and administration fees incurred by each Fund then in
existence were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government $1,980,544 $2,293,118 $2,535,709
Short Duration Government(1) 765,667 422,632 411,360
Short Duration Tax-Free(6) 186,598 144,157 169,796
Core Fixed Income 750,536 334,580 246,568
Global Income(2)(3) 1,752,130 1,415,050 1,117,226
Government Income(3)(4) 595,582 134,628 74,060
Municipal Income(7) 463,144 320,868 211,283
High Yield(5) 3,005,936 407,474 N/A
</TABLE>
_________________________
(1) Had expense limitations not been in effect, Short Duration Government Fund
would have paid advisory fees of $807,888, $528,290, and $514,200
respectively, for such years.
(2) For the same periods, Global Income Fund paid GSAMI subadvisory fees of $0,
$0, and $837,920, respectively. If expense limitations had not been in
effect, Global Income Fund would have paid advisory and subadvisory fees of
$2,613,060 and $0, for the year ended October 31, 1998, $2,158,925 and $0
for the year ended October 31, 1997 and $1,474,204 and $491,401,
respectively, for the year ended October 31, 1996, respectively.
(3) Reflects combined fees under separate investment advisory and
administration agreements which were combined in a Management Agreement
effective May 1, 1997.
(4) Had expense limitations not been in effect, Government Income Fund would
have paid advisory fees of $747,673, $350,034, and $148,120 respectively,
for such years.
(5) High Yield Fund commenced operations on August 1, 1997. Had expense
limitations not been in effect, High Yield Fund would have paid $3,075,443
and $438,819 for the year ended October 31, 1998 and the period ended
October 31, 1997, respectively.
(6) Had expense limitations not been in effect, the Short Duration Tax-Free
Fund would have paid advisory fees of $189,646 for the year ended October
31, 1998.
(7) Had expense limitations not been in effect, the Municipal Income Fund would
have paid advisory fees of $467,578 for the year ended October 31,
1998.
The fees and services under the Investment Advisory and Administration
Agreements are identical to the fees and services under the Management
Agreement.
B-75
<PAGE>
Each Investment Adviser performs administrative services for the applicable
Funds under the Management 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 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.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
--------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Investment 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
Investment Advisers and their advisory affiliates 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 both 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
Investment 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 Investment 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 Investment Advisers, and/or their
affiliates, will not initiate or recommend certain types of
B-76
<PAGE>
transactions in certain securities or instruments with respect to which the
Investment Advisers and/or their affiliates are performing services or when
position limits have been reached.
In connection with their management of the Funds, the Investment Advisers
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Investment 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 other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Investment 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 Investment Advisers in managing the
Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Investment 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.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Funds in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
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
Investment Advisers are also principals or employees of Goldman Sachs 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 Investment Advisers may enter into transactions and invest in
instruments and, in the case of Core Fixed Income, Global Income and High Yield
Funds, currencies on behalf of
B-77
<PAGE>
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, 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 Goldman Sachs or its affiliates to give advice to clients that
may cause these clients to take actions adverse to the interests of the client.
To the extent affiliated transactions are permitted, the Funds will deal with
Goldman Sachs and its affiliates on an arms-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 the 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. 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, Class B and Class C Shares of each of the Funds that
offer such classes of shares. Goldman Sachs receives 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 and Class C Shares, of such Fund shares. No Class C Shares were
outstanding during the fiscal year ended 1996. Goldman Sachs retained
approximately the following combined commissions on sales of Class A, B and C
Shares during the following periods:
B-78
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government(1) $ 28,000 $ 156,000 $79,000
Municipal Income(2) 126,000 57,000 24,900
Government Income(2) 212,000 193,000 17,300
Global Income(2) 133,000 176,000 52,600
Short Duration Government(3) 157,000 63,000 N/A
Short Duration Tax-Free(3) 55,000 6,000 N/A
Core Fixed Income(3) 82,000 14,000 N/A
High Yield(3) 1,419,000 3,194,000 N/A
</TABLE>
_____________________
(1) The Adjustable Rate Government Fund does not offer Class B and C Shares.
(2) Prior to May 1, 1996 and August 15, 1997, the Municipal Income, Government
Income and Global Income Funds did not offer Class B and Class C Shares
respectively.
(3) Prior to May 1, 1996 and August 15, 1997, Short Duration Government, Short
Duration Tax-Free, and Core Fixed Income Funds did not offer Class A and B
and C Shares, respectively. High Yield Fund commenced operations on August
1, 1997 with the exception of Class C Shares which commenced August 15,
1997.
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 received fees for the fiscal years
ended October 31, 1998, 1997, and 1996 from each Fund then in existence as
follows under the fee schedules then in effect:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government $229,368 $272,449 $278,337
Short Duration Government 191,462 77,989 0
Short Duration Tax-Free 129,376 61,185 16,980
Core Fixed Income 211,200 85,882 24,657
Global Income 378,171 106,886 121,212
Municipal Income 176,709 152,152 90,284
Government Income Fund 189,925 163,181 72,237
</TABLE>
B-79
<PAGE>
<TABLE>
<S> <C> <C> <C>
High Yield Fund(1) 298,491 27,280 N/A
</TABLE>
________________________
(1) High Yield Fund commenced operations on August 1, 1997.
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 "Service Providers" 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 Investment Adviser, service
fees paid to Service Organizations, 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 and 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 and 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 Investment Advisers voluntarily have agreed to reduce or otherwise
limit certain Other Expenses (excluding management fees, fees payable under
administration, distribution and service plans, transfer agency fees, taxes,
interest, brokerage fees and litigation, indemnification and other extraordinary
expenses) to the following percentage of each Fund's average daily net
assets:
Adjustable Rate Government Fund 0.05%
Short Duration Government Fund 0.00%
Municipal Income Fund 0.00%
Government Income Fund 0.00%
Short Duration Tax-Free Fund 0.00%
Core Fixed Income 0.10%
Global Income Fund 0.00%
High Yield Fund 0.02%
B-80
<PAGE>
Such reductions or limits are calculated monthly on a cumulative basis.
The Investment Advisers may modify or discontinue such expense limitations or
the limitations on the management fees, described above under "Management --
Investment Advisers," in the future at their discretion. For the fiscal years
ended October 31, 1998, October 31, 1997, and October 31, 1996, "Other Expenses"
of each Fund were reduced by the Investment Advisers in the following amounts
under fee expense limitations that were then in effect:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government $ 22,059 $191,739 $386,863
Short Duration Government 460,255 285,329 169,069
Short Duration Tax-Free 377,665 282,291 238,097
Core Fixed Income 485,499 311,343 233,065
Municipal Income 447,257 299,884 238,203
Government Income 472,433 364,989 219,091
Global Income 325,544 223,969 337,079
High Yield/(1)/ 92,497 200,097 N/A
</TABLE>
- ------------------------
(1) High Yield Fund commenced operations on August 1, 1997.
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
Investment 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"), 1776 Heritage Drive,
North Quincy, Massachusetts 02110, 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, 225 Franklin 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 Core Fixed Income, Global
B-81
<PAGE>
Income and High Yield Funds may invest are traded on exchanges at fixed
commission rates. In connection with portfolio transactions, the Management
Agreement provides that the Investment Advisers shall attempt to obtain the best
net price and the most favorable execution. The Management Agreement provides
that, on occasions when an Investment 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 Investment 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 well as the expenses incurred in the transaction, will be
made by the applicable Investment 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. The Management
Agreement permits each Investment Adviser, in its discretion, to purchase and
sell portfolio securities to and from dealers who provide the Trust with
brokerage or research services in which dealers may execute brokerage
transactions at a higher cost to the Fund. Brokerage and research services
furnished by firms through which the Fund's effect their securities transactions
may be used by the Investment Advisers in servicing other accounts and not all
of these services may be used by the Investment Adviser in connection with the
specific Fund generating the brokerage credits. Such research or other services
may include research reports on companies, industries, and securities; economic
and financial data; financial publications; computer data bases; quotation
equipment and services; and research-oriented computer hardware, software and
other services. The fees received under the Management Agreement are not reduced
by reason of the Investment Adviser receiving such brokerage and research
services. In addition, in selecting brokers and dealers, the Investment Advisers
may take into account sales of shares of the Funds and other funds in the
Goldman Sachs Group of Funds by such brokers and dealers.
B-82
<PAGE>
For the fiscal year ended October 31, 1998, the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid3 Research
==== ======= ==== ========
<S> <C> <C> <C> <C>
Fiscal Year Ended
October 31, 1998:
Adjustable Rate Fund $54,000 $54,000 (100%)/1/ $1,510,000,000 (100%)/2/ N/A
Short Duration Government Fund 26,000 26,000 (100%)/1/ 662,000,000 (100%)/2/ N/A
Short Duration Tax-Free Fund 1,000 1,000 (100%)/1/ 16,000,000 (100%)/2/ N/A
Government Income Fund 8,000 8,000 (100%)/1/ 171,000,000 (100%)/2/ N/A
Municipal Income Fund 3,000 3,000 (100%)/1/ 62,000,000 (100%)/2/ N/A
Core Fixed Income Fund 9,000 9,000 (100%)/1/ 193,000,000 (100%)/2/ N/A
Global Income Fund 8,000 8,000 (100%)/1/ 128,000,000 (100%)/2/ N/A
High Yield Fund --- --- --- ---
</TABLE>
- -----------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
B-83
<PAGE>
For the fiscal year ended October 31, 1997, the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid/3/ Research
---- ------- ---- --------
<S> <C> <C> <C> <C>
Fiscal Year Ended
October 31, 1997:
Adjustable Rate Fund $61,000 $61,000(100%)/1/ $739,605,010(100%)/2/ N/A
Short Duration Government
Fund 19,000 19,000(100%)/1/ 494,733,847(100%)/2/ N/A
Short Duration Tax-Free
Fund
Government Income Fund 2,400 2,400(100%)/1/ 26,765,840(100%)/2/ N/A
Municipal Income Fund 1,800 1,800(100%)/1/ 33,112,625(100%)/2/ N/A
Core Fixed Income Fund 3,000 3,000(100%)/1/ 8,429,994(100%)/2/ N/A
Global Income Fund --- --- --- ---
High Yield Fund --- --- --- ---
</TABLE>
- -------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
B-84
<PAGE>
For the fiscal year ended October 31, 1996, the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid3 Research
==== ======= ==== ========
<S> <C> <C> <C> <C>
Fiscal Year Ended
October 31, 1996:
Adjustable Rate Fund $108,000 $108,000(100%)/1/ $2,121,317,579(100%)/2/ N/A
Short Duration Government Fund 24,000 24,000(100%)/1/ 447,205,928(100%)/2/ N/A
Short Duration Tax-Free Fund 1,000 1,000(100%)/1/ 8,559,280(100%)/2/ N/A
Government Income Fund 1,200 1,200(100%)/1/ 24,437,288(100%)/2/ N/A
Municipal Income Fund 2,750 2,750(100%)/1/ 51,101,625(100%)/2/ N/A
Core Fixed Income Fund 4,000 4,000(100%)/1/ 43,548,299(100%)/2/ N/A
Global Income Fund --- --- --- ---
</TABLE>
- ----------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
B-85
<PAGE>
During the fiscal year ended October 31, 1998, the Funds acquired and sold
securities of their regular broker-dealers: NationsBank Corp., Salomon Smith
Barney Holdings, Lehman Brothers Holdings, J.P. Morgan & Co., Nomura Securities
International, Bear Stearns & Co., Donaldson, Lufkin & Jenrette, Credit Suisse
First Boston, Canadian Imperial Bank of Commerce, Merrill Lynch & Co.
At October 31, 1998, Short Duration Tax-Free Fund and Municipal Income Fund
held no securities of their regular broker-dealers. As of the same date, Short
Duration Government Fund, Global Income Fund, Adjustable Rate Government Fund,
Government Income Fund, Core Fixed Income Fund and High Yield Fund held the
following amounts of securities of their regular broker-dealers, as defined in
Rule 10b-1 under the Act, or their parents ($ in thousands): Short Duration
Government Fund: Credit Suisse First Boston ($112) and NationsBank Corp.
($3,593), Global Income: Salomon Smith Barney Holdings ($671) and Merrill Lynch
& Co. ($803), Adjustable Rate Government Fund: Credit Suisse First Boston ($767)
and NationsBank Corp. ($24,533), Government Income Fund: Salomon Smith Barney
Holdings ($1,360), Merrill Lynch & Co. ($1,476), Lehman Brothers Holdings
($1,246), Credit Suisse First Boston ($256) and NationsBank Corp. ($8,196),
Core Fixed Income: Merrill Lynch & Co. ($3,949), Donaldson, Lufkin & Jenrette
($5,121), Lehman Brothers Holdings ($1,665), Credit Suisse First Boston ($391)
and NationsBank Corp. ($12,519), High Yield Fund: Credit Suisse First Boston
($793) and NationsBank Corp. ($25,375).
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, a Delaware business trust
established by a Declaration of Trust dated January 28, 1997. The Funds were
previously series of Goldman Sachs Trust, a Massachusetts business trust, and
were reorganized into the Trust as of April 30, 1997.
The Trustees have authority under the Trust's Declaration of Trust to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. The Trustees also have authority to classify
and reclassify any series of shares into one or more classes of shares. The Act
requires that where more than one class or series of shares exists, each class
or series must be preferred over all other classes or series in respect of
assets specifically allocated to such class or series. As of the date of this
Additional Statement, the Trustees have authorized: (i) the issuance of six
classes of shares of Short Duration Government Fund, Short Duration Tax-Free
Fund and Core Fixed Income: Institutional Shares, Administration Shares,
Service Shares, Class A Shares, Class B Shares and Class C Shares; the issuance
of five classes of shares of Global Income Fund, Government Income Fund,
Municipal Income Fund and High Yield Fund: Institutional Shares, Service Shares,
Class A Shares, Class B Shares and Class C Shares; and (ii) the issuance of four
classes of shares of Adjustable Rate Government Fund: Institutional Shares,
Administration Shares, Service Shares and Class A Shares. Additional series may
be added in the future. As of October 31, 1998, no B or C Shares of the
Adjustable Rate Government Fund were outstanding.
Each Institutional Share, Administration Share, Service Share, Class A
Share, Class B Share and Class C Share of a Fund represents a proportionate
interest in the assets belonging to
B-86
<PAGE>
the applicable class of the Fund. All expenses of a Fund are borne at the same
rate by each class of shares, except that fees under Administration and Service
Plans are borne exclusively by Administration and Service Shares, fees under
Distribution and Service Plans are borne exclusively by Class A, Class B or
Class C Shares and transfer agency fees are borne at different rates by Class A,
Class B or Class C Shares than Institutional, Administration and Service Shares.
The Trustees may determine in the future that it is appropriate to allocate
other expenses differently among classes of shares and may do so to the extent
consistent with the rules of the SEC and positions of the Internal Revenue
Service. Each class of shares may have different minimum investment requirements
and be entitled to different shareholder services. Currently, shares of a class
may only be exchanged for shares of the same or an equivalent class of another
series. See "Shareholder Guide" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge 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 at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration fees at the annual rate of up to 0.50% of the average
daily net assets of the Fund attributed to Service Shares.
Class A Shares are sold, with an initial sales charge, 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. With respect to Class A Shares, the Distributor at its
discretion may use compensation for distribution services paid under the
Distribution and Services Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the
maximum cap on "service fees" imposed by the NASD.
Class B and Class C Shares of the Funds are sold subject to a contingent
deferred sales charge 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 and
Class C 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 attributed to Class B and
Class C Shares. Class A (Global Income Fund only), Class B and Class C Shares
also bear the cost of
B-87
<PAGE>
service fees at an annual rate of up to 0.25% of the average daily net assets
attributed to such Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration, Service, Class A, Class
B and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. 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 and distribution and service 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, shares are fully paid and non-assessable. In the event of
liquidation of a Fund, shareholders of that Fund are entitled to share pro rata
in the net assets of the applicable class of the relevant Fund available for
distribution to such shareholders. All shares are freely transferable and have
no preemptive, subscription or conversion rights.
As of November 30, 1998, the following entities and persons owned of record
5% or more of the outstanding shares of the following Funds: Adjustable Rate
Government Fund (Institutional Class) -- First Trust of New York, 100 Wall
Street, Suite 1600, New York, NY (13%); Regents of the University of Minnesota,
100 Church Street SE, Room 311A, Minneapolis, MN 55455 (6%); Meadows Foundation
Inc., 3003 Swiss Avenue, Dallas, TX 75204 (5%), and Quintiles Transnational
Corp., P.O. Box 13979, RTP, NC 27709 (5%); Short Duration Government Fund
(Institutional Class) -- Goldman Sachs Asset Allocation, 4900 Sears Tower,
Chicago, IL 60606 (15%); Short Duration Tax-Free Fund (Institutional Class)
Lowenthal Accounts, Goldman Sachs Asset Management, Attn: Anita Kerr, 1 New
York Plaza, Floor 40, New York, NY 10004 (32%); and Donald R. Gant, Partner,
Goldman, Sachs & Co., 85 Broad Street, 22nd Floor, New York, NY 10004 (7%); Core
Fixed Income (Institutional Class) -- Goldman Sachs Asset Allocation, 4900 Sears
Tower, Chicago, IL 60606 (25%); C-PO2-EB Employee Benefits, Methodist Medical
Center of Illinois, NCIL Trust Company, 301 SW Adams Street, P.O. Box 749,
Peoria, IL 61652 (7%) and Mellon Bank, Three Mellon Bank Center, 34th Floor,
Pittsburg, PA 15258 (6%); Core Fixed Income Fund (Class A shares) -- Resources
Trust Company, FBO Various Customers, 8051 E. Maplewood Avenue, Englewood, CO
80111 (5%); Global Income Fund (Institutional Class) -- Goldman Sachs Asset
Allocation, 4900 Sears Tower, Chicago IL 60606 (14%); and State Street Bank and
Trust, GS Profit Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-1992
(15%); High Yield Fund (Institutional Class) -- Goldman Sachs Asset Allocation,
4900 Sears Tower, Chicago IL 60606 (7%); and Municipal Income Fund
(Institutional Class) -- Lowenthal Account, Goldman Sachs Asset Management,
Attn: Anita Kerr, 1 New York Plaza, Floor 40, New York, NY 10004 (5%).
As of November 30, 1998, the following entities beneficially owned 5% or
more of the outstanding shares of the following Funds: Adjustable Rate
Government Fund
B-88
<PAGE>
(Institutional Class) First Security Bank of Idaho, Idaho Housing Agency, c/o
First Security Bank of Idaho, P.O. Box 30007, Salt Lake City, UT 84130 (6%).
Short Duration Government Fund (Institutional Class) State Street Bank & Trust,
P.O. Box 1992, Boston, MA 02105 (20%); and Core Fixed Income Fund (Institutional
Class) Goldman Sachs Asset Management, Attn: Doris Caramello, 1 New York Plaza,
Floor 42, New York, NY 10004 (15%).
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act or 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.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. In the event that a meeting of shareholders
is held, each share of the Trust will be entitled, as determined by the
Trustees, either to one vote for each share or to one vote for each dollar of
net asset value represented by such shares on all matters presented to
shareholders including the election of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The Trustees will call a special
meeting of shareholders for the purpose of electing Trustees, if, at any time,
less than a majority of Trustees holding office at the time were elected by
shareholders. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by
law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, acting on behalf of
any affected series, must, upon request by such shareholder, assume the defense
of any claim made against
B-89
<PAGE>
such shareholder for any act or obligation of the series and satisfy any
judgment thereon from the assets of the series.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors
and events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any successor series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, series or class or affecting assets of the type in which it
invests; or (iii) economic developments or trends having a significant adverse
impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company with
substantially the same investment objective, restrictions and policies.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series
Trustees may, but are not required to, serve as Trustees of the Trust or any
other series or class of the Trust. The Series Trustees have, to the exclusion
of any other Trustees of the Delaware Trust, all the powers and authorities of
Trustees under the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware law, the shareholders of the Funds are not generally subject
to liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by a series or the
Trustees. The Declaration of Trust provides for indemnification by the relevant
Fund for all loss suffered by a shareholder as a
B-90
<PAGE>
result of an obligation of the series. The Declaration of Trust also provides
that a series shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
Delaware business trust is remote.
In addition to the requirement under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of and to employ other Investment Advisers in considering
the merits of the request and shall require an undertaking by the shareholders
making such request to reimburse the Fund for the expense of any such Investment
Advisers in the event that the Trustees determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
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 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, but not always, 4:00
p.m. New York time) on each Business Day. The term "Business Day" means any day
the New York Stock Exchange is open for trading, which is Monday through Friday
except for holidays. The New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day (observed),
Labor Day, Thanksgiving Day and Christmas Day (observed).
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 as follows: (a) via
electronic feeds to the custodian bank containing dealer-supplied bid quotations
or bid quotations from a nationally recognized pricing service; (b) securities
for which the custodian bank is unable to obtain an external price or with
respect to which the Investment Adviser believes an external price does not
reflect accurate market values, will be valued by the Investment Adviser in good
faith based on valuation models that take into account daily spread and yield
changes on government securities (i.e., matrix pricing); (c) overnight
repurchase
B-91
<PAGE>
agreements will be valued by the Investment Adviser at cost; (d) term
repurchase agreements (i.e., those whose maturity exceeds seven days) and
interest rate swaps, caps, collars and floors will be valued at the average of
the bid quotations obtained daily from at least one dealer; (e) debt securities
with a remaining maturity of 60 days or less are valued by the Investment
Adviser at amortized cost, which the Trustees have determined to approximate
fair value; (f) spot and forward foreign currency exchange contracts will be
valued using a pricing service such as Reuters (if quotations are unavailable
from a pricing service or, if the quotations by the Investment Adviser are
believed to be inaccurate, the contracts will be valued by calculating the mean
between the last bid and asked quotations supplied by at least one independent
dealers in such contracts); (g) exchange-traded options and futures contracts
will be valued by the custodian bank at the last sale price on the exchange
where such contracts and options are principally traded; and (h) over-the-
counter options will be valued by a broker identified by the portfolio
manager/trader.
In addition, portfolio securities of the Global Income Fund for which
accurate market quotations are available are valued as follows: (a) securities
listed on any U.S. or foreign stock exchange or on the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded will be valued at the mean between the closing bid and asked prices, or
if closing bid and asked prices are not available, at the exchange defined close
price on the exchange or system in which such securities are principally traded.
If the relevant exchange or system has not closed by the time for determining
the Fund's net asset value; the securities will be valued at the mean between
the bid and asked prices at the time the net asset value is determined. Over-
the-counter securities not quoted on NASDAQ will be valued at the last sale
price on the valuation day or, if no sale occurs, at the mean between the last
bid and asked prices.
All other securities, including those for which a pricing service supplies
no exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate; will be valued at fair value as stated in the
valuation procedures which were approved 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.
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, Core Fixed Income and
High Yield Funds 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
B-92
<PAGE>
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 may 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 Investment 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 Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derive at least 90% of its gross income
(including tax-exempt interest) for its taxable year 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"); and (b) 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.
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 Fixed Income 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
Fixed Income Fund's or
B-93
<PAGE>
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, certain net realized foreign exchange gains, 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, if any, 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 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 for each taxable year 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 Fixed Income and may therefore make
it more difficult for Global Income Fund or Core Fixed Income to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, Global Income Fund and Core
Fixed Income 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 (if
any) 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, 1998, the Funds had
approximately the following amounts of capital loss carry forwards:
<TABLE>
<CAPTION>
Years of
Amount Expiration
------ ----------
<S> <C> <C>
Adjustable Rate Government $47,858,866 2000-2004
</TABLE>
B-94
<PAGE>
<TABLE>
<S> <C> <C>
Short Duration Government 14,280,994 2002-2005
Short Duration Tax-Free 3,868,000 2002-2003
High Yield 5,746,000 2006
</TABLE>
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 calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year) and 100% of any taxable
ordinary income and the excess of capital gains over capital losses for the
prior year that were 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 that are actually paid
in January of the following year will be treated as if they were 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
that 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 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-
B-95
<PAGE>
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. 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 Investment 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, forward 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 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 and instruments that may affect the amount, timing
and character of income, gain or loss recognized by Core Fixed Income Fund and
Global Income Fund. Under these rules, foreign exchange gain or loss realized
by Core Fixed Income 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 being paid or a portion of Core Fixed
Income Fund's, High Yield 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.
B-96
<PAGE>
Core Fixed Income, Global Income, and High Yield Funds 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 by such shareholders, 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 Fixed Income and
High Yield Funds will not satisfy the 50% requirement described above and,
therefore, will not make this election. Core Fixed Income and High Yield Funds
and, if it does not make the election, Global Income Fund will, however, be
entitled to deduct such taxes in computing the amounts they are required to
distribute.
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 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 Fixed Income, Global Income or High Yield Funds acquire stock
(including, under proposed regulations, an option to acquire stock such as is
inherent in a convertible bond)
B-97
<PAGE>
in certain foreign corporations ("passive foreign investment companies") 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, the 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 the Fund is
timely distributed to its shareholders. The 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 the Fund to recognize taxable income or gain without
the concurrent receipt of cash. Core Fixed Income, Global Income and High Yield
Funds may limit and/or manage their holdings in passive foreign investment
companies to minimize their tax liability or maximize their 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 obtain cash to enable it 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
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 applicable 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
B-98
<PAGE>
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
Investment 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 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.
The Tax Exempt Funds are not intended to constitute a balanced investment
program and are not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Tax Exempt Funds would not be suitable for tax-exempt institutions and may
not be suitable for retirement plans qualified under Section 401 of the Code,
H.R. 10 plans and individual retirement accounts since such plans and accounts
are generally tax-exempt and, therefore, would not gain any additional benefit
from the Funds' dividends being tax-exempt. In addition, the Tax Exempt Funds
may not be an appropriate investment for persons or entities that are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person which regularly uses a part of such facilities in
its trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, which occupies more than 5% of
the usable area of such facilities or for which such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons"
B-99
<PAGE>
include certain related natural persons, affiliated corporations, partnerships
and its partners and an S corporation and its shareholders.
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 the Short Duration
Tax-Free Fund and the 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, 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.
B-100
<PAGE>
After the close of each calendar year, each Fund will inform shareholders
of the federal income tax status of its dividends and distributions for such
year, including the portion of such dividends, if any, that qualifies as tax-
exempt or as capital gain, the portion, if any, that should be treated as a tax
preference item for purposes of the federal alternative minimum tax and the
foreign tax credits, if any, associated with such dividends. 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
Investment Advisers for more information.
TAXABLE U.S. SHAREHOLDERS -- SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of in
a transaction that is treated as a sale for tax purposes, 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, 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, subject to the rules
described below. Shareholders should consult their own tax Investment Advisers
with reference to their particular circumstances to determine whether a
redemption (including an exchange) or other disposition of Fund Shares is
properly treated as a sale for tax purposes, as is assumed in this discussion.
All or a portion of a sales charge paid in purchasing Class A shares of a 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 Tax-
Free or Municipal Income Funds 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
B-101
<PAGE>
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. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
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, 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 Investment
Advisers about the applicability of the backup withholding provisions.
B-102
<PAGE>
Non-U.S. Shareholders
The foregoing discussion relates solely to U.S. federal income tax law as
it applies to "U.S. persons" (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates) subject to tax under
such law. Dividends 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 capital 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 Investment
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 the Fund may be deemed to be doing business. A state income (and possibly
local income and/or intangible property) tax exemption is generally available to
the extent (if any) a Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) certain U.S. government obligations and/or tax-exempt municipal obligations
issued by or on behalf of the particular state or a political subdivision
thereof, provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. 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
B-103
<PAGE>
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 Investment 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 and Class C 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 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.
B-104
<PAGE>
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, Class B or Class C Shares which is based upon a Fund's net asset value per
share would be reduced if a sales charge were taken into account.
The average annual total return calculation reflects a maximum initial
sales charge of 1.5% for Class A Shares of Adjustable Rate Government Fund; 2.0%
for Class A Shares of Short Duration Government and Short Duration Tax-Free
Funds; and 4.5% for Class A Shares of Government Income, Municipal Income, Core
Fixed Income, Global Income and High Yield Funds; the assumed deferred sales
charge for Class B Shares (2% maximum declining to 0% after three years for the
Short Duration Government and Short Duration Tax-Free Funds and 5% maximum
declining to 0% after six years for the Government Income, Municipal Income,
Core Fixed Income, Global Income and High Yield Funds); and the assumed deferred
sales charge for Class C Shares (1% if redeemed within 12 months of
purchase).
The Service Shares of Global Income Fund commenced operations on March 12,
1997; the Service Shares of Government Income and Municipal Income Funds
commenced operations on August 15, 1997. The Service Shares of these Funds had
no operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, each of these Funds
has adopted the performance records of its respective Class A shares from that
class' inception date (August 2, 1991, February 10, 1993 and July 20, 1993,
respectively) to the inception dates of the Service Shares stated above.
Quotations of performance data of these Funds relating to this period include
the performance record of the applicable Class A Shares (excluding the impact of
any applicable front-end sales charge). The performance records of the
applicable Class A Shares reflect the expenses actually incurred by the Fund.
These expenses include any asset-based sales charges (i.e., fees under
distribution and service plans) imposed and other operating expenses. Total
return quotations will be calculated pursuant to SEC-approved methodology.
B-105
<PAGE>
YIELD
<TABLE>
<CAPTION>
Investment Period
30-Days ended 10/31/98
----------------------
SEC 30-Day Pro-Forma
Fund Yield Yield(1)
- ---- ----- --------
<S> <C> <C>
ADJUSTABLE RATE GOVERNMENT FUND
Institutional Shares 5.59% 5.55 %
Administration Shares 5.33% 5.25 %
Service Shares 5.06% 4.95 %
Class A Shares
(assumes 1.5% sales charge) 5.05% 4.96 %
SHORT DURATION GOVERNMENT FUND
Institutional Shares 5.12% 4.84 %
Administration Shares 4.87% 4.46 %
Service Shares 4.61% 4.08 %
Class A Shares
(assumes 2.0% sales charge) 4.61% 4.14 %
Class B Shares 4.11% 3.17 %
Class C Shares N/A N/A
SHORT DURATION TAX-FREE FUND
Institutional Shares 3.86% 2.94 %
Administration Shares 3.58% 2.10 %
Service Shares 3.34% 1.33 %
Class A Shares
(assumes 2.0% sales charge) 3.38% 1.62 %
Class B Shares 2.88% (0.22)%
Class C Shares N/A N/A
CORE FIXED INCOME
Institutional Shares 5.57% 5.21 %
Administration Shares 5.34% 4.82 %
Service Shares 5.05% 4.35 %
Class A Shares
(assumes 4.5% sales charge) 4.94% 4.34 %
Class B Shares 4.43% 3.30 %
Class C Shares 4.37% 3.21 %
GLOBAL INCOME FUND
Institutional Shares 4.23% 3.75 %
</TABLE>
B-106
<PAGE>
YIELD
<TABLE>
<CAPTION>
Investment Period
30-Days ended 10/31/98
----------------------
SEC 30-Day Pro-Forma
Fund Yield Yield(1)
- ---- ----- --------
<S> <C> <C>
Service Shares 3.71% 3.06%
Class A Shares
(assumes 4.5% sales charge) 3.42% 2.76%
Class B Shares 3.07% 2.22%
Class C Shares 3.07% 2.22%
MUNICIPAL INCOME FUND
Institutional Shares 4.32% 3.68%
Service Shares N/A N/A
Class A Shares
(assumes 4.5% sales charge) 3.72% 2.70%
Class B Shares 3.14% 1.27%
Class C Shares 3.15% 1.27%
GOVERNMENT INCOME FUND
Institutional Shares N/A 5.03%
Service Shares N/A 4.77%
Class A Shares
(assumes 4.5% sales charge) 4.70% 4.28%
Class B Shares 4.21% 3.54%
Class C Shares 4.16% 3.48%
HIGH YIELD FUND
Institutional Shares N/A N/A
Service Shares N/A N/A
Class A Shares
(assumes 4.5% sales charge) 10.11% 9.89%
Class B Shares 9.88% 9.54%
Class C Shares 9.88% 9.53%
</TABLE>
B-107
<PAGE>
DISTRIBUTION RATE
<TABLE>
<CAPTION>
Investment Period
30-Days ended 10/31/98
----------------------
Pro-Forma
30-Day Distribution
Fund Distribution Rate Rate(1)
- ---- ----------------- -------
<S> <C> <C>
ADJUSTABLE RATE GOVERNMENT FUND
Institutional Shares 5.77% _____%
Administration Shares 5.52% _____%
Service Shares 5.28% _____%
Class A Shares
assumes no sales charge 5.38% _____%
SHORT DURATION GOVERNMENT FUND
Institutional Shares 6.01% _____%
Administration Shares 5.77% _____%
Service Shares 5.51% _____%
Class A Shares
assumes no sales charge 5.61% _____%
Class B Shares 5.02% _____%
Class C Shares 4.86% _____%
SHORT DURATION TAX-FREE FUND
Institutional Shares 4.00% _____%
Administration Shares 3.75% _____%
Service Shares 3.50% _____%
Class A Shares
assumes no sales charge 3.60% _____%
Class B Shares 3.00% _____%
Class C Shares 2.85% _____%
CORE FIXED INCOME
Institutional Shares 6.03% _____%
Administration Shares 5.78% _____%
Service Shares 5.53% _____%
Class A Shares
assumes no sales charge 5.63% _____%
Class B Shares 4.87% _____%
Class C Shares 4.87% _____%
</TABLE>
B-108
<PAGE>
<TABLE>
<CAPTION>
Investment Period
30-Days ended 10/31/98
----------------------
30-Day Pro-Forma
Distribution Distribution
Fund Rate Rate(1)
- ---- ---- -------
<S> <C> <C>
Fund
GLOBAL INCOME FUND
Institutional Shares 4.95% _____%
Service Shares 4.40% _____%
Class A Shares
assumes no sales charge 4.28% _____%
Class B Shares 3.78% _____%
Class C Shares 3.81% _____%
MUNICIPAL INCOME FUND
Institutional Shares 4.52% _____%
Service Shares 4.00% _____%
Class A Shares
assumes no sales charge 4.12% _____%
Class B Shares 3.37% _____%
Class C Shares 3.37% _____%
GOVERNMENT INCOME FUND
Institutional Shares 6.03% _____%
Service Shares 5.52% _____%
Class A Shares
assumes no sales charge 5.63% _____%
Class B Shares 4.88% _____%
Class C Shares 4.88% _____%
HIGH YIELD FUND
Institutional Shares 8.10% _____%
Service Shares 7.61% _____%
Class A Shares
assumes no sales charge 7.71% _____%
Class B Shares 6.96% _____%
Class C Shares 6.96% _____%
</TABLE>
B-109
<PAGE>
TAX-EQUIVALENT YIELD/(2)/
<TABLE>
<CAPTION>
Investment Period
30-Days ended 10/31/98
----------------------
Pro-Forma
Tax-Equivalent Tax-Equivalent
Yield Yield/(1)/
----- ----------
Fund
- ----
<S> <C> <C>
SHORT DURATION TAX-FREE FUND/(2)/
Institutional Shares 6.52% _____%
Administration Shares 6.05% _____%
Service Shares 5.64% _____%
Class A Shares
assumes no sales charge 5.71% _____%
Class B Shares 4.86% _____%
Class C Shares N/A _____%
MUNICIPAL INCOME FUND/(2)/
Institutional Shares 7.30% _____%
Service Shares N/A _____%
Class A Shares
assumes no sales charge 6.28% _____%
Class B Shares 5.30% _____%
Class C Shares 5.32% _____%
</TABLE>
_______________________________
/(1)/ Yield, tax equivalent yield and distribution rate if the applicable
Investment Adviser had not voluntarily agreed to limit its advisory fees
and to maintain expenses at a specified level.
/(2)/ The tax-equivalent rate of Short Duration Tax-Free Fund and Municipal
Income Fund is computed based on the 40.8% (adjusted for the 3% phase out
of itemized deductions for individuals at high income levels) federal
income tax rate.
The above tables should not be considered a representation of future
performance.
B-110
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE GOVERNMENT FUND
Institutional Shares 7/17/91/1a/ ended 5.34% 5.23%
10/31/98
one year
ended 4.09% 4.09%
11/1/97 10/31/98
11/1/95 three years
ended
10/31/98 5.88% ____%
five years
11/1/93 ended
10/31/98 5.24% 5.17%
Administration Shares 4/15/93/1b/ ended
10/31/98 4.85% 4.80%
one year
ended
11/1/97 10/31/98 3.83% 3.83%
11/1/95 three years
ended
10/31/98 5.61% ____%
11/1/93 five years
ended
10/31/98 4.98% 4.93%
</TABLE>
B-111
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Shares 3/27/97/1c/ ended
10/31/98 4.63% 4.62%
11/1/97 one year
ended 3.57% ____%
10/31/98
Class A Shares 5/12/95/1d/ ended
10/31/98
assumes 1.5% sales charge 5.16% 4.88%
assumes no sales charge 5.63% 5.34%
11/1/97 one year
ended
10/31/98
assumes 1.5% sales charge 2.16% 1.93%
assumes no sales charge 3.71% 3.48%
11/1/95 three years
ended
10/31/98
assumes 1.5% sales charge ____% ____%
assumes no sales charge 5.57% ____%
SHORT DURATION GOVERNMENT FUND
Institutional Shares 8/15/88/2a/ ended
10/31/98 7.18% 6.78%
one year
ended
11/1/97 10/31/98 6.75% 6.41%
11/1/95 three years
ended
10/31/98 6.85% ____%
</TABLE>
B-112
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
five years
11/1/93 ended 6.07% 5.78%
10/31/98
11/1/88 ten years
ended ____% ____%
10/31/98
Administration Shares 2/28/96/2b/ ended
10/31/98 6.43% 6.11%
11/1/97 one year
ended 6.27% 5.93%
10/31/98
Service Shares 4/10/96/2b/ ended
10/31/98 6.70% 6.40%
11/1/97 one year
ended 6.12% 5.78%
10/31/98
Class A Shares 5/1/97/2c/ ended
10/31/98
assumes 2.0% sales charge 5.61% 5.01%
assumes no sales charge 7.04% 6.43%
11/1/97 one year
ended
10/31/98
assumes 2.0% sales charge 4.25% 3.69%
assumes no sales charge 6.36% 5.79%
Class B Shares 5/1/97/2c/ ended
10/31/98 6.40% 5.86%
</TABLE>
B-113
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/1/97 one year
ended 5.62% 5.10%
10/31/98
Class C Shares 8/15/97/2d/ ended
10/31/98 5.72% 5.34%
11/1/97 one year
ended 5.46% 5.09%
10/31/98
SHORT DURATION TAX-FREE FUND
Institutional Shares 10/1/92/3a/ ended
10/31/98 4.57% 3.98%
11/1/97 one year
ended 5.25% 4.41%
10/31/98
11/1/95 three years
ended
10/31/98 5.05% _____%
11/1/93 five years 4.24% 3.71%
ended
10/31/98
Administration Shares 5/20/93/3b/ ended
10/31/98 4.08% 3.58%
11/1/97 one year
ended 4.99% 4.16%
10/31/98
11/1/95 three years 4.79% _____%
ended
10/31/98
11/1/93 five years 3.98% 3.47%
ended
10/31/98
</TABLE>
B-114
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service Shares 9/20/94/3c/ ended
10/31/98 4.55% 3.97%
11/1/97 one year
ended 4.73% 3.89%
10/31/98
11/1/95 three years 4.49% _____%
ended
10/31/98
Class A Shares 5/1/97/3d/ ended
10/31/98
assumes 2.0% sales charge 4.20% 3.16%
assumes no sales charge 5.59% 4.54%
11/1/97 one year
ended
10/31/98
assumes 2.0% sales charge 2.83% 1.81%
assumes no sales charge 4.97% 3.93%
Class B Shares 5/1/97/3d/ ended
10/31/98 4.89% 3.92%
11/1/97 one year
ended 4.25% 3.28%
10/31/98
Class C Shares 8/15/97/3e/ ended
10/31/98 4.26% 3.43%
</TABLE>
B-115
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/1/97 one year ended 4.19% 3.35%
10/31/98
CORE FIXED INCOME
Institutional Shares 1/15/94/4a/ 10/31/98 7.51% 6.98%
11/1/97 one year ended
10/31/98 9.15% 8.87%
11/1/95 three years 8.10% _____%
ended 10/31/98
Administration Shares 2/28/96/4b/ ended 10/31/98 7.98% 7.64%
11/1/97 one year ended 8.88% 8.60%
10/31/98
Service Shares 3/13/96/4b/ ended 10/31/98 8.38% 8.08%
11/1/97 one year ended 8.50% 8.22%
10/31/98
Class A Shares 5/1/97/4c/ ended 10/31/98
assumes 4.5% sales charge 7.22% 6.69%
assumes no sales charge 10.57% 9.98%
11/1/97 one year ended
10/31/98
</TABLE>
B-116
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
assumes 4.5% sales charge 3.91% 3.40%
assumes no sales charge 8.76% 8.23%
Class B Shares 5/1/97/4c/ ended 10/31/98 9.80% 9.45%
11/1/97 one year ended 7.94% 7.63%
1/31/98
Class C Shares 8/15/97/4d/ ended 10/31/98 8.89% 8.56%
11/1/97 one year ended 7.94% 7.64%
10/31/98
GLOBAL INCOME FUND
Class A Shares 8/2/91/5b/ Ended 10/31/98
assumes 4.5% sales charge 7.99% 7.66%
assumes no sales charge 8.68% 8.35%
11/1/97 one year ended
10/31/98
assumes 4.5% sales charge 6.22% 5.76%
assumes no sales charge 11.21% 10.73%
11/1/95 three years
ended 10/31/98
assumes 4.5% sales charge ____% ____%
assumes no sales charge 10.64% ____%
11/1/93 five years
ended
assumes 4.5% sales charge 10/31/98 7.29% 6.93%
assumes no sales charge 8.28% 7.92%
</TABLE>
B-117
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares 5/1/96/5c/ ended 10/31/98 10.43% 10.13%
11/1/97 one year ended 10.66% 10.24%
10/31/98
Institutional Shares 8/1/95/5d/ ended 10/31/98 11.81% 11.36%
11/1/97 one year ended 11.95% 11.50%
10/31/98
11/1/95 three years 11.25% _____%
ended 10/31/98
Service Shares 8/2/91/5e/ ended 10/31/98 8.71% 8.38%
11/1/97 one year ended 11.43% 10.98%
10/31/98
11/1/95 three years 10.71% _____%
ended 10/31/98
11/1/93 five years 8.32% 7.97%
ended 10/31/98
Class C Shares 8/15/97/5f/ ended 10/31/98 11.40% 10.99%
11/1/97 one year ended 10.65% 10.24%
10/31/98
</TABLE>
B-118
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL INCOME FUND
Class A Shares 7/20/93/6a/ ended 10/31/98
assumes 4.5% sales charge 5.56% 4.64%
assumes no sales charge 6.48% 5.55%
11/1/97 one year ended
10/31/98
assumes 4.5% sales charge 2.92% 2.13%
assumes no sales charge 7.79% 6.97%
11/1/95 three years
ended 10/31/98
assumes 4.5% sales charge _____% _____%
assumes no sales charge 7.71% _____%
11/1/93 five years
ended 10/31/98
assumes 4.5% sales charge 5.11% 4.29%
assumes no sales charge 6.09% 5.25%
Class B Shares 5/1/96/6b/ ended 10/31/98 7.94% 7.47%
11/1/97 one year ended 6.91% 6.34%
10/31/98
Class C Shares 8/15/97/6c/ ended 10/31/98 7.24% 6.63%
Institutional Shares 8/15/97/6c/ ended 10/31/98 8.39% 7.83%
Service 8/15/97/6c/ ended 10/31/98 6.45% 5.57%
</TABLE>
B-119
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/1/97 one year ended 7.68% 7.04%
10/31/98
GOVERNMENT INCOME FUND
Class A Shares 2/10/93/7a/ ended 10/31/98
assume 4.5% sales charge 6.60% 4.62%
assumes no sales charge 7.46% 5.47%
11/1/97 one year ended
10/31/98
assumes 4.5% sales charge 4.05% 3.27%
assumes no sales charge 8.98% 8.16%
11/1/93 5 years ended
10/31/98
assumes 4.5% sales charge 5.94% 4.29%
assumes no sales charge 6.92% 5.25%
Class B Shares 5/1/96/7b/ ended 10/31/98 8.39% 7.57%
11/1/97 one year ended 8.09% 7.52%
10/31/98
Class C Shares 8/15/97/7c/ ended 10/31/98 9.01% 8.03%
11/1/97 one year ended 8.09% 7.52%
10/31/98
</TABLE>
B-120
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares 8/15/97/7c/ ended 10/31/98 10.17 % 9.43 %
11/1/97 one year ended 9.19 % 8.60 %
10/31/98
Service Shares 8/15/97/7c/ ended 10/31/98 7.37 % 5.43 %
11/1/97 one year ended 8.53 % 7.93 %
10/31/98
HIGH YIELD FUND
Class A Shares 8/1/97/8a/ ended 10/31/98
assumes 4.5% sales charge (2.99)% (3.32)%
assumes no sales charge .63 % .30 %
11/1/97 one year ended
10/31/98
assumes 4.5% sales charge (5.17)% (5.42)%
assumes no sales charge (.70)% (.96)%
Class B Shares 8/1/97/8a/ ended 10/31/98 (.11)% (.23)%
11/1/97 one year ended (1.43)% (1.48)%
10/31/98
Class C Shares 8/15/97/8b/ ended 10/31/98 0.00 % (.10)%
</TABLE>
B-121
<PAGE>
<TABLE>
<CAPTION>
Average Annual
---------------------------------------------------------------------
Investment Investment With Fee Without Fee
Date Period Reductions Reductions
Fund and/or and/or
---- Expense Expense
Limitations Limitations
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/1/97 one year ended (1.43)% (1.47)%
10/31/98
Institutional Shares 8/1/97/8a/ ended 10/31/98 1.00 % .87 %
11/1/97 one year ended (.32)% (.38)%
10/31/98
Service Shares 8/1/97/8a/ ended 10/31/98 .52 % .32 %
11/1/97 one year ended (.79)% (.95)%
10/31/98
</TABLE>
_____________________________
1a Institutional Shares of Adjustable Rate Government Fund commenced
operations on July 17, 1991.
1b Administration Shares of Adjustable Rate Government Fund commended
operations on April 15, 1993.
1c Service Shares of Adjustable Rate Government Fund commenced operations
on March 27, 1997.
1d Class A shares of Adjustable Rate Government 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.
2c Class A and Class B Shares of Short Duration Government Fund commenced
operations on May 1, 1997.
2d Class C Shares of Short Duration Government Fund commenced operations on
August 15, 1997.
B-122
<PAGE>
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.
3d Class A and Class B Shares of Short Duration Tax-Free Fund commenced
operations on May 1, 1997.
3e Class C Shares of Short Duration Tax-Free Fund commenced operations on August
15, 1997.
4a Institutional Shares of Core Fixed Income commenced operations on January 5,
1994.
4b Administration Shares of Core Fixed Income commenced operations on February
28, 1996. Service Shares of Core Fixed Income commenced operations on March
13, 1996.
4c Class A and Class B Shares of Core Fixed Income commenced operations on May
1, 1997.
4d Class C Shares of Core Fixed Income commenced operations on August 15, 1997.
5a 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.
5b Class A Shares of Global Income Fund commenced operations on August 2, 1991.
5c Class B Shares of Global Income Fund commenced operations on May 1, 1996.
5d Institutional Shares of Global Income Fund commenced operations on August 1,
1995.
5e Service Shares of Global Income Fund commenced operations on March 12, 1997.
5f Class C Shares of Global Income Fund commenced operations August 15, 1997.
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.
6c Class C, Institutional and Service Shares of the Municipal Income Fund
commenced operations on August 15, 1997.
7a Class A, Shares of Government Income Fund commenced operations on February
10, 1993.
7b Class B Shares of Government Income Fund commenced operations on May 1, 1996.
7c Class C, Institutional and Service Shares of the Government Income Fund
commenced operations on August 15, 1997.
8a Class A, Class B, Institutional and Service Shares, Shares of High Yield Fund
commenced operations on August 1, 1997.
8b Class C Shares of High Yield Fund commenced operations on August 15, 1997.
B-123
<PAGE>
The above table should not be considered a representation of future performance.
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., Donaghue's 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, Government Income and Short Duration
Government Funds 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 and Municipal Income Funds 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 Fixed Income, Global Income and High Yield Funds may each from time to
time advertise its performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published
B-124
<PAGE>
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 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.
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.
B-125
<PAGE>
.. 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.
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 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. Each Fund's performance quotations do not reflect any
fees charged by a Service Organization or Authorized Dealer to its customer
accounts in connection with investments in the Funds.
OTHER INFORMATION
As stated in the Prospectus, the Trust may authorize certain institutions
(including banks, trust companies, brokers and Investment Advisers), Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. Certain Service Organizations or institutions may enter into
sub-transfer agency agreements with the Trust or Goldman Sachs with respect to
their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Service Organizations and other persons in
connection with the sale and/or servicing of shares of the Funds and other
investment portfolios of the Trust. These payments ("Additional Payments") would
be in addition to the payments by the Funds described in the Funds' Prospectus
and this Additional Statement for shareholder servicing and processing.
B-126
<PAGE>
These Additional Payments may take the form of "due diligence" payments for an
institution's examination of the Funds and payments for providing extra employee
training and information relating to the Funds; "listing" fees for the placement
of the Funds on a dealer's list of mutual funds available for purchase by its
customers; "marketing support" fees for providing assistance in promoting the
sale of the Funds' shares; and payments for the sale of shares and/or the
maintenance of share balances. In addition, the Investment Adviser, Distributor
and/or their affiliates may make Additional Payments for subaccounting,
administrative and/or shareholder processing services that are in addition to
any shareholder servicing and processing fees paid by the Funds. The Additional
Payments made by the Investment Adviser, Distributor and their affiliates may be
a fixed dollar amount, may be based on the number of customer accounts
maintained by an institution, or may be based on a percentage of the value of
shares sold to, or held by, customers of the institution involved, and may be
different for different institutions. Furthermore, the Investment Adviser,
Distributor and/or their affiliates may contribute to various non-cash and cash
incentive arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions in which participants may
receive prizes such as travel awards, merchandise and cash and/or investment
research pertaining to particular securities and other financial instruments or
to the securities and financial markets generally, educational information and
related support materials and hardware and/or software. The Investment Adviser,
Distributor and their affiliates may also pay for the travel expenses, meals,
lodging and entertainment of Service Organizations and other institutions and
their salespersons and guests in connection with educational, sales and
promotional programs, subject to applicable NASD regulations. The Distributor
currently expects that such additional bonuses or incentives will not exceed
0.50% of the amount of any sales.
Shares of the Funds are offered and sold on a continuous basis by the
Trust's Distributor, Goldman Sachs, acting as agent. As described in the
Prospectus, shares of the Funds are redeemed at their net asset value as next
determined after receipt of the purchase or redemption order.
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.
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
B-127
<PAGE>
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 waiting 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 IRAs, 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 a 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 Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90- day period for any one
shareholder. 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 may incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
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 such 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 such Fund.
(The Trust may also suspend or postpone the recommendation of the transfer of
shares upon the occurrence of any of the foregoing conditions).
B-128
<PAGE>
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,
independent public accounts, for each Fund contained in each Fund's 1998 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. No other
portions of the Funds' Annual Report are incorporated herein by reference.
OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A Shares, Class B Shares and Class C Shares Only)
The following information supplements the information in the Prospectus
under the captions "Shareholder Guide" 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.
B-129
<PAGE>
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 Fund 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 the
Government Income 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 Fund purchased (i) by an individual, his spouse and his
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 Fund
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 Private
Client Services account. In addition, Class A Shares of the Funds and Class A
Shares of any other Goldman Sachs Fund 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, certain affinity groups or other similar organizations
(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, group'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. In addition, in
connection with SIMPLE IRA accounts, cumulative quantity discounts are available
on a per plan basis if (1) your employee has been assigned a cumulative discount
number by Goldman Sachs, and (2) your account, alone or in combination with the
accounts of other plan participants also invested in Class A shares of the
Goldman Sachs Funds totals the requisite aggregate amount as described in the
Prospectus.
STATEMENT OF INTENTION - (CLASS A)
- ----------------------------------
If a shareholder anticipates purchasing at least $100,000 ($500,000 in the
case of Adjustable Rate Government Fund and $250,000 in the case of Short
Duration Government and Short Duration Tax-Free Funds) of Class A Shares of a
Fund alone or in combination with Class A Shares of any other Goldman Sachs Fund
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
B-130
<PAGE>
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 Goldman Sachs Fund or ILA Fund and its shares or units and consider its
investment objective, policies and applicable fees before electing cross-
reinvestment into that Fund. The election to cross-reinvest dividends and
capital gain distributions will not affect the tax treatment of such dividends
and distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends
and distributions in shares of other Goldman Sachs Funds 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 Fund and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Fund.
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
B-131
<PAGE>
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, Class B or Class C 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, Class B and Class C Shares. The CDSC
applicable to Class B and Class C Shares redeemed under a systematic withdrawal
plan may be waived. See "Shareholder Guide" 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 Investment Adviser with regard to
the tax consequences of participating in the Systematic Withdrawal Plan. For
further information or to request a Systematic Withdrawal Plan, please write or
call the Transfer Agent.
OFFERING PRICE OF CLASS A SHARES
- --------------------------------
Class A Shares of Government Income, Municipal Income, Core Fixed Income,
Global Income and High Yield Funds are sold at a maximum sales charge of 4.5%,
Adjustable Rate Government Fund at 1.5% and Short Duration Government and Short
Duration Tax-Free Funds at 2%. Using the offering price as of October 31, 1998,
the maximum offering price of the Class A shares of each Fund's shares then in
existence would be as follows:
<TABLE>
<CAPTION>
Net Asset Maximum Offering Price
Value Sales Charge to Public
----- ------------ ---------
<S> <C> <C> <C>
Adjustable Rate Government $ 9.69 1.5% $ 9.84
Municipal Income 15.47 4.5% 16.20
Government Income 14.91 4.5% 15.61
Global Income 15.65 4.5% 16.39
Short Duration Government 9.91 2.0% 10.11
Short Duration Tax-Free 10.19 2.0% 10.40
Core Fixed Income 10.25 4.5% 10.73
High Yield 9.16 4.5% 9.59
</TABLE>
DISTRIBUTION AND SERVICE PLANS
(Class A Shares, Class B Shares and Class C Shares Only)
Distribution and Service Plans. As described in the Prospectus, the Trust
------------------------------
has adopted, on behalf of Class A, Class B and Class C Shares of each Fund,
distribution and service plans (each a "Plan") pursuant to Rule 12b-1 under the
Act. See "Shareholder Services" in the Prospectus.
B-132
<PAGE>
The Plans for each Fund were most recently approved on July 22, 1998 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 Plans, cast in person at a meeting called for the purpose of
approving the Plans.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75% per annum of a Fund's average daily net assets
attributable to Class A, Class B and Class C Shares, respectively, of such Fund.
Currently, Goldman Sachs has voluntarily agreed to limit such fees to 0.60% of
the average daily net assets attributable to Class B Shares of the Short
Duration Government and Short Duration Tax-Free Funds. Goldman Sachs may modify
or discontinue such limitation in the future at its discretion.
Under the Plans for Class A (Global Income Fund only), Class B and Class C
Shares, Goldman Sachs is also entitled to received a separate fee for personal
and account maintenance services equal to an annual basis of 0.25% of each
Fund's average daily net assets attributable to Class B or Class C Shares. With
respect to Class A Shares, the Distributor at its discretion may use
compensation for distribution services paid under the Plan for personal and
account maintenance services and expenses so long as such total compensation
under the Plan does not exceed the maximum cap on "service fees" imposed by the
NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class B and Class C 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 A, Class B and Class
C Shares. To the extent such fees are not paid to such dealers, Goldman Sachs
may retain such fee as compensation for its services and expenses of
distributing the Funds' Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of each Fund's Class A,
Class B and Class C 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 Plans will remain in effect until May 1, 1999 and from year to year
thereafter, provided that 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
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of
the outstanding Class A, Class B or Class C Shares of the affected Fund and
share class. All material amendments of a Plan must also be approved by the
Trustees of the Trust in the manner described above. A Plan may be terminated
at any time as to any
B-133
<PAGE>
Fund without payment of any penalty by a vote of a majority of the non-
interested Trustees of the Trust or by vote of a majority of the Class A, Class
B or Class C Shares, respectively, of the applicable Fund and share class. If a
Plan was terminated by the Trustees of the Trust and no successor plan was
adopted, the Fund would cease to make payments to Goldman Sachs under the Plan
and Goldman Sachs would be unable to recover the amount of any of its
unreimbursed expenditures. So long as a Plan is in effect, the selection and
nomination of non-interested Trustees of the Trust may 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, Class B and Class C
Shareholders.
B-134
<PAGE>
For the fiscal years ended October 31, 1998, 1997, and 1996, each Fund paid
Goldman Sachs the following distribution fees under the Class A Plans:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government
with fee waivers $ 0 $ 0 $ 0
without fee waivers $102,876 81,928 30,905
Municipal Income
with fee waivers 0 0 0
without fee waivers 178,683 143,712 131,925
Government Income
with fee waivers 0 0 0
without fee waivers 219,354 125,705 73,949
Global Income
with fee waivers 393,655 382,046 493,170
without fee waivers 452,049 454,906 549,164
Core Fixed Income/(1)/
with fee waivers 0 0 N/A
without fee waivers 70,419 4,437 N/A
Short Duration Government/(1)/
with fee waivers 0 0 N/A
without fee waivers 49,769 3,709 N/A
Short Duration Tax-Free/(1)/
with fee waivers 0 0 N/A
without fee waivers 24,902 2,364 N/A
High Yield/(2)/
with fee waivers 0 0 N/A
without fee waivers 882,122 152,945 N/A
</TABLE>
______________________
/1/ Class A Shares of the Core Fixed Income, Short Duration Government and
Short Duration Tax-Free Funds commenced operations on May 1, 1997.
/2/ High Yield Fund commenced operations on August 1, 1997.
B-135
<PAGE>
During the fiscal year ended October 31, 1998, Goldman Sachs incurred the
following distribution expenses under the Class A Plan on behalf of Adjustable
Rate Government, Government Income, Municipal Income, Global Income Short
Duration Government, Short Duration Tax-free, Core Fixed Income, and High Yield
Funds (Goldman Sachs used the fees, if any, received under the Plan in the same
proportion to the amounts set forth below).
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses to Distribution
Distributor Telephone and Other than of Sales
Fiscal Year ended Compensation to and its Sales Travel Expenses Current Literature and
October 31, 1998 Dealers Personnel Shareholders Advertising
<S> <C> <C> <C> <C> <C>
Adjustable Rate
Government(1) N/A N/A N/A N/A N/A
Municipal N/A N/A N/A N/A N/A
Income(1)
Government N/A N/A N/A N/A N/A
Income(1)
Global Income $______ $______ $______ $______ $______
Short Duration N/A N/A N/A N/A N/A
Government(1)
Short Duration N/A N/A N/A N/A N/A
Tax-free(1)
Core Fixed N/A N/A N/A N/A N/A
Income(1)
High Yield(1) N/A N/A N/A N/A N/A
</TABLE>
- -------------------------
1 For the period presented, Goldman Sachs waived the 0.25% 12b-1 fee for
these Funds. As no distribution expenses were incurred during this period,
no expenses are reflected above.
B-136
<PAGE>
For the fiscal years ended October 31, 1998, October 31, 1997 and October
31, 1996, each Fund paid Goldman Sachs the following distribution fees under the
Class B Plans:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Municipal Income
with fee waivers 27,987 $ 6,660 $ 378
Without fee waivers 27,987 6,660 378
Government Income
with fee waivers 89,893 25,662 332
Without fee waivers 89,893 25,662 332
Global Income
with fee waivers 41,095 10,696 374
Without fee waivers 41,095 10,696 374
Core Fixed Income(1)
with fee waivers 23,390 1,016 N/A
Without fee waivers 23,390 1,016 N/A
Short Duration Government(1)
with fee waivers 14,333 1,363 N/A
Without fee waivers 17,917 1,704 N/A
Short Duration Tax-Free(1)
with fee waivers 1,766 149 N/A
Without fee waivers 2,208 186 N/A
High Yield(2)
with fee waivers 162,013 10,016 N/A
without fee waivers 162,013 10,016 N/A
</TABLE>
________________________
(1) Class B Shares of Core Fixed Income, Short Duration and Short Duration Tax-
Free commenced operations on May 1, 1997.
(2) High Yield Fund commenced operations on August 1, 1997.
B-137
<PAGE>
During the fiscal year ended October 31, 1998, 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>
Compensation
and Preparation
Expenses Printing and and
of the Allocable Mailing of Distribution
Distributor Overhead, Prospectuses Of Sales
and its Telephone to Other than Literature
Fiscal Year ended Compensation Sales and Travel Current and
October 31, 1998 To Dealers Personnel Expenses Shareholders Advertising
<S> <C> <C> <C> <C> <C>
Adjustable Rate
Government N/A N/A N/A N/A N/A
Municipal Income $_____(1) N/A N/A N/A N/A
Government $_____(1) N/A N/A N/A N/A
Income
Global Income $_____(1) N/A N/A N/A N/A
Short Duration $_____(1) N/A N/A N/A N/A
Government
Fund(2)
Short Duration $_____(1) N/A N/A N/A N/A
Tax-Free
Fund(2)
Core Fixed $_____(1) N/A N/A N/A N/A
Income Fund(2)
High Yield $_____(1) N/A N/A N/A N/A
Fund(3)
</TABLE>
_______________________
(1) Advance commissions paid to dealers of 4% on Class B shares are considered
deferred assets which are amortized over a period of six years; amounts
presented above reflect amortization expense recorded during the period
presented.
(2) Class B Shares for Core Fixed Income, Short Duration Government and Short
Duration Tax-Free Funds commenced operations on May 1, 1997.
B-138
<PAGE>
(3) High Yield Fund commenced operations on August 1, 1997.
B-139
<PAGE>
For the fiscal year ended October 31, 1998 and October 31, 1997, each Fund
paid Goldman Sachs the following amounts under the Class C Plans:
<TABLE>
<CAPTION>
1998 1997/(1)/
---- ---------
<S> <C> <C>
Municipal Income $ 9,431 $ 40
with fee waivers 9,431 40
without fee waivers
Government Income
with fee waivers 28,296 827
without fee waivers 28,296 827
Global Income
with fee waivers 16,605 285
without fee waivers 16,605 285
Core Fixed Income
with fee waivers 22,989 145
without fee waivers 22,989 145
Short Duration Government
with fee waivers 13,865 83
without fee waivers 13,865 83
Short Duration tax-free
with fee waivers 9,254 12
without fee waivers 9,254 12
High Yield
with fee waivers 47,698 1,296
without fee waivers 47,698 1,296
</TABLE>
________________________
(1) Class C Shares of each Fund commenced operations on August 15, 1997.
B-140
<PAGE>
During the fiscal year ended October 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class C 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>
Printing and
Allocable Mailing of
Compensation Overhead, Prospectuses to Preparation and
and Expenses of Telephone Other than Distribution of
Fiscal Year ended Compensation to the Distributor and Travel Current Sales Literature
October 31, 1997 Dealers and its Sales Expenses Shareholders and Advertising
<S> <C> <C> <C> <C> <C>
Municipal Income $_______/(1)/ N/A N/A N/A N/A
Government Income _______/(1)/ N/A N/A N/A N/A
Global Income _______/(1)/ N/A N/A N/A N/A
Short Duration
Government Fund _______/(1)/ N/A N/A N/A N/A
Short Duration
Tax-Free Fund _______/(1)/ N/A N/A N/A N/A
Core Fixed Income _______/(1)/ N/A N/A N/A N/A
Fund
High Yield Fund/(2)/ _______/(1)/ N/A N/A N/A N/A
</TABLE>
_______________________
/(1)/ Advance commissions paid to dealers of 1% on Class C Shares are considered
deferred assets which are amortized over a period of one year; amounts
presented above reflect amortization expense recorded during the period
presented.
/(2)/ High Yield Fund commenced operations on August 1, 1997.
For the fiscal years ended October 31, 1998, October 31, 1997 and October
31, 1996 Goldman Sachs received service fees from the Funds pursuant to the
service plans then in existence at the rate of 0.25% of each Fund's average
daily net assets attributable to Class A, Class B, or Class C Shares which
totaled:
B-141
<PAGE>
<TABLE>
<CAPTION>
Class A Class B Class C *
1998 1997 1996 1998 1997 1996 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable
Rate Government $114,701 $ 81,928 $ 30,905 N/A N/A N/A N/A N/A
Municipal Income 198,110 143,714 131,925 9,329 $2,222 $ 126 3,143 $ 13
Government Income 242,829 125,744 74,060 29,964 8,546 111 9,431 273
Global Income 450,664 454,817 549,164 13,698 3,565 125 5,518 95
Core 82,043 4,437 N/A 7,797 346 N/A 7,662 49
Fixed Income/(1)/
Short Duration Government/(1)/ 61,613 3,709 N/A 5,995 568 N/A 4,622 36
Short Duration
Tax-Free/(1)/ 28,662 2,364 N/A 736 62 N/A 3,084 4
High Yield/(2)/ 962,496 152,941 N/A 54,004 3,342 N/A 15,600 432
</TABLE>
_______________________
/1/ Class A and Class B Shares commenced operations on May 1,
1997.
/2/ High Yield Fund commenced operations on August 1, 1997.
* No Class C Shares were outstanding as of October 31, 1996.
SERVICE PLAN
(SERVICE SHARES ONLY)
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
B-142
<PAGE>
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% of
such average daily net assets. For the fiscal years ended October 31, 1998,
October 31, 1997, and October 31, 1996 service fees were paid by the Funds as
follows:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government/(1)/ $ 2,702 $ 292 N/A
Short Duration Government 23,540 12,087 $1,222
Short Duration Tax-Free 2,142 6,435 2,322
Government Income/(2)/ N/A 2 N/A
Municipal Income/(3)/ N/A 2 N/A
Core Fixed Income 39,455 6,207 422
Global Income/(4)/ 885 523 N/A
High Yield/(5)/ 624 8 N/A
</TABLE>
_________________________
/(1)/ No Service Shares of Adjustable Rate Government Fund were outstanding at
October 31, 1996.
/(2)/ No Service Shares of Government Income Fund were outstanding at October
31, 1996.
/(3)/ No Service Shares of Municipal Income Fund were outstanding at October
31, 1996.
/(4)/ No Service Shares of Global Income Fund were outstanding at October 31,
1996.
/(5)/ High Yield Fund commenced operations on August 1, 1997.
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.
B-143
<PAGE>
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing 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
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 Investment Advisers
before investing fiduciary assets in Service Shares of the Funds. 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.
The Plans with respect to the Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free and Core Fixed Income Funds 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 at a meeting called for
the purpose of voting on such Plans and Service Agreements on April 22, 1998.
Each Plan and Service Agreement will remain in effect until May 1, 1999 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
B-144
<PAGE>
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. 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.
ADMINISTRATION PLAN
(ADMINISTRATION SHARES ONLY)
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, 1998,
1997, and 1996, administration fees accrued by the Funds were as follows:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government $10,895 $ 9,699 $9,833
Core Fixed Income 5,460 14,647 741
Short Duration Government 10,828 3,203 107
Short Duration tax-free 221 222 129
</TABLE>
B-145
<PAGE>
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 Investment 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.
The Plans with respect to Adjustable Rate Government Fund, Short Duration
Government Fund, Short Duration Tax-Free Fund and Core Fixed Income 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 22, 1998. The Plans and Service Agreements will
remain in effect until May 1, 1999 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.
[End of Page]
B-146
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on August 1, 1991. For comparative pur-
poses, the performance of the Fund's 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 ("Six-Month T-Bill/One-Year T-Bill")) are
shown. This performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of Class A, Administration and Service shares will vary from In-
stitutional shares due to differences in fees and loads.
ADJUSTABLE RATE GOVERNMENT FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1991 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Adjustable Rate
Government Fund Lehman 1-2 One-Year Six-Month
(Institutional Shares) Index T-Bill T-Bill
8/1/91 10000 10000 10000 10000
Aug-91 10074 10120 10083 10060
Sep-91 10136 10213 10158 10117
10/91 10208 10316 10236 10174
Nov-91 10277 10415 10314 10234
Dec-91 10333 10554 10407 10300
1/92 10389 10556 10436 10335
Feb-92 10441 10588 10463 10365
Mar-92 10474 10600 10489 10397
4/92 10522 10694 10550 10450
May-92 10588 10777 10592 10489
Jun-92 10661 10870 10648 10531
7/92 10724 10979 10726 10583
Aug-92 10779 11056 10775 10617
Sep-92 10833 11149 10844 10665
10/92 10834 11100 10832 10675
Nov-92 10843 11092 10841 10698
Dec-92 10911 11190 10900 10740
1/93 10947 11288 10957 10780
Feb-93 10996 11361 10995 10808
Mar-93 11020 11393 11027 10841
4/93 11065 11455 11066 10870
May-93 11086 11433 11055 10887
Jun-93 11148 11505 11109 10920
7/93 11188 11533 11137 10949
Aug-93 11238 11610 11187 10984
Sep-93 11264 11647 11219 11015
10/93 11282 11672 11240 11039
Nov-93 11292 11686 11261 11067
Dec-93 11323 11728 11301 11106
1/94 11355 11796 11347 11142
Feb-94 11375 11746 11334 11152
Mar-94 11369 11717 11336 11180
4/94 11352 11688 11326 11197
May-94 11359 11709 11341 11228
Jun-94 11384 11742 11378 11277
7/94 11441 11836 11448 11324
Aug-94 11478 11876 11487 11369
Sep-94 11485 11866 11504 11400
10/94 11494 11900 11549 11452
Nov-94 11492 11861 11543 11486
Dec-94 11543 11891 11582 11536
1/95 11659 12036 11698 11611
Feb-95 11748 12178 11800 11679
Mar-95 11804 12248 11869 11739
4/95 11879 12347 11937 11801
May-95 11991 12518 12044 11872
Jun-95 12006 12585 12113 11935
7/95 12072 12644 12173 11995
Aug-95 12139 12713 12231 12054
Sep-95 12191 12771 12281 12104
10/95 12270 12865 12355 12164
Nov-95 12346 12960 12429 12223
Dec-95 12424 13051 12498 12291
1/96 12515 13154 12578 12352
Feb-96 12549 13125 12593 12396
Mar-96 12600 13133 12627 12438
4/96 12662 13158 12671 12489
May-96 12740 13198 12716 12540
Jun-96 12790 13286 12784 12594
7/96 12855 13338 12832 12649
Aug-96 12920 13393 12893 12705
Sep-96 13023 13500 12980 12771
10/96 13114 13635 13076 12832
Nov-96 13191 13722 13140 12889
Dec-96 13257 13744 13185 12943
1/97 13323 13808 13250 13000
Feb-97 13383 13849 13299 13060
Mar-97 13436 13854 13332 13111
4/97 13545 13958 13410 13173
May-97 13643 14051 13493 13244
Jun-97 13712 14140 13572 13308
7/97 13797 14269 13670 13370
Aug-97 13853 14297 13712 13424
Sep-97 13921 14394 13785 13493
10/97 13992 14489 13861 13554
Nov-97 14032 14529 13901 13602
Dec-97 14087 14621 13966 13665
1/98 14172 14745 14057 13735
Feb-98 14207 14769 14094 13786
Mar-98 14264 14829 14165 13854
4/98 14289 14899 14232 13915
5/98 14346 14975 14442 13976
6/98 14415 15050 14511 14043
7/98 14457 15121 14579 14110
8/98 14530 15277 14697 14183
9/98 14583 15451 14817 14268
10/98 14565 15531 14893 14328
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 15, 1995)
Excluding sales charges 5.63% n/a 3.71%
Including sales charges 5.16% n/a 2.16%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JULY 17,
1991) 5.34% 5.24% 4.09%
------------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED APRIL
15, 1993) 4.85% 4.98% 3.83%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 27, 1997) 4.63% n/a 3.57%
------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
17
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 86.0%
ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)(A) - 20.7%
$ 1,884,454 7.29% 07/01/2018 $ 1,917,809
4,154,158 8.16 11/01/2018 4,272,302
887,658 7.31 12/01/2018 902,908
6,485,132(b) 7.33 05/01/2019 6,574,043
15,255,307(b) 7.53 11/01/2019 15,689,625
8,378,831 7.24 01/01/2020 8,474,852
3,290,423 7.51 05/01/2020 3,366,497
12,052,342(b) 7.45 06/01/2020 12,241,684
24,961,460(b) 7.60 02/01/2022 25,569,522
4,706,626 7.22 06/01/2022 4,774,778
2,829,548 7.30 08/01/2022 2,866,247
3,968,347 7.19 09/01/2022 4,015,967
4,430,804(b) 7.36 09/01/2022 4,494,829
6,487,956(b) 7.52 06/01/2024 6,614,666
2,453,837 7.16 02/01/2028 2,479,284
1,136,617(b) 7.49 07/01/2030 1,157,929
------------
$105,412,942
----------------------------------------------------------------------------------------------
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - 38.5%
$ 1,056,694 7.22% 04/01/2003 $ 1,067,599
724,071 7.43 11/01/2014 741,239
466,162 7.21 12/01/2015 470,143
4,126,862 6.56 03/01/2017 4,130,741
2,519,416 7.38 03/01/2017 2,569,679
8,576,471 6.99 04/01/2017 8,675,615
539,836 7.19 11/01/2017 546,250
784,577 7.04 03/01/2018 793,819
2,955,406 6.35 03/01/2018 2,949,909
569,993 7.47 05/01/2018 576,674
288,552 7.15 06/01/2018 292,819
896,436 7.24 06/01/2018 910,366
6,020,013 7.31 06/01/2018 6,147,758
3,554,572 7.30 07/01/2018 3,623,566
4,337,221 7.07 08/01/2018 4,407,484
2,915,222 7.59 08/01/2018 2,991,338
2,147,218 7.30 10/01/2018 2,184,795
1,420,692 7.13 10/01/2018 1,441,946
127,626 7.12 11/01/2018 128,685
4,310,005 7.20 11/01/2018 4,383,404
1,321,719 7.17 12/01/2018 1,341,809
9,776,995(b) 7.62 12/01/2018 10,019,660
2,282,400 7.17 06/01/2019 2,310,839
1,086,940 7.13 07/01/2019 1,104,831
2,958,595 7.18 07/01/2019 3,006,199
1,167,823 7.14 08/01/2019 1,182,467
2,737,317 7.37 09/01/2019 2,791,625
2,071,759 7.57 03/01/2020 2,113,381
6,218,420 7.15 07/01/2020 6,313,127
14,630,896 7.51 01/01/2021 14,977,795
3,360,772 7.44 02/01/2021 3,441,834
3,708,467 7.15 04/01/2021 3,769,879
49,482,409(b) 7.37 09/01/2021 50,572,012
14,695,792(b) 7.45 02/01/2022 15,075,091
1,544,367 7.08 05/20/2022 1,555,749
4,580,430 7.49 06/01/2022 4,699,705
1,346,612 7.39 08/01/2022 1,376,440
4,748,688 7.45 09/01/2022 4,858,002
257,188 6.22 12/01/2023 259,680
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - (CONTINUED)
$10,797,106 6.94% 06/20/2024 $ 10,959,063
551,303 7.43 09/01/2025 562,390
2,874,064 7.06 08/01/2027 2,911,542
1,767,014 6.97 10/01/2027 1,796,646
------------
$196,033,595
----------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)(A) - 3.0%
$ 1,287,918 6.87% 03/20/2016 $ 1,311,667
3,747,337 6.62 08/20/2018 3,824,045
4,614,191 6.87 02/20/2021 4,687,742
2,273,990 6.87 06/20/2022 2,310,942
3,037,186 6.87 05/20/2023 3,060,876
------------
$ 15,195,272
----------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 3.2%
$ 5,353,997 7.00% 12/01/1999 $ 5,384,676
1,951,984 6.50 03/01/2013 1,980,054
3,945,910 6.50 04/01/2013 4,002,653
1,634,011 6.50 05/01/2013 1,657,509
3,383,288 6.50 06/01/2013 3,424,371
------------
$ 16,449,263
----------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.5%
$ 9,966,054 7.00% 10/01/2002 $ 10,106,206
6,862,306 8.00 11/01/2017 7,123,966
------------
$ 17,230,172
----------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 4.9%
$ 8,209,936 9.00% 12/15/2017 $ 8,789,722
357,801 7.00 01/15/2023 366,299
540,955 7.00 05/15/2023 553,970
516,923 7.00 06/15/2023 529,361
2,435,399 7.00 07/15/2023 2,493,784
415,158 7.00 09/15/2023 425,147
1,237,675 7.00 10/15/2023 1,267,454
4,675,610 7.00 11/15/2023 4,786,572
5,867,550 7.00 12/15/2023 6,006,729
------------
$ 25,219,038
----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 12.2%
ADJUSTABLE RATE CMOS(A) - 1.4%
FNMA Remic Trust 1990-145, Class A
$ 7,235,523 6.40% 12/25/2020 $ 7,199,490
----------------------------------------------------------------------------------------------
INVERSE FLOATER(A) - 1.4%
FNMA Series 1993-189, Class SA
$ 7,088,450 9.75% 10/25/2023 $ 7,091,143
----------------------------------------------------------------------------------------------
IOETTE - 0.1%
FNMA Remic Trust 1990-145, Class B
$ 17,780 11.18%(c) 12/25/2020 $ 324,812
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 3.2%
FHLMC Series 2055, Class OD(b)
$10,000,000 6.00% 12/15/2007 $ 10,043,700
FNMA Series X-188B, Class ZA
6,144,677 5.75 09/25/2010 6,175,462
------------
$ 16,219,162
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
REGULAR FLOATER CMOS(A) - 1.3%
FNMA Remic Trust 169B, Class FA
$ 1,823,556 5.68% 09/25/2000 $ 1,835,518
FNMA Remic Trust 1997-43, Class FA
2,794,679 6.24 07/18/2027 2,799,039
FNMA Remic Trust 1997-7, Class FB
2,112,052 6.10 03/18/2027 2,114,122
------------
$ 6,748,679
------------------------------------------------------------------------------------------------
SEQUENTIAL FIXED RATE CMOS - 3.3%
FHLMC Series 2064, Class M(b)
$ 7,300,000 6.00% 06/15/2028 $ 7,437,671
FNMA Series 1998-36, Class J
9,095,000 6.00 07/18/2028 9,284,085
------------
$ 16,721,756
------------------------------------------------------------------------------------------------
SUPPORT - 1.5%
FNMA Series G94 13, Class ZB
$ 7,821,819 7.00% 11/17/2024 $ 7,808,786
------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 62,113,828
------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $443,002,545) $437,654,110
------------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 3.2%
ADJUSTABLE RATE SMALL BUSINESS ADMINISTRATION (SBA)(A) - 3.2%
$ 865,252 6.37% 09/25/2016 $ 878,967
3,372,894 6.37 07/25/2017 3,424,542
5,530,015 6.37 08/25/2017 5,621,204
2,508,873 6.37 09/25/2017 2,547,683
2,781,031 6.37 10/25/2017 2,825,973
278,585 6.37 02/25/2018 283,279
814,558 6.12 11/25/2018 816,595
------------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES (COST $16,143,349) $ 16,398,243
------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.6%
JOINT REPURCHASE AGREEMENT ACCOUNT(B)
$43,700,000 5.63% 11/02/1998 $ 43,700,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT (COST $43,700,000) $ 43,700,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $502,845,894)(D) $497,752,353
------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(E) MONTH GAIN (LOSS)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 560 December 1998 $ 407,104
Euro Dollars 208 March 1999 588,017
Euro Dollars 89 June 1999 91,835
Euro Dollars (19) September 1999 (5,346)
Euro Dollars (20) December 1999 (74,500)
5 Year U.S.
Treasury Notes (90) December 1998 (165,368)
10 Year U.S.
Treasury Notes 24 December 1998 (3,902)
20 Year Long
Term Bond 6 December 1998 (30,226)
-------------------------------------------------------------------------------------
$ 807,614
-------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 1,898,864
Gross unrealized loss for investments in which cost ex-
ceeds value (6,992,405)
-------------------------------------------------------------------------------------
Net unrealized loss $(5,093,541)
-------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(b) Portions of these securities are being segregated for open futures
contracts, futures margin requirements and open purchases.
(c) Represents security with notional or nominal principal amount. The actual
effective yield of this security.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
(e) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $908,000,000 and
$227,205,706, respectively. The determination of notional amounts 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 total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on September 1, 1988. For comparative
purposes, the performance of the Fund's benchmarks (the U.S. 2-Year Treasury
Bill ("Two-Year T-Bill") and the Lehman Brothers Mutual Fund Short (1-3) U.S.
Government Index ("Lehman Short (1-3) Gov't Index")) are shown. This perfor-
mance data represents past performance and should not be considered indica-
tive of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares,
when redeemed, to be worth more or less than their original cost. Performance
of Class A, Class B, Class C, Administration and Service shares will vary
from Institutional shares due to differences in fees and loads.
SHORT DURATION GOVERNMENT FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1988 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Short Duration
Government Fund Lehman Short
(Institutional Shares) (1-3) Gov't Index Two-Year T-Bill
9/1/88 10000 10000 10000
Sep-88 10129 10116 10109
10/88 10257 10218 10211
Nov-88 10221 10193 10169
Dec-88 10226 10215 10367
1/89 10315 10296 10455
Feb-89 10335 10297 10443
Mar-89 10359 10340 10474
4/89 10515 10509 10623
May-89 10673 10657 10786
Jun-89 10887 10855 10992
7/89 11040 11015 11158
Aug-89 10936 10950 11064
Sep-89 11008 11013 11119
10/89 11189 11184 11276
Nov-89 11287 11284 11367
Dec-89 11336 11327 11402
1/90 11323 11340 11391
Feb-90 11386 11400 11432
Mar-90 11445 11434 11464
4/90 11461 11461 11476
May-90 11616 11638 11655
Jun-90 11732 11760 11783
7/90 11864 11902 11929
Aug-90 11896 11945 11964
Sep-90 11993 12040 12052
10/90 12110 12173 12184
Nov-90 12225 12291 12301
Dec-90 12365 12436 12451
1/91 12468 12553 12548
Feb-91 12534 12634 12608
Mar-91 12623 12718 12696
4/91 12743 12840 12806
May-91 12809 12917 12893
Jun-91 12859 12965 12964
7/91 13030 13077 13089
Aug-91 13158 13256 13275
Sep-91 13334 13396 13420
10/91 13433 13541 13556
Nov-91 13592 13681 13694
Dec-91 13588 13889 13912
1/92 13568 13870 13880
Feb-92 13585 13912 13917
Mar-92 13577 13908 13905
4/92 13668 14034 14023
May-92 13820 14164 14165
Jun-92 13984 14307 14336
7/92 14152 14471 14508
Aug-92 14276 14588 14643
Sep-92 14384 14726 14786
10/92 14274 14642 14684
Nov-92 14261 14620 14649
Dec-92 14406 14756 14789
1/93 14569 14911 14959
Feb-93 14698 15030 15090
Mar-93 14707 15076 15132
4/93 14793 15168 15232
May-93 14763 15132 15168
Jun-93 14905 15245 15290
7/93 14937 15279 15319
Aug-93 15087 15406 15458
Sep-93 15082 15455 15510
10/93 15066 15489 15534
Nov-93 15038 15492 15541
Dec-93 15120 15554 15597
1/94 15238 15652 15697
Feb-94 15159 15557 15596
Mar-94 15026 15477 15518
4/94 14962 15419 15447
May-94 14998 15439 15458
Jun-94 15027 15477 15502
7/94 15158 15616 15643
Aug-94 15208 15668 15685
Sep-94 15183 15632 15643
10/94 15216 15668 15681
Nov-94 15156 15602 15616
Dec-94 15189 15632 15637
1/95 15400 15844 15870
Feb-95 15613 16060 16095
Mar-95 15687 16150 16178
4/95 15860 16294 16324
May-95 16142 16572 16629
Jun-95 16206 16662 16717
7/95 16226 16728 16776
Aug-95 16317 16829 16869
Sep-95 16426 16911 16949
10/95 16581 17051 17096
Nov-95 16747 17196 17250
Dec-95 16861 17327 17377
1/96 17058 17474 17525
Feb-96 16976 17406 17434
Mar-96 16963 17392 17411
4/96 16982 17409 17416
May-96 17019 17447 17446
Jun-96 17160 17575 17573
7/96 17214 17643 17635
Aug-96 17322 17708 17691
Sep-96 17502 17870 17856
10/96 17703 18072 18061
Nov-96 17833 18205 18200
Dec-96 17844 18209 18195
1/97 17942 18296 18264
Feb-97 18001 18340 18298
Mar-97 17986 18325 18289
4/97 18176 18475 18440
May-97 18290 18604 18565
Jun-97 18444 18733 18695
7/97 18675 18937 18912
Aug-97 18661 18956 18920
Sep-97 18836 19100 19060
10/97 18954 19241 19210
Nov-97 18974 19289 19233
Dec-97 19091 19419 19368
1/98 19307 19605 19571
Feb-98 19289 19623 19569
Mar-98 19349 19697 19638
4/98 19426 19792 19720
5/98 19547 19898 19820
6/98 19626 20000 19976
7/98 19728 20093 20064
8/98 19992 20356 20338
9/98 20232 20612 20635
10/98 20233 20712 20742
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS TEN YEARS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN
THROUGH OCTOBER 31, 1998
<S> <C> <C> <C> <C>
CLASS A (COMMENCED MAY 1,
1997)
Excluding sales charges 7.04% n/a n/a 6.36%
Including sales charges 5.61% n/a n/a 4.25%
-----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1,
1997)
Excluding sales charges 6.40% n/a n/a 5.62%
Including sales charges 5.70% n/a n/a 3.51%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15,
1997)
Excluding sales charges 5.72% n/a n/a 5.46%
Including sales charges 5.72% n/a n/a 4.41%
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COM-
MENCED AUGUST 15, 1988) 7.18% 7.03% 6.07% 6.75%
-----------------------------------------------------------------------------
ADMINISTRATION CLASS (COM-
MENCED FEBRUARY 28, 1996) 6.43% n/a n/a 6.27%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED
APRIL 10, 1996) 6.70% n/a n/a 6.12%
-----------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
20
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 69.8%
ADJUSTABLE RATE FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)(A) - 6.6%
$ 1,279,253(b) 7.12% 08/01/2017 $ 1,296,241
1,116,932(b) 7.30 05/01/2018 1,123,432
3,627,738(b) 7.55 06/01/2018 3,691,369
1,194,234(b) 7.31 12/01/2018 1,214,751
5,632,799(b) 7.60 02/01/2022 5,770,014
1,800,160 8.10 10/01/2025 1,834,669
------------
$ 14,930,476
--------------------------------------------------------------------------------------------
ADJUSTABLE RATE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)(A) - 5.8%
$ 1,737,771(b) 7.43% 11/01/2014 $ 1,778,973
3,511,846(b) 7.04 06/01/2018 3,562,768
5,028,835(b) 7.51 01/01/2021 5,148,068
1,346,612 7.39 08/01/2022 1,376,440
1,128,360 7.49 01/01/2031 1,152,338
------------
$ 13,018,587
--------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - 8.6%
$ 977,420 6.50% 04/01/2013 $ 992,081
2,001,140 6.50 05/01/2013 2,029,917
990,168 6.50 06/01/2013 1,005,020
5,004,665 8.00 01/01/2028 5,162,612
1,173,117 7.00 07/01/2028 1,196,204
3,032,566(b) 7.00 08/01/2028 3,092,246
5,786,724(b) 7.00 09/01/2028 5,900,606
------------
$ 19,378,686
--------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 5.3%
$ 7,034,861 7.00%(c) 10/01/2002 $ 7,133,793
1,600,449 8.50 05/01/2010 1,672,966
669,773 6.00 01/01/2014 667,542
2,457,610 6.00 03/01/2014 2,473,738
------------
$ 11,948,039
--------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 3.7%
$ 183,092 9.00% 12/15/2008 $ 192,431
306,512 9.00 01/15/2009 322,950
101,468 9.00 01/15/2010 107,144
718,503 9.00 07/15/2012 756,892
1,824,430 9.00 12/15/2017 1,953,272
4,920,830(b) 7.00 10/15/2023 5,039,225
------------
$ 8,371,914
--------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 39.8%
INVERSE FLOATER(A) - 1.6%
FHLMC Series 1296, Class J
$ 757,688 11.76% 07/15/1999 $ 772,842
FNMA Remic Trust 1990-134, Class S
1,653,536 13.68 11/25/2020 1,910,430
FNMA Remic Trust 1992-62, Class S
837,866 10.29 05/25/1999 851,590
------------
$ 3,534,862
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
INVERSE FLOATING RATE--INTEREST ONLY(A) - 0.1%
FHLMC Series 1684, Class JD
$ 1,658,552 28.11%(d) 08/15/2020 $ 108,867
FNMA Remic Trust 1993-110, Class SC
841,805 3.37(d) 04/25/2019 23,040
------------
$ 131,907
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION--INTEREST ONLY - 0.2%
FHLMC Series 1587, Class HA
$ 4,779,640 6.50%(d) 10/15/2008 $ 460,279
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION--PRINCIPAL ONLY - 0.7%
FNMA Remic Trust 1989-39, Class D
$ 1,839,282 7.32%(d) 05/25/2018 $ 1,690,981
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 18.6%
FHLMC Remic Trust 1997-84, Class PA
$ 4,000,000 5.90% 11/25/2021 $ 4,092,920
FHLMC Series 1556, Class G(b)
2,000,000 6.35 10/15/2010 2,040,620
FHLMC Series 1627, Class PZ(b)
2,197,589 5.60 08/15/2017 2,207,192
FHLMC Series 1645, Class ZA(b)
6,909,745 5.50 04/15/2005 6,905,392
FHLMC Series 1985, Class PC(b)
6,000,000 6.35 05/17/2018 6,085,800
FHLMC Series 1987, Class L
4,000,000 6.20 08/25/2022 4,159,815
FHLMC Series 2055, Class OD(b)
3,000,000 6.00 12/15/2007 3,013,110
FNMA Remic Trust 1993-175, Class Z
6,068,469 5.75 10/25/2006 6,079,817
FNMA Remic Trust 1997-70, Class AB
1,250,000 6.50 09/25/2022 1,273,225
FNMA Remic Trust 1991-31, Class PJ(b)
3,000,000 6.55 10/25/2020 3,131,910
FNMA Series 1993-32, Class PH(b)
3,000,000 6.50 11/25/2022 3,061,110
------------
$ 42,050,911
----------------------------------------------------------------------------------------------
PRINCIPAL ONLY - 2.0%
FNMA Remic Trust 1992 G-28, Class A
$ 5,050,865 4.83%(d) 05/25/2007 $ 4,446,529
----------------------------------------------------------------------------------------------
REGULAR FLOATER CMOS(A) - 3.7%
FHLMC Series 1296, Class I
$ 2,121,527 5.30% 07/15/1999 $ 2,108,925
FHLMC Series 1684, Class JC(b)
1,658,552 5.40 08/15/2020 1,633,143
FNMA Remic Trust 1988-12, Class B(b)
2,110,199 4.29 02/25/2018 2,020,160
FNMA Remic Trust 1993-110, Class FC
841,805 5.60 04/25/2019 834,439
FNMA Remic Trust 1997-21, Class FA
1,615,016 6.25 04/18/2027 1,617,600
------------
$ 8,214,267
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
SEQUENTIAL FIXED RATE CMOS - 12.0%
FHLMC Series 1033, Class G(b)
$ 1,949,674 8.00% 01/15/2006 $ 2,038,014
FNMA Remic Trust 1988-12, Class A(b)
2,672,918 10.00 02/25/2018 2,940,483
FNMA Remic Trust 1989-18, Class B
303,659 9.50 01/25/2004 306,410
FNMA Remic Trust 1989-59, Class H
149,564 7.75 10/25/2018 149,049
FNMA Remic Trust 1989-74, Class J(b)
1,099,205 9.80 10/25/2019 1,160,783
FNMA Remic Trust 1990-16, Class E(b)
6,056,201 9.00 03/25/2020 6,337,632
FNMA Remic Trust 1991-133, Class Z(b)
3,926,011 8.00 09/25/2006 4,102,682
FNMA Remic Trust 1992-44, Class CA
1,555,278 12.00 08/25/2020 1,589,883
FNMA Remic Trust 1992-G43, Class D
26,670 7.50 01/25/2003 26,591
FNMA Series 1998-36, Class J(b)
6,000,000 6.00 07/18/2028 6,124,740
GNMA Remic Trust 1995-3, Class DQ(b)
2,274,296 8.05 06/16/2025 2,361,086
------------
$ 27,137,353
----------------------------------------------------------------------------------------------
SUPPORT - 0.9%
FHLMC Series 16, Class M
$ 2,000,000 7.00% 08/25/2023 $ 2,013,840
----------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 89,680,929
----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $156,747,796) $157,328,631
----------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 7.6%
Federal Home Loan Bank(b)
$ 6,000,000 5.76% 03/23/2001 $ 6,148,140
Small Business Administration
1,460,773 7.20 06/01/2017 1,609,845
2,000,000(b) 6.30 05/01/2018 2,146,694
2,500,000(b) 6.30 06/01/2018 2,677,321
Sri Lanka Aid(a)(b)
4,500,000 4.92 02/21/2016 4,443,750
----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $16,562,497) $ 17,025,750
----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 19.6%
United States Treasury Notes(b)
$41,700,000 6.63% 07/31/2001 $ 44,143,203
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $43,945,398) $ 44,143,203
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 2.8%
Joint Repurchase Agreement Account(b)
$ 6,400,000 5.63% 11/02/1998 $ 6,400,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $6,400,000) $ 6,400,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $223,655,691)(E) $224,897,584
------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(F) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 179 December 1998 $ 121,078
Euro Dollars 96 March 1999 262,326
Euro Dollars 87 June 1999 267,801
Euro Dollars 46 September 1999 154,773
Euro Dollars 45 December 1999 162,375
Euro Dollars 45 March 2000 112,964
Euro Dollars 20 June 2000 (2,877)
2 year U.S. Treasury Notes 121 December 1998 179,593
5 Year U.S. Treasury Notes (30) December 1998 (90,191)
10 Year U.S. Treasury Notes (27) December 1998 (41,892)
20 Year Long Term Bond (9) December 1998 (9,337)
------------------------------------------------------------------------
$1,116,613
------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $2,648,156
Gross unrealized loss for investments in which
cost exceeds value (1,406,263)
------------------------------------------------------------------------
Net unrealized gain $1,241,893
------------------------------------------------------------------------
</TABLE>
(a) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(b) Portions of these securities are being segregated for open futures
contracts, futures margin requirements, when-issued securities and open
purchases.
(c) When-issued Security.
(d) Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due
to the amortization of related premiums.
(e) The amount stated also represents aggregate cost for federal income tax
purposes.
(f) 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 and 10-Year U.S. Treasury Note and each U.S. 20-
Year Long Term Bond contract represents $100,000 in notional par value.
The total notional amount and market value at risk are $548,800,000 and
$157,066,369, respectively. The determination of notional amounts 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 in-
vestments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
22
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5%) in Class A shares on
March 1, 1993. For comparative purposes, the performance of the Fund's bench-
marks (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")) are shown. This performance data repre-
sents past performance and should not be considered indicative of future per-
formance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to
be worth more or less than their original cost. Performance of Class B, Class
C, Institutional and Service shares will vary from Class A due to differences
in fees and loads.
GOVERNMENT INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MARCH 1, 1993 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Government
Income
Fund Lehman Gov't Lehman U.S.
(Class A) /MBS Index Gov't Index
3/1/93 9550 10000 10000
Mar-93 9565 10043 10033
4/93 9658 10111 10110
May-93 9621 10124 10099
Jun-93 9793 10296 10323
7/93 9856 10351 10386
Aug-93 9995 10518 10618
Sep-93 10009 10547 10658
10/93 10036 10585 10699
Nov-93 9963 10502 10581
Dec-93 10019 10558 10622
1/94 10145 10689 10768
Feb-94 10028 10514 10540
Mar-94 9776 10265 10302
4/94 9695 10186 10221
May-94 9701 10192 10208
Jun-94 9702 10169 10184
7/94 9866 10362 10372
Aug-94 9874 10374 10374
Sep-94 9744 10228 10227
10/94 9737 10221 10219
Nov-94 9717 10197 10201
Dec-94 9813 10267 10263
1/95 9993 10468 10454
Feb-95 10216 10708 10679
Mar-95 10267 10769 10746
4/95 10407 10914 10887
May-95 10786 11321 11326
Jun-95 10852 11401 11413
7/95 10836 11380 11371
Aug-95 10941 11509 11505
Sep-95 11052 11616 11615
10/95 11187 11767 11792
Nov-95 11338 11934 11976
Dec-95 11493 12096 12146
1/96 11568 12176 12221
Feb-96 11373 11979 11972
Mar-96 11307 11898 11872
4/96 11256 11838 11796
May-96 11231 11813 11776
Jun-96 11389 11969 11928
7/96 11419 12003 11958
Aug-96 11418 11987 11932
Sep-96 11602 12187 12130
10/96 11838 12444 12397
Nov-96 12035 12647 12612
Dec-96 11930 12541 12484
1/97 11968 12583 12497
Feb-97 11994 12610 12515
Mar-97 11881 12481 12382
4/97 12054 12668 12560
May-97 12143 12784 12668
Jun-97 12282 12929 12810
7/97 12608 13250 13174
Aug-97 12510 13156 13043
Sep-97 12681 13343 13239
10/97 12870 13543 13468
Nov-97 12907 13602 13536
Dec-97 13042 13737 13678
1/98 13223 13917 13884
Feb-98 13206 13904 13846
Mar-98 13252 13952 13885
4/98 13300 14020 13947
5/98 13422 14281 14091
6/98 13534 14406 14251
7/98 13574 14448 14273
8/98 13846 14729 14644
9/98 14108 15039 15039
10/98 14025 15001 14988
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED FEBRUARY 10, 1993)
Excluding sales charges 7.46% 6.92% 8.98%
Including sales charges 6.60% 5.94% 4.05%
---------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding sales charges 8.39% n/a 8.09%
Including sales charges 7.15% n/a 2.80%
---------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 9.01% n/a 8.09%
Including sales charges 9.01% n/a 7.03%
---------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997) 10.11% n/a 9.19%
---------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997) 7.37% n/a 8.53%
---------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
23
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - 58.1%
FEDERAL HOME LOAN MORTGAGE CORP. - 20.4%
$ 971,452 6.00% 03/01/2013 $ 975,397
3,525,662 6.00 04/01/2013 3,539,975
185,433 6.00 06/01/2013 186,186
184,371 6.00 08/01/2013 185,119
34,505 7.00 03/01/2024 35,195
97,902 7.00 04/01/2024 99,860
17,515 7.00 08/01/2025 17,865
1,593,381 7.00 04/01/2026 1,625,248
966,972 7.00 05/01/2026 986,311
1,615,368 7.50 09/01/2026 1,655,235
827,655 7.50 11/01/2027 847,825
906,968 7.50 12/01/2027 929,071
709,551 7.00 01/01/2028 723,515
1,700,213 7.50 02/01/2028 1,741,647
666,981 7.00 08/01/2028 680,107
892,901 7.00 09/01/2028 910,473
5,000,000 7.00 TBA-30 Yr(a) 5,098,400
6,000,000 7.50 TBA-30 Yr(a) 6,146,220
------------
$ 26,383,649
---------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 6.7%
$ 245,551 6.50% 09/01/2025 $ 247,545
250,174 6.50 10/01/2025 252,206
335,559 6.50 11/01/2025 338,284
22,494 6.50 05/01/2026 22,677
467,443 6.50 08/01/2025 471,093
432,370 6.50 12/01/2025 435,767
44,820 6.50 03/01/2028 45,170
819,893 6.50 04/01/2028 826,297
1,065,828 6.50 05/01/2028 1,074,152
826,170 6.50 06/01/2028 832,622
989,378 6.50 07/01/2028 997,105
105,368 6.50 08/01/2028 106,190
105,894 6.50 09/01/2028 106,721
3,000,000 6.00 TBA-15 Yr(a) 3,012,188
------------
$ 8,768,017
---------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.1%
$ 178,982 9.00% 10/15/2019 $ 191,063
84,707 9.00 12/15/2019 90,425
236,191 7.00 03/15/2023 241,873
216,766 7.50 04/15/2023 223,267
725,346 7.00 05/15/2023 742,797
255,739 7.00 06/15/2023 261,893
1,066,013 7.00 07/15/2023 1,091,661
414,433 7.50 07/15/2023 426,862
496,340 7.00 08/15/2023 508,282
708,575 7.00 09/15/2023 725,623
1,390,624 7.00 10/15/2023 1,423,804
613,810 7.00 11/15/2023 628,578
762,633 7.00 12/15/2023 780,982
402,833 8.00 04/15/2026 417,311
357,949 8.00 05/15/2026 370,814
295,066 8.00 07/15/2026 305,671
138,693 8.00 12/15/2026 143,807
557,604 8.00 06/15/2027 578,163
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - (CONTINUED)
$ 602,695 7.50% 07/15/2027 $ 620,963
146,862 8.00 07/15/2027 152,140
274,549 7.50 09/15/2027 282,698
403,011 8.00 09/15/2027 417,495
246,870 7.50 10/15/2027 254,197
283,471 7.50 11/15/2027 292,063
696,390 7.50 12/15/2027 717,497
1,000,000 6.50 03/15/2028 1,010,930
2,988,014 7.00 08/15/2028 3,058,979
1,000,000 6.50 10/15/2028 1,010,930
------------
$ 16,970,768
----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 17.9%
INTEREST ONLY - 0.1%
FNMA Interest-Only Stripped Security, Series 151, Class 2
$ 407,767(b) 15.47% 07/25/2022 $ 96,335
----------------------------------------------------------------------------------------------
INVERSE FLOATER(C) - 1.0%
FNMA Remic Trust 1992-62, Class S
$ 279,289 10.29% 05/25/1999 $ 283,863
FNMA Series 1993-138, Class SM
921,052 12.09 12/25/2021 1,056,226
------------
$ 1,340,089
----------------------------------------------------------------------------------------------
INVERSE FLOATING RATE--INTEREST ONLY(C) - 0.3%
Salomon Brothers Mortgage Securities VII Series 1996-6E, Class A2
$12,528,238(b) 10.01% 03/30/2005 $ 352,357
----------------------------------------------------------------------------------------------
NON-AGENCY COMMERCIAL MBS - 1.0%
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
$ 400,000 7.30% 12/18/2006 $ 428,128
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C2, Class A2
800,000 6.60 11/18/2029 818,144
------------
$ 1,246,272
----------------------------------------------------------------------------------------------
PLANNED AMORTIZATION CLASS (PAC) CMOS - 9.0%
FHLMC Series 1522, Class E
$ 1,000,000 5.00% 10/15/2020 $ 992,180
FHLMC Series 1985, Class PC
1,500,000 6.35 05/17/2018 1,521,450
FHLMC Series 2055, Class OD
4,000,000 6.00 12/15/2007 4,017,480
FNMA REMIC Trust Series 1997-84, Class PB
2,000,000 5.50 01/25/2008 2,016,940
GE Capital Mortgage Services, Inc. 1997-8, Class A13
3,000,000 7.25 10/25/2027 3,048,270
------------
$ 11,596,320
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
PRINCIPAL ONLY - 0.2%
FNMA Remic Trust, Series G-35, Class N
$ 362,999 6.01%(d) 10/25/2021 $ 319,712
--------------------------------------------------------------------------------------------
SEQUENTIAL FIXED RATE CMOS - 2.6%
Citicorp Mortgage Securities, Series 1993-11, Class A6
$ 561,687 6.25% 09/25/2008 $ 558,132
GE Capital Mortgage Services, Inc. Series 1995-1, Class A8
2,785,000 8.40 02/25/2025 2,807,336
------------
$ 3,365,468
--------------------------------------------------------------------------------------------
SUPPORT - 3.7%
FHLMC Series 16, Class M
$1,000,000 7.00% 08/25/2023 $ 1,006,920
GE Capital Mortgage Services, Inc., Series 1994-10, Class A22
996,703 6.50 03/25/2024 967,809
Housing Securities, Inc., Series 1994-1, Class A13
1,455,585 6.50 03/25/2009 1,456,415
Prudential Securities, Series 1995-2, Class A(c)
357,820 6.02 11/15/2015 357,932
Salomon Brothers Mortgage Securities VII Series 1996-6H, Class A1
1,000,000 6.00 09/30/2008 1,008,350
------------
$ 4,797,426
--------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS $ 23,113,979
--------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $74,290,993) $ 75,236,413
--------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 9.3%
Federal Home Loan Bank
$1,700,000 5.76% 03/23/2001 $ 1,741,973
1,000,000 5.68 12/03/2007 1,022,020
Financing Corp. Stripped Security (Principal Only)(d)
2,000,000 5.83 03/07/2013 862,700
Small Business Administration
1,587,284 7.15 03/01/2017 1,764,932
1,307,453 7.50 04/01/2017 1,484,064
767,286 7.30 05/01/2017 856,782
1,000,000 6.30 05/01/2018 1,073,347
1,000,000 6.30 06/01/2018 1,070,929
Sri Lanka Aid(c)
2,250,000 4.92 02/21/2016 2,221,875
--------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $11,434,468) $ 12,098,622
--------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 15.8%
AESOP Funding Series 1998-1, Class A(e)(f)
$2,000,000 6.14% 05/20/2006 $ 2,055,700
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - (CONTINUED)
AFC Series 1997-1, Class A(c)
$ 759,096 5.44% 03/25/2027 $ 751,414
Americredit Automobile Receivables Series 1997-D, Class A3
1,300,000 6.24 09/05/2003 1,337,154
Arcadia Automobile Receivables Series 1998-C, Class A3(f)
2,500,000 5.67 08/15/2006 2,552,033
CPS Auto Grantor Trust
1,881,004 6.30 08/15/2002 1,898,291
Fasco Auto Trust, Series 1996-1
521,356 6.65 11/15/2001 536,596
Fingerhut Master Trust, Series 1996-1, Class A
511,333 6.45 02/20/2002 513,890
First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF2,
Class A(c)
2,334,214 5.41 11/20/2027 2,324,731
First Merchants Auto Trust Series 1996-B, Class A1(c)
164,130 5.71 03/15/2000 164,138
First USA Credit Card Master Trust Series 1997-6, Class A
1,600,000 6.42 03/17/2005 1,656,000
MBNA Master Credit Card Trust Series 1998-C, Class A(c)
2,000,000 5.49 11/15/2005 1,979,360
Merrill Lynch Mortgage Investments, Inc. Series 1997-FF2, Class A(c)
1,482,209 5.93 08/25/2028 1,476,188
Mid State Trust, Series 4, Class A
864,300 8.33 04/01/2030 946,356
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1(c)
500,000 7.46 05/15/2006 526,455
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
160,643 6.85 06/15/2001 161,793
Sears Credit Account Master Trust, Series 1995-2, Class A
460,000 8.10 06/15/2004 473,943
The Money Store Home Equity Trust Series 1997-C, Class AF7
1,100,000 6.95 01/15/2039 1,097,250
-----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $20,237,191) $ 20,451,292
-----------------------------------------------------------------------------------------------
INSURED REVENUE BONDS - 1.8%
New Jersey Economic Development Authority Series A
$2,000,000 7.43% 02/15/2029 $ 2,278,380
-----------------------------------------------------------------------------------------------
TOTAL INSURED REVENUE BONDS
(COST $2,000,000) $ 2,278,380
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 16.1%
United States Treasury Bonds(f)
$ 1,740,000 8.50% 02/15/2020 $ 2,417,243
1,400,000 8.75 05/15/2020 1,991,934
1,200,000 7.88 02/15/2021 1,581,000
2,460,000 8.13 05/15/2021 3,325,994
650,000 8.13 08/15/2021 879,834
United States Treasury Interest-Only Stripped Securities(d)
4,460,000 5.04 02/15/2009 2,671,629
2,700,000 5.36 05/15/2012 1,318,707
3,600,000 5.54 08/15/2014 1,525,248
United States Treasury Notes
1,700,000(f) 6.63 07/31/2001 1,799,603
1,400,000 5.75 10/31/2002 1,467,922
United States Treasury Principal-Only Stripped Securities(d)
2,400,000 4.55 11/15/2004 1,820,160
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $20,796,641) $ 20,799,274
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 11.3%
Joint Repurchase Agreement Account(f)
$14,600,000 5.63% 11/02/1998 $ 14,600,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $14,600,000) $ 14,600,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $143,359,293)(G) $145,463,981
----------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (H) MONTH GAIN (LOSS)
------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 20 March 1999 $ 10,108
Euro Dollars 19 June 1999 442
Euro Dollars 19 September 1999 1,229
Euro Dollars 10 December 1999 12,062
Euro Dollars 10 March 2000 1,812
2 Year U.S. Treasury Notes 15 December 1998 43,030
5 Year U.S. Treasury Notes 98 December 1998 105,057
10 Year U.S. Treasury Notes 46 December 1998 22,910
------------------------------------------------------------------
$196,650
------------------------------------------------------------------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments
in which
value exceeds cost $2,448,269
Gross unrealized loss for investments
in which
cost exceeds value (343,581)
-----------------------------------------------------
Net unrealized gain $2,104,688
-----------------------------------------------------
</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 coupon due
to the amortization of related premiums.
(c) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(d) The interest rate disclosed for these securities represents effective
yield to maturity.
(e) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $2,055,700 as of
October 31, 1998.
(f) Portions of these securities are being segregated for open TBA purchases,
forward sale contract, open futures contracts and futures margin
requirements.
(g) The amount stated also represents aggregate cost for federal income tax
purposes.
(h) Each Euro Dollar Contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note contract represents $100,000
in notional par value. Each 2-Year U.S. Treasury Note contract represents
$200,000 in notional par value. The total notional amount and market
value at risk are $95,400,000 and 38,596,038, respectively. The
determination of notional amounts 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 total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made in Institutional shares on January 5, 1994 (commencement of
operations). For comparative purposes, the performance of the Fund's bench-
mark (the Lehman Brothers Aggregate Bond Index ("Lehman Aggregate Index")) is
shown. This performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of Class A, Class B, Class C, Administration and Service shares
will vary from Institutional shares due to differences in fees and loads.
CORE FIXED INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED JANUARY 5, 1994 TO
OCTOBER 31, 1998.
[LINE GRAPH APPEARS HERE]
Core Fixed Income Lehman Aggregate
Fund (Institutional Shares) Index
1/5/94 10000 10000
1/94 10157 10135
Feb-94 9964 9959
Mar-94 9759 9713
4/94 9678 9635
May-94 9672 9634
Jun-94 9644 9613
7/94 9825 9804
Aug-94 9842 9816
Sep-94 9710 9672
10/94 9700 9663
Nov-94 9680 9642
Dec-94 9780 9708
1/95 9957 9900
Feb-95 10186 10136
Mar-95 10248 10198
4/95 10388 10341
May-95 10788 10741
Jun-95 10862 10819
7/95 10843 10795
Aug-95 10979 10926
Sep-95 11080 11032
10/95 11224 11175
Nov-95 11393 11343
Dec-95 11550 11502
1/96 11621 11578
Feb-96 11424 11376
Mar-96 11332 11297
4/96 11276 11233
May-96 11268 11211
Jun-96 11436 11361
7/96 11464 11392
Aug-96 11457 11372
Sep-96 11653 11570
10/96 11898 11827
Nov-96 12120 12029
Dec-96 12016 11918
1/97 12057 11955
Feb-97 12085 11984
Mar-97 11955 11851
4/97 12121 12029
May-97 12225 12143
Jun-97 12380 12288
7/97 12726 12620
Aug-97 12615 12512
Sep-97 12808 12696
10/97 12991 12880
Nov-97 13020 12940
Dec-97 13159 13070
1/98 13332 13238
Feb-98 13320 13227
Mar-98 13374 13273
4/98 13430 13342
5/98 13568 13469
6/98 13692 13583
7/98 13722 13612
8/98 13971 13834
9/98 14258 14157
10/98 14180 14083
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 1, 1997)
Excluding sales charges 10.57% 8.76%
Including sales charges 7.22% 3.91%
---------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1997)
Excluding sales charges 9.80% 7.94%
Including sales charges 7.02% 2.64%
---------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 8.89% 7.94%
Including sales charges 8.89% 6.88%
---------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED JANUARY 5, 1994) 7.51% 9.15%
---------------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED FEBRUARY 28, 1996) 7.98% 8.88%
---------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 13, 1996) 8.38% 8.50%
---------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 28.3%
FINANCE BONDS - 10.3%
American General Finance Corp.
$ 1,110,000 5.84% 01/29/2001 $ 1,138,916
Associates Corp. of North America
2,950,000 5.75 11/01/2003 2,961,594
Bank of New York, Inc.(a)
1,100,000 7.88 11/15/2002 1,188,495
BankAmerica Corp.
300,000 7.75 07/15/2002 319,143
1,400,000 7.50 10/15/2002 1,480,136
730,000 7.88 12/01/2002 782,764
Capital One Bank
600,000 6.66 02/03/2000 604,110
400,000 6.88 04/24/2000 402,844
800,000 6.58 04/17/2001 805,784
650,000 6.15 06/01/2001 647,706
1,000,000 6.40 05/08/2003 992,190
330,000 7.15 09/15/2006 329,825
Capital One Financial Corp.
355,000 7.25 12/01/2003 362,927
Comdisco, Inc.
2,200,000 6.13 01/15/2003 2,227,060
Countrywide Capital Corp.
1,080,000 8.05 06/15/2027 1,165,633
Countrywide Funding Corp.
125,000 6.08 07/14/1999 125,908
250,000 8.43 11/16/1999 258,890
1,000,000 6.97 03/28/2003 1,058,830
Countrywide Home Loans, Inc.
950,000 6.45 02/27/2003 986,594
Developers Diversified Realty
1,400,000 6.84 12/16/2004 1,400,182
ERP Operating LP(b)
550,000 8.50 05/15/1999 559,614
Ford Capital Corp.
300,000 9.50 07/01/2001 331,011
Ford Motor Credit Co.
900,000 6.00 01/14/2003 917,514
General Motors Acceptance Corp.
375,000 9.63 12/15/2001 418,298
Homeside Lending, Inc.
400,000 6.75 08/01/2004 416,528
Long Island Savings Bank(a)
2,650,000 6.20 04/02/2001 2,642,368
Meditrust, Inc.
750,000 7.38 07/15/2000 730,095
390,000 7.82 09/10/2026 375,890
MIC Finance Trust(b)
360,000 8.38 02/01/2027 365,081
PXRE Capital Trust I
165,000 8.85 02/01/2027 164,639
Security Pacific Corp.
995,000 11.50 11/15/2000 1,106,818
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
FINANCE BONDS - (CONTINUED)
Signet Banking Corp.
$ 240,000 9.63% 06/01/1999 $ 245,292
Simon Property Group, Inc.(b)
345,000 6.63 06/15/2003 337,447
The Money Store, Inc.
630,000 7.30 12/01/2002 668,569
World Financial Properties(b)
489,851 6.91 09/01/2013 517,337
-----------
$29,036,032
-----------------------------------------------------------------------------------------------
INDUSTRIAL BONDS - 14.4%
360 Communications Co.
$ 1,015,000 7.12% 03/01/2003 $ 1,082,193
Ametek, Inc.
600,000 7.20 07/15/2008 607,614
Comcast Cable Communications
455,000 8.13 05/01/2004 502,984
Continental Airlines, Inc.
331,876 7.75 07/02/2014 378,587
540,781 8.56 07/02/2014 646,618
Hertz Corp.
1,200,000 6.00 01/15/2003 1,206,108
500,000 7.00 07/15/2003 523,270
Highwoods/Forsyth LP
835,000 6.75 12/01/2003 813,156
Liberty Property LP
115,000 7.10 08/15/2004 109,768
Nabsico, Inc.
1,650,000 6.00 02/15/2011 1,639,358
News America Holdings, Inc.
400,000 8.00 10/17/2016 419,324
1,100,000 7.12 04/08/2028 1,072,478
Northwest Airlines Corp.
148,555 8.26 03/10/2006 155,818
559,274 8.97 01/02/2015 645,732
Oryx Energy Co.
800,000 10.00 06/15/1999 824,376
Owens Corning
745,000 7.50 05/01/2005 762,560
Panamsat Corp.
2,650,000 6.13 01/15/2005 2,670,220
Pep Boys - Manny, Moe & Jack
550,000 6.75 03/10/2004 570,361
100,000 7.00 06/01/2005 106,264
Philip Morris Companies, Inc.
2,250,000 7.12 08/15/2002 2,357,460
R & B Falcon Corp.
215,000 6.50 04/15/2003 213,933
960,000 6.75 04/15/2005 986,448
RJR Nabisco, Inc.
600,000 7.63 09/01/2000 597,954
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
INDUSTRIAL BONDS - (CONTINUED)
RJR Nabisco, Inc. -- (continued)
$ 375,000 8.00% 07/15/2001 $ 376,920
Scotia Pacific Co.(b)
1,000,000 6.55 01/20/2007 1,012,190
Sears Roebuck Acceptance Corp.
500,000 6.41 11/19/2002 514,660
TCI Communications, Inc.
1,725,000 8.00 08/01/2005 1,933,311
290,000 8.75 08/01/2015 351,901
Tele-Communications, Inc.
100,000 7.38 02/15/2000 102,467
750,000 8.25 01/15/2003 828,158
Time Warner, Inc.
1,650,000 7.95 02/01/2000 1,695,738
1,350,000 9.63 05/01/2002 1,513,175
400,000 7.98 08/15/2004 441,180
1,000,000 7.75 06/15/2005 1,093,990
TKR Cable Inc.
3,195,000 10.50 10/30/2007 3,509,644
Tyco International Group
460,000 5.88 11/01/2004 458,523
1,150,000 6.38 06/15/2005 1,179,682
U.S. Air, Inc.
534,117 6.76 04/15/2008 567,671
USI American Holdings
150,000 7.25 12/01/2006 156,216
Viacom, Inc.
1,250,000 6.75 01/15/2003 1,288,738
Videotron Group Ltd.
835,000 10.63 02/15/2005 898,669
Williams Communications Solutions, Inc.
2,030,000 6.13 02/15/2002 2,052,208
WMX Technologies, Inc.
1,225,000(a) 6.25 10/15/2000 1,240,594
700,000 6.38 12/01/2003 709,576
-----------
$40,817,795
---------------------------------------------------------------------------------------------
UTILITY BONDS - 3.6%
Cable & Wireless Communications
$ 1,360,000 6.38% 03/06/2003 $ 1,386,438
California Energy, Inc.
735,000 10.25 01/15/2004 774,293
CE Electric UK Funding Co.(b)
1,000,000 6.85 12/30/2004 1,047,318
Central Maine Power Co.
330,000 7.45 08/30/1999 334,976
Edison Mission Energy Funding Corp.
138,284 6.77 09/15/2003 143,242
Niagara Mohawk Power Corp.
650,000 6.88 04/01/2003 676,371
750,000 8.00 06/01/2004 814,103
Salton Sea Funding
233,243 7.02 05/30/2000 235,470
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
UTILITY BONDS - (CONTINUED)
Worldcom, Inc.
$ 1,700,000 6.13% 08/15/2001 $ 1,731,875
650,000 9.38 01/15/2004 676,280
1,725,000 6.40 08/15/2005 1,795,794
450,000 8.88 01/15/2006 493,146
-----------
$10,109,306
-----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $78,496,873) $79,963,133
-----------------------------------------------------------------------------------------------
AGENCY DEBENTURES - 0.9%
Small Business Administration
$ 2,500,000 6.30% 06/01/2018 $ 2,677,321
-----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(COST $2,501,936) $ 2,677,321
-----------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 11.9%
Aames Mortgage Trust Series 1998 B(a)
$ 3,500,000 6.46% 09/15/2028 $ 3,644,301
AESOP Funding Series 1998-1, Class A(a)(b)
3,400,000 6.14 05/20/2006 3,494,690
AFC Series 1997-1, Class A(c)
556,671 5.44 03/25/2027 551,037
Americredit Automobile Receivables Trust Series 1998-A, Class A3(a)
2,500,000 5.88 12/05/2003 2,557,225
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
59,883 5.80 06/15/2002 59,938
Discover Card Master Trust Series 1996-4, Class B(c)
850,000 5.96 10/16/2013 826,625
DVI Equipment Lease Trust 1996-1, Class A(b)
614,875 6.55 07/10/2004 628,961
EQCC Home Equity Loan Trust Series 1997-3, Class A(c)
1,108,980 5.58 11/15/2028 1,108,292
Fingerhut Master Trust Series 1998-2, Class A(a)
3,600,000 6.23 02/15/2007 3,717,216
First Franklin Mortgage Loan Asset Backed Certificate Series 1997-FF3,
Class A2(c)
1,459,072 5.41 11/20/2027 1,453,145
General Motors Acceptance Corp. Series 1995, Class A
15,094 7.15 03/15/2000 15,103
Green Tree Financial Corp. Series 1998-6, Class M1(a)
4,250,000 6.63 06/01/2030 4,354,848
H + T Master Trust Series 1996-1, Class A2(b)(c)
550,000 8.18 8/15/2002 550,880
IMC Home Equity Loan Trust Series 1998-3, Class A8(a)
5,200,000 6.34 08/20/2029 5,272,436
Mid State Trust, Series 4, Class A(a)
2,880,999 8.33 04/01/2030 3,154,521
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET BACKED SECURITIES - (CONTINUED)
Olympic Automobile Receivables Trust, Series 1994-B, Class A2
$ 93,578 6.85% 06/15/2001 $ 94,251
Sears Credit Account Master Trust, Series 1995-2, Class A
550,000 8.10 06/15/2004 566,671
Sears Credit Account Master Trust, Series 1996-1, Class A
680,000 6.20 02/16/2006 692,532
Sears Credit Card Master Trust, Series 1995-3, Class A
300,000 7.00 10/15/2004 307,500
Standard Credit Card Master Trust, Series 1994-4, Class A
680,000 8.25 11/07/2003 732,061
-----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $33,194,392) $33,782,233
-----------------------------------------------------------------------------------------------
EMERGING MARKET DEBT - 1.4%
Banco de Colombia
$ 260,000 8.62% 06/02/2000 $ 241,800
Corp. Andina de Fomento
1,500,000 7.38 07/21/2000 1,524,045
Financiera Energy Nacional(b)
600,000 9.38 06/15/2006 450,000
YPF Sociedad Anonima
90,575 7.00 10/26/2002 82,298
485,314 7.50 10/26/2002 467,722
1,141,859 7.50 10/26/2002 1,150,157
-----------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $4,154,927) $ 3,916,022
-----------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS - 39.2%
Asset Securitization Corp.
$ 900,000 7.49% 04/14/2029 $ 975,321
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2(a)
3,100,000 6.60 11/19/2007 3,223,411
Chase Commercial Mortgage Securities Corp. Series 1998-1, Class A2(a)
3,000,000 6.56 05/18/2030 3,250,418
Collateralized Mortgage Obligation Trust Series 63, Class Z
983,310 9.00 10/20/2020 1,029,093
Commercial Mortgage Acceptance Corp. Series 1998-C1, Class A2
2,200,000 6.49 05/15/2008 2,246,376
DLJ Commercial Mortgage Corp. Series 1998-CG1, Class A(a)
4,902,852 6.11 06/10/2031 5,121,188
Federal Home Loan Mortgage Corp. (FHLMC)
217,814 8.00 08/01/2010 224,863
959,767 6.00 11/01/2012 963,663
4,879,536 6.00 04/01/2013 4,899,346
1,000,000 6.35 03/25/2018 1,020,620
485,550 7.50 09/01/2025 497,534
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
$ 586,618 7.00% 04/01/2026 $ 598,350
595,402 7.50 09/01/2026 610,096
205,586 7.50 10/01/2026 210,660
447,709 7.50 04/01/2027 458,620
842,659 7.50 05/01/2027 863,194
836,598 7.00 10/01/2027 853,330
1,542,087 7.00 12/01/2027 1,572,435
832,632 7.50 01/01/2028 852,923
1,067,982 7.00 02/01/2028 1,089,000
1,700,213 7.50 02/01/2028 1,741,647
685,013 7.50 03/01/2028 701,707
256,171 7.50 03/01/2028 262,496
587,270 7.50 04/01/2028 601,581
1,432,925 7.50 05/01/2028 1,468,028
1,334,585 7.00 06/01/2028 1,360,850
1,999,535 7.00 07/01/2028 2,038,886
517,189 7.00 08/01/2028 527,367
8,000,000 7.00 TBA-30 Yr(d) 8,157,440
9,000,000 7.50 TBA-30 Yr(d) 9,219,330
Federal National Mortgage Association (FNMA)
88,270 6.50 02/01/2026 88,987
225,754 6.50 08/01/2026 227,587
174,984 6.50 09/01/2027 176,351
387,887 6.50 10/01/2027 390,916
2,220,909 6.50 11/01/2027 2,238,255
2,531,772 6.50 12/01/2027 2,551,547
857,192 6.50 02/01/2028 863,887
846,854 6.50 04/01/2028 853,468
364,622 6.50 06/01/2028 367,470
1,197,316 6.50 07/01/2028 1,206,667
184,635 6.50 08/01/2028 186,077
1,069,013 6.00 09/01/2028 1,077,362
5,000,000 6.00 TBA-15 Yr(d) 5,020,313
FHLMC Series 2055, Class OD
2,000,000 6.00 12/15/2007 2,008,740
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
600,000 7.30 12/18/2006 642,192
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C2, Class A2
1,000,000 6.60 11/18/2029 1,022,680
FNMA Remic Trust 1997-70, Class AB
1,250,000 6.50 09/25/2022 1,273,225
FNMA Remic Trust 31, Class PJ
750,000 6.55 10/25/2020 782,978
Government National Mortgage Association (GNMA)
264,666 8.00 02/15/2017 276,775
24,132 7.00 11/15/2022 24,713
860,816 7.00 12/15/2022 881,527
581,532 7.00 01/15/2023 595,870
158,879 7.00 03/15/2023 162,652
587,392 7.50 03/15/2023 605,008
1,989,300 7.00 05/15/2023 2,037,163
31,272 7.00 06/15/2023 32,024
2,049,546 7.00 07/15/2023 2,098,706
617,324 7.00 08/15/2023 632,177
------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS - (CONTINUED)
$ 98,811 7.50% 08/15/2023 $ 101,775
1,677,280 7.00 10/15/2023 1,716,809
33,112 7.00 11/15/2023 33,909
102,521 7.00 12/01/2023 104,987
1,148,813 7.00 12/15/2023 1,175,815
235,803 8.00 11/15/2025 244,497
147,963 7.50 02/15/2026 152,448
440,555 8.00 05/15/2026 456,388
935,156 7.50 08/15/2026 962,911
91,011 8.00 09/15/2026 94,367
425,734 8.00 03/15/2027 441,035
425,395 8.00 04/15/2027 440,684
16,911 8.00 05/15/2027 17,535
242,878 7.50 08/15/2027 250,086
893,368 7.50 11/15/2027 919,883
814,173 7.50 12/15/2027 838,850
747,294 8.00 12/15/2027 774,847
1,000,000 6.50 03/15/2028 1,010,930
278,357 6.50 08/15/2028 281,399
4,993,306 7.00 08/15/2028 5,111,897
2,721,643 6.50 10/15/2028 2,751,391
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2,
Class A2(a)
3,690,000 6.39 02/15/2030 3,949,184
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
900,000 7.46 05/15/2006 947,619
Prudential Home Mortgage Securities Corp. 1992-39 A8(c)
1,000,000 7.99 12/25/2007 1,049,750
Residental Funding Mortgage Securities I Series 1997-S12, Class A19(a)
2,000,000 6.75 08/25/2027 2,023,531
-----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $108,991,413) $110,817,617
-----------------------------------------------------------------------------------------------
SOVEREIGN CREDIT - 0.3%
Province of Quebec
$ 520,000 13.25% 09/15/2014 $ 577,288
State of Israel
370,000 6.38 12/15/2005 369,338
-----------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $999,207) $ 946,626
-----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 17.5%
United States Treasury Bonds
$1,000,000 8.75% 05/15/2020 $ 1,422,810
2,300,000 7.88 02/15/2021 3,030,250
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - (CONTINUED)
United States Treasury Interest-Only Stripped Securities(e)
$10,230,000 5.04% 02/15/2009 $ 6,127,975
350,000(b) 5.22 11/15/2010 188,577
15,300,000 5.36 05/15/2012 7,472,673
9,990,000 5.54 08/15/2014 4,232,563
United States Treasury Note
15,000,000 6.63 07/31/2001 15,878,850
United States Treasury Principal-Only Stripped Securities(e)
5,110,000 4.55 11/15/2004 3,875,424
6,000,000 5.66 11/15/2018 1,955,400
16,200,000 5.67 02/15/2019 5,195,988
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $49,229,921) $ 49,380,510
----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.9%
Joint Repurchase Agreement Account(a)
$22,300,000 5.63% 11/02/1998 $ 22,300,000
----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $22,300,000) $ 22,300,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $299,868,669)(F) $303,783,462
----------------------------------------------------------------------------------------------
Futures contracts open at October 31, 1998 are as follows:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(G) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 8 December 1998 $ 19,049
Euro Dollars 20 March 1999 35,174
Euro Dollars 15 June 1999 8,030
Euro Dollars 15 September 1999 9,280
Euro Dollars 35 December 1999 49,465
Euro Dollars 25 March 2000 52,091
5 Year U.S. Treasury Notes 70 December 1998 306,352
10 Year U.S. Treasury Notes (15) December 1998 (55,258)
20 Year Long Term Bond 66 December 1998 158,409
------------------------------------------------------------------------
$582,592
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 4,917,833
Gross unrealized loss for investments in which
cost exceeds value (1,003,040)
------------------------------------------------------------
Net unrealized gain $ 3,914,793
------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
31
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1998
(a) Portions of these securities are being segregated for open TBA purchases,
open purchases, mortgage dollar rolls, forward sale contract, open
futures contracts and futures margin requirements.
(b) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $8,963,518 as of
October 31, 1998.
(c) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(d) 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.
(e) The interest rate disclosed for these securities represents effective
yield to maturity.
(f) The amount stated also represents aggregate cost for federal income tax
purposes.
(g) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond Contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $133,100,000 and
$46,515,044, respectively. The determination of notional amounts 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 total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5%) in Class A shares on
September 1, 1991. For comparative purposes, the performance of the Fund's
benchmark (the J.P. Morgan Global Government Bond Index hedged to U.S. Dol-
lars (the "J.P. Morgan GGB Index - $ Hedged")) is shown. This performance
data represents past performance and should not be considered indicative of
future performance which will fluctuate with changes in market conditions.
These performance fluctuations will cause an investor's shares, when re-
deemed, to be worth more or less than their original cost. Performance of
Class B, Class C, Institutional and Service shares will vary from Class A due
to differences in fees and loads.
GLOBAL INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED SEPTEMBER 1, 1991 TO
OCTOBER 31, 1998.(A)
[LINE GRAPH APPEARS HERE]
Global Income Fund J.P. Morgan
(Class A) GGB Index-$ Hedged
9/1/91 9500 10000
9/91 9640 10174
10/91 9686 10263
11/91 9689 10327
12/91 9810 10583
1/92 9857 10546
2/92 9857 10584
3/92 9768 10517
4/92 9827 10578
5/92 9896 10721
6/92 10125 10799
7/92 10357 10918
8/92 10678 10974
9/92 10550 11129
10/92 10536 11156
11/92 10514 11130
12/92 10545 11288
1/93 10623 11457
2/93 10886 11671
3/93 10763 11695
4/93 10849 11745
5/93 10928 11766
6/93 11193 12006
7/93 11338 12103
8/93 11483 12352
9/93 11491 12404
10/93 11668 12509
11/93 11633 12500
12/93 11878 12660
1/94 11957 12702
2/94 11561 12432
3/94 11362 12258
4/94 11298 12167
5/94 11217 12089
6/94 11136 12013
7/94 11250 12145
8/94 11185 12085
9/94 11152 12027
10/94 11144 12050
11/94 11202 12132
12/94 11252 12147
1/95 11369 12314
2/95 11580 12516
3/95 11826 12697
4/95 11963 12880
5/95 12340 13324
6/95 12288 13340
7/95 12297 13430
8/95 12489 13556
9/95 12612 13732
10/95 12824 13901
11/95 13073 14167
12/95 13251 14321
1/96 13471 14465
2/96 13250 14258
3/96 13255 14288
4/96 13383 14365
5/96 13426 14418
6/96 13546 14555
7/96 13609 14636
8/96 13720 14753
9/96 14026 15034
10/96 14246 15303
11/96 14525 15589
12/96 14500 15552
1/97 14569 15684
2/97 14669 15754
3/97 14549 15644
4/97 14704 15835
5/97 14730 15941
6/97 14968 16177
7/97 15258 16522
8/97 15202 16464
9/97 15535 16740
10/97 15622 16925
11/97 15710 17033
12/97 15897 17242
1/98 16068 17487
2/98 16100 17559
3/98 16273 17674
4/98 16354 17760
5/98 16566 18327
6/98 16604 18458
7/98 16719 18576
8/98 17043 19000
9/98 17523 19484
10/98 17374 19440
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 2, 1991)
Excluding sales charges 8.68% 8.28% 11.21%
Including sales charges 7.99% 7.29% 6.22%
------------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding sales charges 10.43% n/a 10.66%
Including sales charges 9.23% n/a 5.33%
------------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 11.40% n/a 10.65%
Including sales charges 11.40% n/a 9.58%
------------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1,
1995) 11.81% n/a 11.95%
------------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 12, 1997) 8.71% n/a 11.43%
------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
33
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
FOREIGN DEBT OBLIGATIONS - 48.5%
<S> <C> <C> <C>
BRITISH POUND STERLING - 17.1%
Abbey National Treasury(b)
BPS 4,000,000 8.00% 04/02/2003 $ 7,202,503
Bank Nederlandse Gemeenten
2,500,000 6.38 03/30/2005 4,304,335
United Kingdom Treasury(b)
14,400,000 9.50 10/25/2004 29,512,506
9,300,000 7.75 09/08/2006 18,182,707
4,700,000 9.00 08/06/2012 10,888,414
-----------------------------------------------------------------
$ 70,090,465
------------------------------------------------------------------------------------------
CANADIAN DOLLAR - 2.1%
Government of Canada(b)
CAD 12,200,000 6.00% 06/01/2008 $ 8,454,608
------------------------------------------------------------------------------------------
DANISH KRONE - 6.5%
Kingdom of Denmark(b)
DKK 95,100,000 8.00% 05/15/2003 $ 17,383,640
47,500,000 8.00 03/15/2006 9,111,123
-----------------------------------------------------------------
$ 26,494,763
------------------------------------------------------------------------------------------
DEUTSCHEMARK - 6.6%
Baden Wuerttemberg Finance
DEM 10,000,000 5.38% 02/05/2010 $ 6,471,476
Federal Republic of Germany(b)
22,500,000 6.25 01/04/2024 15,791,238
Halifax
5,000,000 5.63 07/23/2007 3,235,738
Merrill Lynch and Co., Inc.
2,500,000 5.38 01/04/2009 1,494,114
-----------------------------------------------------------------
$ 26,992,566
------------------------------------------------------------------------------------------
FRENCH FRANC - 1.1%
Government of France(b)
FRF 9,000,000 5.50% 10/25/2007 $ 1,772,141
10,000,000 8.50 04/25/2023 2,634,039
-----------------------------------------------------------------
$ 4,406,180
------------------------------------------------------------------------------------------
ITALIAN LIRA - 6.4%
Republic of Italy
ITL24,000,000,000(b) 8.50% 08/01/2004 $ 17,849,614
9,000,000,000(b) 6.75 07/01/2007 6,360,465
2,000,000,000 9.00 11/01/2023 1,820,944
-----------------------------------------------------------------
$ 26,031,023
------------------------------------------------------------------------------------------
JAPANESE YEN - 5.4%
Asian Development Bank
JPY 650,000,000 5.63% 02/18/2002 $ 6,502,871
Government of Japan
1,170,000,000 0.90 12/22/2008 9,957,746
Republic of Italy
550,000,000 5.13 07/29/2003 5,717,608
-----------------------------------------------------------------
$ 22,178,225
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
FOREIGN DEBT OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
SPANISH PESETA - 2.3%
Government of Spain
ESP1,210,000,000 6.00% 01/31/2008 $ 9,555,615
-------------------------------------------------------------------------------------------
SWEDISH KRONA - 1.0%
Kingdom of Sweden
SEK 24,000,000 9.00% 04/20/2009 $ 4,161,516
-------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $186,733,877) $198,364,961
-------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 3.0%
AESOP Funding Series 1998-1, Class A(c)
USD 1,000,000 6.14% 05/20/2006 $ 1,027,850
AFC Series 1997-1, Class A(d)
759,096 5.44 03/25/2027 751,414
ALAC Automobile Receivable Series 1997-1, Class A(c)
244,819 6.29 12/15/2002 246,572
Americredit Automobile Receivables Series 1997-D, Class A3
450,000 6.24 09/05/2003 462,861
Arcadia Automobile Receivables Series 1997-D, Class A4
950,000 6.35 11/15/2005 1,015,090
Arcadia Automobile Receivables Series 1998-C, Class A3
1,000,000 5.67 08/15/2006 1,020,813
Asset Securitization Corp. Series 1997-D5, Class A1
450,000 6.66 02/14/2041 467,505
CIT RV Trust Series 1995-B, Class A
174,410 6.50 04/15/2011 175,711
Citibank Credit Card Master Trust I Series 1998-3, Class A
1,000,000 5.80 02/07/2005 1,012,500
EQCC Home Equity Loan Trust Series 1997-3, Class A(d)
539,504 5.58 11/15/2028 539,169
Fingerhut Master Trust Series 1998-2, Class A
1,000,000 6.23 02/15/2007 1,032,560
First USA Credit Card Master Trust Series 1997-6, Class A
900,000 6.42 03/17/2005 931,500
General Motors Acceptance Corp. Series 1997-C1, Class A
450,000 6.85 09/15/2006 471,519
Mid State Trust, Series 4, Class A
1,280,450 8.33 04/01/2030 1,402,016
Morgan Stanley Capital Commercial Mortgage, Inc. Series 1997-C1
650,000 7.46 05/15/2006 684,392
Nissan Auto Receivables Series 1995-A, Class A
468,872 6.10 08/15/2001 469,604
UCFC Home Equity Loan Trust Series 1997-D, Class A8(d)
743,293 5.63 12/15/2027 741,667
-------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $12,151,871) $ 12,452,743
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATe VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 13.4%
360 Communications Co.
USD 300,000 7.12% 03/01/2003 $ 319,860
Ameritech Capital Funding
4,000,000 5.88 02/19/2003 4,120,000
Ametek, Inc.
130,000 7.20 07/15/2008 131,650
Associates Corp. of North America
750,000 5.75 11/01/2003 752,948
BankAmerica Corp.
900,000 7.75 07/15/2002 957,429
Bayerische Landesbank Girozent
4,500,000 6.63 06/25/2007 4,843,710
Beneficial Corp.
500,000 6.43 04/10/2002 511,015
Cable & Wireless Communications
260,000 6.38 03/06/2003 265,054
Capital One Bank
275,000 6.39 03/05/2001 276,009
400,000 6.40 05/08/2003 396,876
CE Electric UK Funding Co.(c)
180,000 6.85 12/30/2004 188,517
Chelsea GCA Realty
250,000 7.75 01/26/2001 241,160
Comdisco, Inc.
450,000 6.13 01/15/2003 455,535
Continental Airlines, Inc.
315,000 6.54 09/15/2009 307,746
Countrywide Home Loans, Inc.
450,000 6.45 02/27/2003 467,334
200,000 6.84 10/22/2004 212,366
Developers Diversified Realty
125,000 6.84 12/16/2004 125,016
Ford Motor Credit Corp.
5,000,000 6.13 04/28/2003 5,128,250
Hertz Corp.
250,000 6.00 01/15/2003 251,273
Instituto de Credito Oficial
3,000,000 6.00 05/19/2008 3,149,700
International Bank for Reconstruction and
Development
3,000,000 5.75 02/06/2008 3,126,600
KFW International Finance
3,000,000 5.75 01/15/2008 3,109,800
Liberty Property LP
235,000 6.97 12/11/2003 252,465
Long Island Savings Bank
300,000 7.00 06/13/2002 303,450
Merrill Lynch and Co., Inc.
3,400,000 6.00 02/12/2003 3,445,594
Nabisco, Inc.
700,000 6.00 02/15/2011 695,485
Nederlandse Waterschapsbank
5,000,000 6.13 02/13/2008 5,261,055
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
News America Holdings, Inc.
USD 175,000 9.25% 02/01/2013 $ 201,283
65,000 8.00 10/17/2016 68,140
100,000 7.12 04/08/2028 97,498
Niagara Mohawk Power Corp.
250,000 6.88 04/01/2003 260,143
Northwest Airlines Corp.
273,291 7.67 07/02/2016 305,143
Ontario Hydro
3,000,000 6.10 01/30/2008 3,110,880
Oryx Energy Co.
40,000 10.00 06/15/1999 41,219
155,000 9.50 11/01/1999 159,594
Owens Corning
150,000 7.50 05/01/2005 153,536
Panamsat Corp.
515,000 6.13 01/15/2005 518,929
Paramount Communications
300,000 7.50 01/15/2002 313,863
Pep Boys - Manny, Moe & Jack
480,000 6.75 03/10/2004 497,770
Philip Morris Companies, Inc.
180,000 9.00 01/01/2001 193,926
95,000 6.95 06/01/2006 99,476
Prudential Insurance Company of America
3,500,000 6.38 07/23/2006 3,557,050
R & B Falcon Corp.
240,000 6.75 04/15/2005 246,612
RJR Nabisco, Inc.
190,000 8.00 07/15/2001 190,973
Salomon Smith Barney, Inc.
655,000 6.46 08/15/2000 670,563
Salton Sea Funding
295,575 7.02 05/30/2000 298,398
Scotia Pacific Co.(c)
220,000 6.55 01/20/2007 222,682
Sears Roebuck Acceptance Corp.
240,000 6.72 09/17/2003 251,544
Simon Property Group, Inc.(c)
200,000 6.63 06/15/2003 195,621
Tele-Communications, Inc.
850,000 8.25 01/15/2003 938,579
The Money Store, Inc.
225,000 7.30 12/01/2002 238,775
Time Warner, Inc.
450,000 7.95 02/01/2000 462,474
250,000 6.85 01/15/2026 258,968
TKR Cable Inc.
220,000 10.50 10/30/2007 241,666
Tyco International Group
260,000 5.88 11/01/2004 259,165
190,000 6.38 06/15/2005 194,904
------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Videotron Group Ltd.
USD 165,000 10.63% 02/15/2005 $ 177,581
Williams Communications Solutions, Inc.
390,000 6.13 02/15/2002 394,267
Worldcom, Inc.
340,000 6.13 08/15/2001 346,375
350,000 9.38 01/15/2004 364,151
120,000 6.40 08/15/2005 124,925
---------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $53,476,453) $ 54,952,570
---------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS - 4.3%
Chase Commercial Mortgage Securities Corp. Series 1997-2, Class A2
USD 1,400,000 6.60% 11/19/2007 $ 1,455,734
CMC Securities Corp. IV 1997-2, Class IA13
2,450,000 6.60 11/25/2027 2,458,404
Country Wide Funding Corp. Series 1994-2, Class A
1,000,000 6.50 02/25/2009 1,044,680
Country Wide Funding Corp. Series 1994-I, Class A
2,000,000 6.25 07/25/2009 2,009,360
FHLMC Series 1522, Class E
2,000,000 5.00 10/15/2020 1,984,360
General Electric Capital Mortgage Services Series 1994-2, Class A(d)
564,879 5.46 01/25/2009 544,171
968,367 6.31 01/25/2009 986,214
Government National Mortgage Association (GNMA)
214,244 9.00 03/15/2005 228,470
170,268 9.00 02/15/2006 181,639
548,958 9.00 02/15/2010 571,948
893,160 6.00 01/15/2011 903,762
595,614 7.50 01/15/2023 613,477
120,686 7.50 04/15/2023 124,305
87,543 7.50 05/15/2023 90,168
687,953 7.00 07/15/2023 704,506
670,791 7.00 08/15/2023 686,931
216,126 7.50 08/15/2023 222,608
395,860 7.00 09/15/2023 405,384
499,943 7.00 10/15/2023 511,972
281,844 7.00 11/15/2023 288,625
588,262 7.50 12/15/2023 605,904
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2, Class A2
750,000 6.39 02/15/2030 802,671
---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $16,991,790) $ 17,425,293
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT(A) RATE DATE VALUE
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 24.0%
United States Treasury Bonds
USD 800,000(b) 8.13% 08/15/2021 $ 1,082,872
7,500,000(b) 6.75 08/15/2026 8,992,950
2,000,000 6.50 11/15/2026 2,327,820
United States Treasury Interest-Only Stripped Securities(e)
200,000 5.05 02/15/2009 119,804
400,000 5.52 08/15/2014 169,472
United States Treasury Notes
7,700,000 6.63 07/31/2001 8,151,143
13,300,000(b) 7.00 07/15/2006 15,315,748
12,800,000(b) 6.50 10/15/2006 14,358,016
4,600,000 6.63 05/15/2007 5,223,162
35,500,000(b) 5.63 05/15/2008 38,267,935
United States Treasury Principal-Only Stripped Securities(e)
1,000,000 5.64 08/15/2017 351,430
5,200,000 5.67 02/15/2019 1,667,848
2,760,000 5.67 05/15/2020 823,612
5,600,000 5.47 08/15/2025 1,317,792
--------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $95,577,505) $ 98,169,604
--------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 5.6%
State Street Bank & Trust Euro-Time Deposit(b)
USD 22,805,457 5.63% 11/02/1998 $ 22,805,457
--------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $22,805,457) $ 22,805,457
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $387,736,953)(F) $404,170,628
--------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE LONG (SHORT)(G) MONTH GAIN (LOSS)
------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollars 6 June 1999 $ 13,575
Euro Dollars 5 September 1999 12,125
Euro Dollars 7 March 2000 (4,112)
Euro Dollars 7 June 2000 1,487
5 Year U.S. Treasury Notes 10 December 1998 (9,532)
10 Year U.S. Treasury Notes (19) December 1998 (58,250)
20 Year Long Term Bond 79 December 1998 225,571
------------------------------------------------------------------------
$180,864
------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
-------------------------------
FEDERAL INCOME
TAX INFORMATION:
Gross unrealized
gain for invest-
ments in which
value exceeds
cost $17,008,304
Gross unrealized
loss for invest-
ments in which
cost exceeds
value (574,629)
-------------------------------
Net unrealized
loss $16,433,675
-------------------------------
(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
CAD = Canadian Dollar JPY = Japanese Yen
DKK = Danish Krone ESP = Spanish Peseta
DEM = Deutschemark SEK = Swedish Krona
FRF = French Franc USD = United States Dollar
(b) Portions of these securities are being segregated for open futures
contracts and futures margin requirements.
(c) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of the Rule 144A securities amounted to $1,881,242 as of
October 31, 1998.
(d) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(e) The interest rate disclosed for these securities represents effective
yield to maturity.
(f) The amount stated also represents the aggregate cost for federal income
tax purposes.
(g) Each Euro Dollar contract represents $1,000,000 in notional par value.
Each 5-Year and 10-Year U.S. Treasury Note and each U.S. 20-Year Long
Term Bond contract represents $100,000 in notional par value. The total
notional amount and market value at risk are $35,800,000 and $19,587,951,
respectively. The determination of notional amounts 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 total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
37
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT FUND
ASSETS:
<S> <C>
Investment in securities, at value (identified cost
$502,845,894, $223,655,691, $143,359,293, $299,868,669 and
$387,736,953) $497,752,353
Cash, at value 4,381
Receivables:
Investment securities sold 718,061
Interest, at value 6,268,327
Fund shares sold 16,559,494
Forward foreign currency exchange contracts --
Variation margin --
Deferred organization expenses, net --
Other assets 69,531
-----------------------------------------------------------------------------
TOTAL ASSETS 521,372,147
-----------------------------------------------------------------------------
LIABILITIES:
Due to Bank --
Payables:
Investment securities purchased 10,141,083
Income distribution 1,089,533
Fund shares repurchased 865,411
Amounts owed to affiliates 217,022
Forward foreign currency exchange contracts --
Variation margin 156,937
Forward sale contract, at value --
Accrued expenses and other liabilities 70,950
-----------------------------------------------------------------------------
TOTAL LIABILITIES 12,540,936
-----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 565,695,928
Accumulated undistributed (distributions in excess of) net
investment income (3,550,919)
Accumulated undistributed net realized gain (loss) on
investment, options, futures and foreign currency related
transactions (49,027,871)
Net unrealized gain (loss) on investments, futures and
translation of assets and liabilities denominated in
foreign currencies (4,285,927)
-----------------------------------------------------------------------------
NET ASSETS $508,831,211
-----------------------------------------------------------------------------
Net asset value per share:(a)
Class A $9.69
Class B --
Class C --
Institutional $9.70
Administration $9.70
Service $9.70
-----------------------------------------------------------------------------
Shares outstanding:
Class A 6,272,861
Class B --
Class C --
Institutional 45,502,280
Administration 618,625
Service 84,772
-----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited
number of shares authorized) 52,478,538
-----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $9.84 (NAV
per share plus maximum sales charge of 1.5%), $10.11 (NAV per share plus
maximum sales charge of 2.0%), $15.61 (NAV per share plus maximum sales
charge of 4.5%), $10.73 (NAV per share plus maximum sales charge of 4.5%)
and $16.39 (NAV per share plus maximum sales charge of 4.5%) for
Adjustable Rate Government, Short Duration Government, Government Income,
Core Fixed Income and Global Income, respectively. At redemption, Class B
and Class C shares may be 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.
38
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$224,897,584 $145,463,981 $303,783,462 $404,170,628
94,277 19,853 -- 204,705
75,409 7,877,876 12,914,221 9,752,514
2,444,400 895,776 2,729,419 8,208,935
6,006,143 398,856 1,014,701 8,228,277
-- -- -- 1,802,980
-- -- -- 30,022
-- -- 4,362 --
99,962 95,140 161,772 149,840
----------------------------------------------------------------------------------------
233,617,775 154,751,482 320,607,937 432,547,901
----------------------------------------------------------------------------------------
-- -- 444,433 --
7,158,411 21,805,685 33,295,853 17,578,658
302,565 115,033 491,528 11,496
421,340 935,911 142,604 352,593
142,448 143,286 144,749 371,388
-- -- -- 4,943,283
131,406 129,916 127,839 --
-- 2,118,104 3,058,336 --
82,052 80,358 103,824 113,018
----------------------------------------------------------------------------------------
8,238,222 25,328,293 37,809,166 23,370,436
----------------------------------------------------------------------------------------
237,352,470 124,893,318 274,980,654 380,662,043
567,164 (202,850) -- 4,880,723
(14,898,587) 2,431,368 3,320,362 9,205,494
2,358,506 2,301,353 4,497,755 14,429,205
----------------------------------------------------------------------------------------
$225,379,553 $129,423,189 $282,798,771 $409,177,465
----------------------------------------------------------------------------------------
$9.91 $14.91 $10.25 $15.65
$9.88 $14.92 $10.28 $15.63
$9.88 $14.91 $10.28 $15.60
$9.90 $14.90 $10.28 $15.64
$9.91 -- $10.27 --
$9.89 $14.88 $10.28 $15.64
----------------------------------------------------------------------------------------
5,726,272 6,777,371 5,487,732 13,885,248
508,361 1,080,648 701,054 520,616
458,229 646,476 543,267 262,123
14,705,273 177,318 19,045,777 11,411,638
742,127 -- 1,240,570 --
630,425 112 511,939 67,640
----------------------------------------------------------------------------------------
22,770,687 8,681,925 27,530,339 26,147,265
----------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Operations
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest(a) $30,500,158
-----------------------------------------------------------------------------
TOTAL INCOME 30,500,158
-----------------------------------------------------------------------------
EXPENSES:
Management fees 1,980,544
Distribution and service fees(b) 217,577
Transfer agent fees 229,368
Custodian fees 118,369
Registration fees 57,272
Professional fees 58,806
Trustee fees 6,432
Administration share fees 10,895
Service share fees 2,702
Amortization of deferred organization expenses --
Other 191,398
-----------------------------------------------------------------------------
TOTAL EXPENSES 2,873,363
-----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by
Goldman Sachs (124,935)
-----------------------------------------------------------------------------
NET EXPENSES 2,748,428
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 27,751,730
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT, FUTURES AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 103,747
Futures transactions (1,536,545)
Foreign currency related transactions --
Net change in unrealized gain (loss) on:
Investments (8,168,671)
Futures 1,241,567
Translation of assets and liabilities
denominated in foreign currencies --
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS: (8,359,902)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $19,391,828
-----------------------------------------------------------------------------
</TABLE>
(a) Net of $2,706 and $32,585 in foreign withholding tax for the Core Fixed
Income and Global Income Funds, respectively.
(b) Class A, Class B and Class C of the following funds had distribution and
services fees of:
Adjustable Rate Government Fund -- $217,577 for class A only.
Short Duration Government Fund -- $111,382, $23,889 and $18,510,
respectively.
Government Income Fund -- $462,183, $119,856 and $37,728, respectively.
Core Fixed Income Fund -- $152,462, $31,187 and $30,651, respectively.
Global Income Fund -- $902,695, $54,794 and $22,140, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$10,605,385 $7,259,007 $11,986,716 $17,529,866
---------------------------------------------------------------------------------------
10,605,385 7,259,007 11,986,716 17,529,866
---------------------------------------------------------------------------------------
807,888 747,673 750,536 2,613,060
153,781 619,767 214,300 979,629
191,462 189,925 211,200 378,171
90,250 104,410 131,433 214,328
100,705 81,231 109,950 103,600
56,023 52,852 53,898 66,174
5,893 5,915 5,804 5,614
10,828 -- 5,460 --
23,540 -- 39,455 885
-- 5,201 24,495 --
107,890 60,817 73,727 73,521
---------------------------------------------------------------------------------------
1,548,260 1,867,791 1,620,258 4,434,982
---------------------------------------------------------------------------------------
(555,828) (843,878) (555,918) (1,244,867)
---------------------------------------------------------------------------------------
992,432 1,023,913 1,064,340 3,190,115
---------------------------------------------------------------------------------------
9,612,953 6,235,094 10,922,376 14,339,751
---------------------------------------------------------------------------------------
822,488 2,347,325 3,616,346 11,911,240
(1,182,898) 374,866 214,664 468,362
-- -- 57,117 (8,799,445)
55,613 649,663 1,637,958 12,207,707
1,157,810 137,832 489,714 180,864
-- -- 17 2,383,424
---------------------------------------------------------------------------------------
853,013 3,509,686 6,015,816 18,352,152
---------------------------------------------------------------------------------------
$10,465,966 $9,744,780 $16,938,192 $32,691,903
---------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
ADJUSTABLE
RATE
GOVERNMENT
FUND
<S> <C>
FROM OPERATIONS:
Net investment income $ 27,751,730
Net realized gain (loss) on investment, futures and foreign
currency related transactions (1,432,798)
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies (6,927,104)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 19,391,828
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (2,487,566)
Class B shares --
Class C shares --
Institutional shares (25,001,833)
Administration shares (234,475)
Service shares (27,856)
In excess of net investment income
Class A shares (98,798)
Class B shares --
Class C shares --
Institutional shares (992,993)
Administration shares (9,313)
Service shares (1,106)
From net realized gain on investment, futures and foreign
currency transactions
Class A shares --
Class B shares --
Class C shares --
Institutional shares --
Administration shares --
Service shares --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (28,853,940)
-----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 480,828,950
Reinvestment of dividends and distributions 20,351,273
Cost of shares repurchased (492,929,797)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 8,250,426
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (1,211,686)
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 510,042,897
-----------------------------------------------------------------------------
End of year $ 508,831,211
-----------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ (3,550,919)
-----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
SHORT DURATION GOVERNMENT CORE FIXED GLOBAL
GOVERNMENT FUND INCOME FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
$ 9,612,953 $ 6,235,094 $ 10,922,376 $ 14,339,751
(360,410) 2,722,191 3,888,127 3,580,157
1,213,423 787,495 2,127,689 14,771,995
-----------------------------------------------------------------------------------
10,465,966 9,744,780 16,938,192 32,691,903
-----------------------------------------------------------------------------------
(1,420,203) (5,471,980) (1,853,415) (11,773,305)
(124,011) (589,599) (152,279) (310,470)
(88,564) (181,328) (150,232) (116,153)
(7,578,309) (126,383) (8,016,713) (6,720,480)
(270,953) -- (664,748) --
(265,819) (114) (176,911) (25,498)
-- (316,755) (75,186) --
-- (34,130) (6,177) --
-- (10,497) (6,094) --
-- (7,316) (325,203) --
-- -- (26,966) --
-- (7) (7,176) --
-- (336,409) (84,830) (628,833)
-- (41,187) (8,016) (15,200)
-- (9,732) (4,098) (4,258)
-- (8,246) (459,667) (240,253)
-- -- (51,390) --
-- (7) (10,588) (604)
-----------------------------------------------------------------------------------
(9,747,859) (7,133,690) (12,079,689) (19,835,054)
-----------------------------------------------------------------------------------
301,176,652 174,396,555 274,106,821 254,174,010
6,473,398 5,523,470 8,519,118 13,914,727
(201,542,539) (133,099,760) (102,188,552) (103,905,121)
-----------------------------------------------------------------------------------
106,107,511 46,820,265 180,437,387 164,183,616
-----------------------------------------------------------------------------------
106,825,618 49,431,355 185,295,890 177,040,465
-----------------------------------------------------------------------------------
118,553,935 79,991,834 97,502,881 232,137,000
-----------------------------------------------------------------------------------
$ 225,379,553 $ 129,423,189 $ 282,798,771 $ 409,177,465
-----------------------------------------------------------------------------------
$ 567,164 $ (202,850) $ -- $ 4,880,723
-----------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
ADJUSTABLE
RATE
GOVERNMENT
FUND
<S> <C>
FROM OPERATIONS:
Net investment income $ 34,206,530
Net realized gain from investment and foreign currency
related transactions 76,946
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies 3,259,059
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 37,542,535
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (1,858,740)
Class B --
Class C --
Institutional shares (32,067,893)
Administration shares (222,274)
Service shares (3,287)
Net realized gain on investment transactions
Class A --
Class B --
Class C --
Institutional shares --
Administration shares --
Service shares --
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (34,152,194)
-----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 398,400,844
Reinvestment of dividends and distributions 20,070,536
Cost of shares repurchased (539,487,702)
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS (121,016,322)
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (117,625,981)
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of period 627,668,878
-----------------------------------------------------------------------------
End of period $ 510,042,897
-----------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ (3,387,447)
-----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GLOBAL
SHORT DURATION GOVERNMENT CORE FIXED INCOME
GOVERNMENT FUND INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
$ 6,770,045 $ 3,409,797 $ 5,427,639 $ 12,745,232
45,514 489,671 732,174 13,556,278
485,006 1,362,656 1,440,455 (3,996,894)
-------------------------------------------------------------------------------------
7,300,565 5,262,124 7,600,268 22,304,616
-------------------------------------------------------------------------------------
(85,889) (3,152,235) (107,876) (9,752,023)
(12,146) (186,284) (7,255) (74,972)
(632) (5,823) (778) (2,823)
(6,559,922) (2,853) (4,853,239) (3,332,259)
(79,521) -- (365,897) --
(145,168) (20) (74,035) (5,785)
-- (157,471) -- --
-- (1,780) -- --
-- -- -- --
-- -- -- --
-- -- -- --
-- -- -- --
-------------------------------------------------------------------------------------
(6,883,278) (3,506,466) (5,409,080) (13,167,862)
-------------------------------------------------------------------------------------
61,888,188 69,513,073 38,830,106 56,787,564
4,611,022 2,614,489 4,813,853 9,138,023
(50,380,123) (24,728,808) (21,476,685) (96,100,786)
-------------------------------------------------------------------------------------
16,119,087 47,398,754 22,167,274 (30,175,199)
-------------------------------------------------------------------------------------
16,536,374 49,154,412 24,358,462 (21,038,445)
-------------------------------------------------------------------------------------
102,017,561 30,837,422 73,144,419 253,175,445
-------------------------------------------------------------------------------------
$118,553,935 $ 79,991,834 $ 97,502,881 $232,137,000
-------------------------------------------------------------------------------------
$ 693,874 $ 134,310 $ 91,922 $ 16,021,332
-------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes Goldman Sachs Adjustable Rate
Government Fund (Adjustable Rate Government), Goldman Sachs Short Duration
Government Fund (Short Duration Government), Goldman Sachs Government Income
Fund (Government Income), Goldman Sachs Core Fixed Income Fund (Core Fixed
Income) and Goldman Sachs Global Income Fund (Global Income), collectively,
"the Funds" or individually a "Fund." Adjustable Rate Government, Short Dura-
tion Government, Government Income, and Core Fixed Income are diversified
portfolios of the Trust whereas Global Income is a non-diversified portfolio.
Adjustable Rate Government offers four classes of shares -- Class A, Institu-
tional, Administration and Service. Government Income and Global Income offer
five classes of shares -- Class A, Class B, Class C, Institutional and Serv-
ice. Short Duration Government and Core Fixed Income offer six classes of
shares -- Class A, Class B, Class C, Institutional, Administration and Serv-
ice.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Certain reclas-
sifications have been made to the prior period's amounts to conform with the
current period presentation. Such reclassifications have no effect on previ-
ously reported net asset values of the Fund.
A. INVESTMENT VALUATION -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices 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 val-
ued at amortized cost.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
recorded on trade date. Realized gains and losses on sales of portfolio secu-
rities are calculated using the identified cost basis. Interest income is re-
corded 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 re-
spective securities.
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 se-
curity 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 avail-
able from the issuer. Recorded amortization amounts are adjusted when actual
OID factors are received. Market discounts and market premiums on debt secu-
rities, other than mortgage backed REMIC securities, are amortized to inter-
est income over the life of the security with a corresponding adjustment in
the cost basis of that security for Core Fixed Income. Global Income amor-
tizes only market discounts on debt securities other than REMIC mortgage
backed securities.
46
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
C. 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 and capital gains to its shareholders. Accordingly, no
federal tax provisions are required.
The characterization of distributions to shareholders for financial report-
ing 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, de-
pending on the type of book/tax differences that may exist as well as timing
differences associated with having different book and tax year ends.
Adjustable Rate Government and Short Duration Government, at their most re-
cent tax year-ends of December 31, 1997, had approximately the following
amounts of capital loss carryforward for U.S. federal tax purposes. These
amounts are available to be carried forward to offset future capital gains to
the extent permitted by applicable laws or regulations.
<TABLE>
<CAPTION>
YEARS OF
FUND AMOUNT EXPIRATION
-----------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Government $47,859,000 2000-2004
-----------------------------------------------------------------------------------------
Short Duration Government $14,280,000 2002-2005
-----------------------------------------------------------------------------------------
</TABLE>
D. EXPENSES -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds based on the
nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective distribution and service plans. Share-
holders of Service and Administration shares bear all expenses and fees paid
to service organizations for their services with respect to such shares. Ef-
fective October 1, 1998, each class of shares of the Funds now separately
bear their respective class-specific transfer agency fees.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years. The amortiza-
tion costs of Adjustable Rate Government, Short Duration Government,
Government Income and Global Income are fully amortized.
F. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Funds are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, foreign currency and 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 ex-
change 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 hold-
ings of foreign currencies and sale of investments; (ii) gains and losses be-
tween trade date and settlement date on investment securities transactions
and forward exchange contracts; and (iii) gains and losses from the differ-
ence between amounts of interest recorded and the amounts actually received.
G. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- Core Fixed Income and
Global Income may enter into forward foreign currency exchange contracts for
the purchase or sale of a specific foreign currency at a fixed price on a fu-
ture date as a hedge or cross-hedge against either specific transactions or
portfolio positions. Core Fixed Income and Global Income may also purchase
and sell forward contracts to seek to increase total return. All commitments
are "marked-to-market" daily at
47
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
the applicable translation rates and any resulting unrealized gains or losses
are recorded in the Funds' financial statements. The Funds record realized
gains or losses at the time a 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.
H. FUTURES CONTRACTS -- The Funds may enter into futures transactions to
hedge against changes in interest rates, securities prices, currency exchange
rates (in the case of Core Fixed Income and Global Income) or to seek to in-
crease total return.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the associated futures exchange. Subsequent payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Funds realize a gain or loss which is reported
in the Statements of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
hedging strategies and potentially result in a loss.
I. OPTION ACCOUNTING PRINCIPLES -- When the Funds write call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Funds enter
into a closing purchase transaction, the Funds realize a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Funds realize a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Funds purchase upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
J. MORTGAGE DOLLAR ROLLS -- The Funds may enter into mortgage "dollar rolls"
in which the Funds sell securities in the current month for delivery and si-
multaneously contract with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. For financial reporting and tax reporting purposes, the Funds treat
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
48
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
3. AGREEMENTS
Pursuant to the Investment Management Agreements (the "Agreements"), Goldman
Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as the investment adviser for Adjustable Rate Gov-
ernment and Short Duration Government. Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs, serves as the in-
vestment adviser for Government Income and Core Fixed Income. Goldman Sachs
Asset Management International ("GSAMI"), an affiliate of GSAM, serves as the
investment adviser for Global Income. Under the Agreements, the respective
adviser, subject to the general supervision of the Trust's Board of Trustees,
manages the Funds' portfolios. As compensation for the services rendered pur-
suant to the Agreements, the assumption of the expenses related thereto and
administering the Funds' business affairs, including providing facilities,
the adviser is entitled to a fee, computed daily and payable monthly at an
annual rate equal to .40%, .50%, .65%, .40% and .90% of average daily net as-
sets of Adjustable Rate Government, Short Duration Government, Government In-
come, Core Fixed Income and Global Income, respectively.
Each adviser has voluntarily agreed to limit "Other Expenses", with the ex-
ception of Adjustable Rate Government, (excluding management fees, distribu-
tion and service fees, taxes, interest, brokerage, litigation, Administrative
and Service share fees, indemnification costs and other extraordinary ex-
penses and with respect to Global Income, transfer agent fees) to the extent
that such expenses exceeded .05%, .00%, .05% and .06% of the average daily
net assets of Short Duration Government, Government Income, Core Fixed Income
and Global Income, respectively. Effective September 1, 1998 for Global In-
come and October 1, 1998 for Adjustable Rate Government, Short Duration Gov-
ernment, Government Income and Core Fixed Income, these expense limitations
were modified to .00%, .05%, .00%, .00% and .10% (excluding management fees,
distribution and service fees, transfer agent fees, taxes, interest, broker-
age, litigation, administration and service share fees, indemnification costs
and extraordinary expenses), respectively.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Funds that it retained approximately $28,000, $157,000, $212,000,
$82,000 and $133,000 for the year ended October 31, 1998 for Adjustable Rate
Government, Short Duration Government, Government Income, Core Fixed Income
and Global Income, respectively.
The Trust, on behalf of each Fund, had adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of the average
daily net assets attributable to Class A, Class B and Class C shares, respec-
tively.
The Trust, on behalf of each Fund, had adopted Authorized Dealer Service
Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and Autho-
rized Dealers were compensated for providing personal and account maintenance
services. Each Fund paid a fee under the Dealer Service Plan equal, on an an-
nual basis, up to .25% of its average daily net assets attributable to Class
A, Class B and Class C shares.
Effective September 1, 1998 for Global Income and October 1, 1998 for Ad-
justable Rate Government, Short Duration Government, Government Income and
Core Fixed Income, the Distribution Plans and Dealer Service Plans were com-
bined into Distribution and Service plans. Under the Distribution and Service
Plans, Goldman Sachs and/or Authorized Dealers are entitled to a monthly fee
from each fund for distribution services and shareholder maintenance equal,
on an annual basis, to .50%, 1.00% and 1.00% for Global Income and .25%,
1.00% and 1.00% of each of the other funds' average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively.
Goldman Sachs also serves as Transfer Agent of the Funds for a fee. Effec-
tive September 1, 1998 for Global Income and October 1, 1998 for Adjustable
Rate Government, Short Duration Government, Government Income and Core Fixed
Income, the fees charged for such transfer agency services are calculated
daily and payable monthly at an annual rate as
49
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
follows: .19% of average daily net assets for Class A, Class B and Class C
shares and .04% of average daily net assets for Institutional, Service and
Administration Shares.
The Trust, on behalf of the Funds, has adopted Service Plans. In addition,
the Trust, on behalf of Adjustable Rate Government, Short Duration Government
and Core Fixed Income, has adopted Administration Plans. These plans allow
for Service shares and Administration 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 Service and Administration Plans provide for compensation
to the service organizations in an amount up to .50% and .25% (on an
annualized basis), respectively, of the average daily net asset value of the
respective shares.
For the year ended October 31, 1998, the advisors and distributor have vol-
untarily agreed to waive certain fees and reimburse other expenses as follows
(in thousands):
<TABLE>
<CAPTION>
WAIVERS
------------------------------------
CLASS A CLASS B
DISTRIBUTION DISTRIBUTION REIMBURSEMENT
FUND MANAGEMENT AND SERVICE AND SERVICE REIMBURSEMENT OUTSTANDING
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable
Rate Govern-
ment $ -- $103 $-- $ 22 $ 22
-----------------------------------------------------------------------------------
Short Dura-
tion Govern-
ment 42 50 4 460 99
-----------------------------------------------------------------------------------
Government
Income 152 219 -- 473 78
-----------------------------------------------------------------------------------
Core Fixed
Income -- 70 -- 486 141
-----------------------------------------------------------------------------------
Global In-
come 861 58 -- 326 148
-----------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
DISTRIBUTION TRANSFER
FUND MANAGEMENT AND SERVICE AGENT TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $177 $12 $28 $217
--------------------------------------------------------------------------------
Short Duration Government 95 20 27 142
--------------------------------------------------------------------------------
Government Income 64 45 34 143
--------------------------------------------------------------------------------
Core Fixed Income 95 22 28 145
--------------------------------------------------------------------------------
Global Income 216 98 57 371
--------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
SALES OR SALES OR MATURITIES
PURCHASES OF PURCHASES MATURITIES OF (EXCLUDING
U.S. GOVERNMENT (EXCLUDING U.S. GOVERNMENT U.S. GOVERNMENT AND
AND AGENCY U.S. GOVERNMENT AND AND AGENCY AGENCY
OBLIGATIONS AGENCY OBLIGATIONS) OBLIGATIONS OBLIGATIONS)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable
Rate Gov-
ernment $175,786,143 $ -- $154,710,424 $ --
-----------------------------------------------------------------------------------
Short Du-
ration Gov-
ernment 305,220,351 -- 188,067,941 --
-----------------------------------------------------------------------------------
Government
Income 380,017,030 23,234,953 343,576,248 5,799,796
-----------------------------------------------------------------------------------
Core Fixed
Income 521,496,377 156,943,148 428,086,652 67,496,063
-----------------------------------------------------------------------------------
Global In-
come 200,935,755 567,499,157 134,428,516 490,054,826
-----------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, Global Income had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
FOREIGN CURRENCY VALUE ON UNREALIZED
PURCHASE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 11/20/98 $ 200,114 $ 202,016 $ 1,902
Deutsche Mark
expiring 11/10/98 159,316 173,595 14,279
expiring 1/29/99 5,731,566 5,700,981 (30,585)
-----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY PURCHASE
CONTRACTS $ 6,090,996 $ 6,076,592 $ (14,404)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<CAPTION>
FOREIGN CURRENCY VALUE ON UNREALIZED
SALE CONTRACTS SETTLEMENT DATE CURRENT VALUE GAIN (LOSS)
-----------------------------------------------------------------------------
<S> <C> <C> <C>
British Pound
expiring 1/29/99 $ 52,117,193 $ 51,337,748 $ 779,445
expiring 1/29/99 12,806,986 12,824,173 (17,187)
Canadian Dollar
expiring 11/20/98 8,514,767 8,444,199 70,568
Danish Kroner
expiring 1/13/99 28,023,165 27,793,076 230,089
Deutsche Mark
expiring 12/4/98 4,097,113 4,196,298 (99,185)
expiring 1/22/99 2,542,895 2,521,022 21,873
expiring 1/25/99 4,703,312 4,714,684 (11,372)
expiring 1/25/99 5,694,778 5,682,105 12,673
French Franc
expiring 1/14/99 6,595,663 6,512,727 82,936
Italian Lira
expiring 11/13/98 24,352,416 26,131,764 (1,779,348)
Japanese Yen
expiring 12/4/98 686,226 790,350 (104,124)
expiring 2/10/99 25,373,876 25,644,571 (270,695)
Spanish Peseta
expiring 12/10/98 9,333,401 9,743,034 (409,633)
Swedish Krona
expiring 1/22/99 1,743,193 1,743,792 (599)
Swiss Franc
expiring 11/17/98 8,486,072 9,362,582 (876,510)
expiring 11/17/98 151,092 150,086 1,006
-----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CON-
TRACTS $195,222,148 $197,592,211 $(2,370,063)
-----------------------------------------------------------------------------
</TABLE>
51
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At October 31,
1998, Global Income had sufficient cash and/or securities to cover any com-
mitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency ex-
change contracts" and "Payable for forward foreign currency exchange con-
tracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $1,802,980 and $4,943,283, respectively, in
the accompanying Statement of Assets and Liabilities. Included in the Global
Income "Receivable and Payable for forward foreign currency exchange con-
tracts" are $588,209 and $1,344,045, respectively, related to forward con-
tracts closed but not settled as of October 31, 1998.
For the year ended October 31, 1998, Adjustable Rate Government, Short Du-
ration Government, Government Income, Core Fixed Income and Global Income in-
curred commission expenses of approximately $54,000, $26,000, $8,000, $9,000
and $8,000, respectively, in connection with futures contracts entered into
with Goldman Sachs. At October 31, 1998, Goldman Sachs was owed approximately
$157,000, $131,000, $130,000 and $128,000 from Adjustable Rate Government,
Short Duration Government, Government Income and Core Fixed Income, respec-
tively, related to variation margin on futures contracts. Goldman Sachs owed
approximately $30,000 to Global Income related to variation margin on futures
contracts.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, 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 at the Funds' custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having manage-
ment agreements with GSFM, GSAMI and GSAM or their affiliates, transfer
uninvested cash into joint accounts, the daily aggregate balance of which is
invested in one or more repurchase agreements.
At October 31, 1998, Adjustable Rate Government, Short Duration Government,
Government Income and Core Fixed Income had undivided interests in the repur-
chase agreements in the following joint account which equaled $43,700,000,
$6,400,000, $14,600,000 and $22,300,000, respectively, in principal amount.
At October 31, 1998, the following repurchase agreements held in this joint
account were fully collateralized by U.S. Treasury and agency obligations.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
REPURCHASE AGREEMENTS AMOUNT RATE DATE COST
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CS FIRST BOSTON CORP. $ 25,000,000 5.50% 11/02/1998 $ 25,000,000
---------------------------------------------------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC 800,000,000 5.65 11/02/1998 800,000,000
---------------------------------------------------------------------------------------
CHASE MANHATTAN BANK 600,000,000 5.60 11/02/1998 600,000,000
---------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,425,000,000
---------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
7. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 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 re-
strictive 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. The committed facility also
requires a fee to be paid by the Fund based on the amount of the commitment
which has not been utilized. During the year ended October 31, 1998, the
Funds did not have any borrowings under these facilities.
8. OTHER MATTERS
As of October 31, 1998, the Goldman, Sachs & Co. Profit Sharing Master Trust
was the beneficial owner of approximately 20% and 15% of the outstanding
shares of Short Duration Government and Global Income, respectively. In addi-
tion, the Goldman Sachs Balanced Strategy Portfolio was the beneficial owner
of approximately 14%, 3% and 1% of the outstanding shares of Short Duration
Government, Global Income and High Yield, respectively. The Goldman Sachs
Growth and Income Strategy Portfolio was the beneficial owner of approxi-
mately 19%, 15% and 5% of the outstanding shares of Core Fixed Income, Global
Income and High Yield, respectively. The Goldman Sachs Growth Strategy Port-
folio was the beneficial owner of approximately 6%, 4% and 2% of Core Fixed
Income, Global Income and High Yield, respectively.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Adjustable Rate Government has
reclassified $938,738 and $1,410,151 from paid-in capital to accumulated dis-
tributions in excess of net investment income and accumulated net realized
loss, respectively. Short Duration Government has reclassified $33,684 and
$8,196 to paid-in capital and accumulated undistributed net investment in-
come, respectively, from accumulated net realized loss. Government Income has
reclassified $1,659 from paid-in capital to accumulated distributions in ex-
cess of net investment income and an additional $164,196 and $15,707 from ac-
cumulated net realized gain to accumulated distributions in excess of net
investment income and paid-in capital, respectively. Core Fixed Income has
reclassified $24,095 and $444,061 from paid-in capital and accumulated net
realized gain, respectively, to accumulated distributions in excess of net
investment income. In addition, Core Fixed Income has reclassified $2,294 and
$19,060 from accumulated distributions in excess of net investment income to
paid-in capital and accumulated net realized gain, respectively. Global In-
come has reclassified $6,564,667 from accumulated undistributed net invest-
ment income to accumulated net realized gain and an additional $30,213 and
$726,330 from paid-in capital to accumulated undistributed net investment in-
come and accumulated net realized gain, respectively.
These reclassifications have no impact on the net asset value of the Funds
and are designed to present the Fund's capital accounts on a tax basis.
53
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 is as follows:
<TABLE>
<CAPTION>
ADJUSTABLE RATE
GOVERNMENT SHORT DURATION GOVERNMENT
------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 19,932,653 $ 194,697,319 16,985,961 $ 167,624,322
Reinvestments of divi-
dends and distributions 604,097 5,945,679 120,111 1,185,808
Shares repurchased (18,654,663) (182,295,231) (12,340,018) (121,740,352)
------------------------------------------------------
1,882,087 18,347,767 4,766,054 47,069,778
-------------------------------------------------------------------------------
CLASS B SHARES
Shares sold -- -- 603,049 5,943,625
Reinvestments of divi-
dends and distributions -- -- 7,568 74,540
Shares repurchased -- -- (177,997) (1,755,511)
------------------------------------------------------
-- -- 432,620 4,262,654
-------------------------------------------------------------------------------
CLASS C SHARES
Shares sold -- -- 2,838,549 27,966,526
Reinvestments of divi-
dends and distributions -- -- 4,686 46,150
Shares repurchased -- -- (2,404,324) (23,689,726)
------------------------------------------------------
-- -- 438,911 4,322,950
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 28,576,509 280,382,576 8,996,219 88,597,711
Reinvestments of divi-
dends and distributions 1,450,779 14,219,494 476,030 4,685,919
Shares repurchased (31,436,222) (308,484,524) (5,282,160) (51,951,739)
------------------------------------------------------
(1,408,934) (13,882,454) 4,190,089 41,331,891
-------------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 526,967 5,168,122 643,992 6,337,403
Reinvestments of divi-
dends and distributions 16,347 159,947 21,813 215,247
Shares repurchased (207,333) (2,030,808) (30,888) (304,789)
------------------------------------------------------
335,981 3,297,261 634,917 6,247,861
-------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 59,251 580,933 478,854 4,707,065
Reinvestments of divi-
dends and distributions 2,671 26,153 26,999 265,734
Shares repurchased (12,170) (119,234) (213,862) (2,100,422)
------------------------------------------------------
49,752 487,852 291,991 2,872,377
-------------------------------------------------------------------------------
NET INCREASE 858,886 $ 8,250,426 10,754,582 $ 106,107,511
-------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME
---------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10,117,601 $ 148,936,815 8,313,076 $ 84,205,066 6,208,388 $ 94,795,767
317,568 4,667,254 192,581 1,951,173 644,423 9,725,285
(8,375,782) (123,588,302) (3,945,813) (40,108,401) (4,034,417) (61,329,954)
---------------------------------------------------------------------------------
2,059,387 30,015,767 4,559,844 46,047,838 2,818,394 43,191,098
---------------------------------------------------------------------------------
988,916 14,582,947 762,323 7,750,260 358,077 5,463,974
36,689 539,851 10,510 106,863 16,608 250,647
(495,310) (7,326,615) (133,282) (1,356,868) (83,968) (1,277,096)
---------------------------------------------------------------------------------
530,295 7,796,183 639,551 6,500,255 290,717 4,437,525
---------------------------------------------------------------------------------
695,338 10,239,137 641,726 6,499,362 284,497 4,320,887
12,307 181,980 10,040 102,303 6,328 95,885
(143,057) (2,112,718) (135,503) (1,377,439) (61,616) (932,193)
---------------------------------------------------------------------------------
564,588 8,308,399 516,263 5,224,226 229,209 3,484,579
---------------------------------------------------------------------------------
43,336 637,656 16,206,866 163,978,142 9,752,852 148,646,615
9,140 134,281 558,960 5,664,936 252,867 3,816,828
(4,930) (72,125) (5,578,137) (56,603,166) (2,632,348) (40,270,900)
---------------------------------------------------------------------------------
47,546 699,812 11,187,689 113,039,912 7,373,371 112,192,543
---------------------------------------------------------------------------------
-- -- 779,791 7,866,673 -- --
-- -- 49,361 499,933 -- --
-- -- (201,424) (2,053,871) -- --
---------------------------------------------------------------------------------
-- -- 627,728 6,312,735 -- --
---------------------------------------------------------------------------------
-- -- 375,085 3,807,318 62,146 946,767
7 104 19,089 193,910 1,707 26,082
-- -- (67,401) (688,807) (6,198) (94,978)
---------------------------------------------------------------------------------
7 104 326,773 3,312,421 57,655 877,871
---------------------------------------------------------------------------------
3,201,823 $ 46,820,265 17,857,848 $180,437,387 10,769,346 $164,183,616
---------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1998
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION
GOVERNMENT GOVERNMENT
------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 7,590,281 $ 74,855,744 1,141,319 $ 11,256,436
Reinvestments of divi-
dends and distributions 194,263 1,918,232 8,343 82,332
Shares repurchased (4,485,105) (44,283,044) (189,444) (1,867,761)
------------------------------------------------------
3,299,439 32,490,932 960,218 9,471,007
------------------------------------------------------------------------------
CLASS B SHARES
Shares sold -- -- 95,322 934,856
Reinvestments of divi-
dends and distributions -- -- 449 4,421
Shares repurchased -- -- (20,030) (196,887)
------------------------------------------------------
-- -- 75,741 742,390
------------------------------------------------------------------------------
CLASS C SHARES
Shares sold -- -- 21,033 207,264
Reinvestments of divi-
dends and distributions -- -- 63 625
Shares repurchased -- -- (1,778) (17,517)
------------------------------------------------------
-- -- 19,318 190,372
------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 32,562,840 321,007,102 4,524,108 44,408,312
Reinvestments of divi-
dends and distributions 1,830,181 18,045,430 440,142 4,313,493
Shares repurchased (49,889,214) (491,883,845) (4,617,947) (45,299,315)
------------------------------------------------------
(15,496,193) (152,831,313) 346,303 3,422,490
------------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 209,261 2,063,528 325,429 3,199,356
Reinvestment of divi-
dends and distributions 10,639 104,909 6,605 64,920
Shares repurchased (322,994) (3,190,328) (250,361) (2,471,239)
------------------------------------------------------
(103,094) (1,021,891) 81,673 793,037
------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 48,034 474,470 191,963 1,881,964
Reinvestment of divi-
dends and distributions 199 1,965 14,820 145,231
Shares repurchased (13,213) (130,485) (53,841) (527,404)
------------------------------------------------------
35,020 345,950 152,942 1,499,791
------------------------------------------------------------------------------
NET INCREASE (DECREASE) (12,264,828) $(121,016,322) 1,636,195 $ 16,119,087
------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
GOVERNMENT INCOME CORE FIXED INCOME GLOBAL INCOME
--------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,037,141 $ 57,488,835 1,104,533 $ 11,020,182 3,015,583 $ 44,585,997
171,093 2,446,417 10,252 102,270 467,859 6,894,169
(1,621,717) (23,201,046) (186,897) (1,876,109) (6,086,858) (89,969,794)
--------------------------------------------------------------------------------
2,586,517 36,734,206 927,888 9,246,343 (2,603,416) (38,489,628)
--------------------------------------------------------------------------------
616,145 8,785,642 71,697 712,089 234,541 3,469,609
11,108 159,730 635 6,353 3,715 55,069
(93,217) (1,338,822) (10,829) (107,884) (25,960) (383,982)
--------------------------------------------------------------------------------
534,036 7,606,550 61,503 610,558 212,296 3,140,696
--------------------------------------------------------------------------------
94,585 1,365,823 28,196 281,946 39,328 589,195
379 5,517 8 78 183 2,750
(13,076) (188,940) (1,200) (12,024) (6,597) (98,680)
--------------------------------------------------------------------------------
81,888 1,182,400 27,004 270,000 32,914 493,265
--------------------------------------------------------------------------------
129,579 1,871,267 1,146,499 11,325,306 520,054 7,743,275
193 2,806 450,657 4,441,709 148,072 2,180,251
-- -- (1,051,390) (10,391,058) (365,110) (5,385,751)
--------------------------------------------------------------------------------
129,772 1,874,073 545,766 5,375,957 303,016 4,537,775
--------------------------------------------------------------------------------
-- -- 1,366,455 13,474,489 -- --
-- -- 19,189 189,462 -- --
-- -- (844,042) (8,441,000) -- --
--------------------------------------------------------------------------------
-- -- 541,602 5,222,951 -- --
--------------------------------------------------------------------------------
104 1,506 204,087 2,016,094 27,005 399,488
1 19 7,480 73,981 390 5,784
-- -- (65,183) (648,610) (17,410) (262,579)
--------------------------------------------------------------------------------
105 1,525 146,384 1,441,465 9,985 142,693
--------------------------------------------------------------------------------
3,332,318 $ 47,398,754 2,250,147 $ 22,167,274 (2,045,205) $(30,175,199)
--------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- ------------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
GAIN (LOSS) REALIZED GAIN INCREASE
NET ASSET ON INVESTMENT, IN EXCESS ON INVESTMENT, (DECREASE)
VALUE AT NET OPTION AND FROM NET OF NET OPTION IN NET
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT AND FUTURES ASSET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.88 $0.53 $(0.17) $(0.53) $(0.02) $-- $(0.19)
1998 - Institutional
Shares 9.88 0.55 (0.16) (0.55) (0.02) -- (0.18)
1998 - Administration
Shares 9.88 0.53 (0.16) (0.53) (0.02) -- (0.18)
1998 - Service Shares 9.88 0.51 (0.16) (0.51) (0.02) -- (0.18)
----------------------------------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05
1997 - Institutional
Shares 9.83 0.59(f) 0.05(f) (0.59) -- -- 0.05
1997 - Administration
Shares 9.83 0.57(f) 0.05(f) (0.57) -- -- 0.05
1997 - Service Shares
(commenced March 27) 9.84 0.33(f) 0.04(f) (0.33) -- -- 0.04
----------------------------------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06
1996 - Institutional
Shares 9.77 0.57(f) 0.08(f) (0.57) (0.02) -- 0.06
1996 - Administration
Shares 9.77 0.55(f) 0.08(f) (0.55) (0.02) -- 0.06
----------------------------------------------------------------------------------------------------------
1995 - Class A Shares
(commenced May 15) 9.79 0.27(f) (0.01)(f) (0.27) (0.01) -- (0.02)
1995 - Institutional
Shares 9.74 0.56(f) 0.07(f) (0.57) (0.03) -- 0.03
1995 - Administration
Shares 9.74 0.54(f) 0.07(f) (0.55) (0.03) -- 0.03
----------------------------------------------------------------------------------------------------------
1994 - Institutional
Shares 10.00 0.43(f) (0.24)(f) (0.45) -- -- (0.26)
1994 - Administration
Shares 10.00 0.42(f) (0.26)(f) (0.42) -- -- (0.26)
----------------------------------------------------------------------------------------------------------
</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 were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
58
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
NET RATIO OF RATIO OF
ASSETS RATIO OF NET NET
NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.69 3.71% 33.64% $ 60,782 0.80% 5.40% 1.02% 5.18%
9.70 4.09 33.64 441,228 0.53 5.63 0.53 5.63
9.70 3.83 33.64 5,999 0.78 5.33 0.78 5.33
9.70 3.57 33.64 822 1.03 5.09 1.03 5.09
---------------------------------------------------------------------------------------
9.88 6.43 46.58 43,393 0.74 5.60 1.02 5.32
9.88 6.70 46.58 463,511 0.49 5.99 0.52 5.96
9.88 6.43 46.58 2,793 0.74 5.73 0.77 5.70
9.88 3.81(d) 46.58 346 1.05(c) 5.64(c) 1.08(c) 5.61(c)
---------------------------------------------------------------------------------------
9.83 6.60 52.36 10,728 0.70 5.59 1.01 5.28
9.83 6.86 52.36 613,149 0.45 5.85 0.51 5.79
9.83 6.60 52.36 3,792 0.70 5.59 0.76 5.53
---------------------------------------------------------------------------------------
9.77 2.74(d) 24.12 15,203 0.69(c) 5.87(c) 1.01(c) 5.55(c)
9.77 6.75 24.12 657,358 0.46 5.77 0.53 5.70
9.77 6.48 24.12 3,572 0.71 5.50 0.78 5.43
---------------------------------------------------------------------------------------
9.74 1.88 37.81 942,523 0.46 4.38 0.49 4.35
9.74 1.63 37.81 6,960 0.71 4.27 0.74 4.24
---------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------- ------------------------------------
NET REALIZED FROM NET
AND UNREALIZED REALIZED GAIN NET
NET ASSET GAIN (LOSS) ON IN EXCESS ON INVESTMENT, INCREASE
VALUE AT NET INVESTMENT, OPTION FROM NET OF NET OPTION (DECREASE)
BEGINNING INVESTMENT AND FUTURES INVESTMENT INVESTMENT AND FUTURES IN NET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.88 $0.57 $ 0.04 $(0.58) $-- $ -- $ 0.03
1998 - Class B Shares 9.86 0.51 0.03 (0.52) -- -- 0.02
1998 - Class C Shares 9.86 0.49 0.03 (0.50) -- -- 0.02
1998 - Institutional
Shares 9.86 0.58 0.06 (0.60) -- -- 0.04
1998 - Administration
Shares 9.89 0.55 0.05 (0.58) -- -- 0.02
1998 - Service Shares 9.86 0.55 0.04 (0.56) -- -- 0.03
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31(f) 0.09 (f) (0.30) -- -- 0.10
1997 - Class B Shares
(commenced May 1) 9.75 0.28(f) 0.10 (f) (0.27) -- -- 0.11
1997 - Class C Shares
(commenced May 15) 9.83 0.12(f) 0.02 (f) (0.11) -- -- 0.03
1997 - Institutional
Shares 9.83 0.64(f) 0.03 (f) (0.64) -- -- 0.03
1997 - Administration
Shares 9.85 0.62(f) 0.04 (f) (0.62) -- -- 0.04
1997 - Service Shares 9.82 0.59(f) 0.04 (f) (0.59) -- -- 0.04
----------------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 9.82 0.63(f) 0.01 (f) (0.63) -- -- 0.01
1996 - Administration
Shares(g) 9.86 0.38(f) -- (f) (0.39) -- -- (0.01)
1996 - Service Shares
(Commenced April 10) 9.72 0.31(f) 0.10 (f) (0.31) -- -- 0.10
----------------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.64 0.66(f) 0.17 (f) (0.65) -- -- 0.18
1995 - Administration
Shares(g) 9.64 0.24(f) (0.04)(f) (0.21) -- -- (0.01)
----------------------------------------------------------------------------------------------------------------
1994 - Institutional
Shares 10.14 0.56(f) (0.46)(f) (0.56) -- (0.04) (0.50)
1994 - Administration
Shares 10.14 0.53(f) (0.45)(f) (0.54) -- (0.04) (0.50)
----------------------------------------------------------------------------------------------------------------
</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 the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration shares commenced activity
on April 15, 1993, were redeemed in full on February 23, 1995 and re-
commenced on February 28, 1996 at $9.86.
60
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE LIMITATIONS
-----------------------
RATIO OF NET RATIO OF NET
NET ASSET NET ASSETS RATIO OF NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO AT END OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.91 6.36% 119.89% $ 56,725 0.81% 5.68% 1.32% 5.17%
9.88 5.62 119.89 5,025 1.41 5.12 1.87 4.66
9.88 5.46 119.89 4,527 1.56 4.64 1.87 4.33
9.90 6.75 119.89 145,514 0.53 6.06 0.84 5.75
9.91 6.27 119.89 7,357 0.78 5.76 1.09 5.45
9.89 6.12 119.89 6,232 1.03 5.56 1.34 5.25
----------------------------------------------------------------------------------------------
9.88 4.14(d) 102.58 9,491 0.70(c) 6.05(c) 1.32(c) 5.43(c)
9.86 3.94(d) 102.58 747 1.30(c) 5.52(c) 1.82(c) 5.00(c)
9.86 1.44(d) 102.58 190 1.45(c) 5.52(c) 1.82(c) 5.15(c)
9.86 7.07 102.58 103,729 0.45 6.43 0.82 6.06
9.89 6.91 102.58 1,060 0.70 6.19 1.07 5.82
9.86 6.63 102.58 3,337 0.95 5.92 1.32 5.55
----------------------------------------------------------------------------------------------
9.83 6.75 115.45 99,944 0.45 6.44 0.71 6.18
9.85 4.00(d) 115.45 252 0.70(c) 5.97(c) 0.96(c) 5.71(c)
9.82 4.35(d) 115.45 1,822 0.95(c) 6.05(c) 1.21(c) 5.79(c)
----------------------------------------------------------------------------------------------
9.82 8.97 292.56 103,760 0.45 6.87 0.72 6.60
9.63 2.10(d) 292.56 -- 0.70(c) 7.91(c) 0.90(c) 7.71(c)
----------------------------------------------------------------------------------------------
9.64 0.99 289.79 193,095 0.45 5.69 0.59 5.55
9.64 0.73 289.79 730 0.70 5.38 0.84 5.24
----------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ----------------------------------------------- -------
NET REALIZED FROM IN EXCESS OF
AND UNREALIZED NET REALIZED NET REALIZED
GAIN (LOSS) ON GAIN ON GAIN ON
NET ASSET INVESTMENT, IN EXCESS INVESTMENT, INVESTMENT,
VALUE, NET OPTION AND FROM NET OF NET OPTION AND OPTION AND
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT FUTURES FUTURES
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $14.59 $0.81 $0.45 $(0.81) $(0.07) $(0.06) $ --
1998 - Class B Shares 14.61 0.72 0.42 (0.72) (0.05) (0.06) --
1998 - Class C Shares 14.60 0.74 0.40 (0.74) (0.03) (0.06) --
1998 - Institutional
Shares 14.59 0.87 0.42 (0.87) (0.05) (0.06) --
1998 - Service Shares 14.59 0.80 0.40 (0.80) (0.05) (0.06) --
-----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29 (0.90) -- (0.07) --
1997 - Class B Shares 14.37 0.80 0.30 (0.79) -- (0.07) --
1997 - Class C Shares
(commenced August 15) 14.38 0.17 0.22 (0.17) -- -- --
1997 - Institutional
Shares (commenced
August 15) 14.37 0.20 0.22 (0.20) -- -- --
1997 - Service Shares
(commenced August 15) 14.37 0.20 0.21 (0.19) -- -- --
-----------------------------------------------------------------------------------------------------------------
1996 - Class A shares 14.47 0.92 (0.11) (0.92) -- -- --
1996 - Class B shares
(commenced May 1) 14.11 0.41 0.26 (0.41) -- -- --
-----------------------------------------------------------------------------------------------------------------
1995 - Class A shares 13.47 0.94 1.00 (0.94) -- -- --
-----------------------------------------------------------------------------------------------------------------
1994 - Class A shares 14.90 0.85 (1.28) (0.85) (0.02) (0.12) (0.01)
-----------------------------------------------------------------------------------------------------------------
</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 the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
62
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
-------------------------------
RATIO OF
NET NET RATIO OF NET
INCREASE NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
(DECREASE) VALUE, PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
IN NET END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.32 $14.91 8.98% 315.43% $101,015 0.76% 5.53% 1.53% 4.76%
0.31 14.92 8.09 315.43 16,125 1.51 4.76 2.05 4.22
0.31 14.91 8.09 315.43 9,639 1.51 4.59 2.05 4.05
0.31 14.90 9.19 315.43 2,642 0.51 5.82 1.05 5.28
0.29 14.88 8.53 315.43 2 1.01 5.48 1.55 4.94
- -----------------------------------------------------------------------------------------------------------------------
0.23 14.59 8.72 395.75 68,859 0.50 6.38 1.82 5.06
0.24 14.61 7.96 395.75 8,041 1.25 5.59 2.32 4.52
0.22 14.60 2.72(d) 395.75 1,196 1.25(c) 5.45(c) 2.32(c) 4.38(c)
0.22 14.59 2.94(d) 395.75 1,894 0.25(c) 7.03(c) 1.32(c) 5.96(c)
0.22 14.59 2.85(d) 395.75 2 0.75(c) 6.49(c) 1.82(c) 5.42(c)
- -----------------------------------------------------------------------------------------------------------------------
(0.11) 14.36 5.80 485.09 30,603 0.50 6.42 1.89 5.03
0.26 14.37 4.85(d) 485.09 234 1.25(c) 5.65(c) 2.39(c) 4.51(c)
- -----------------------------------------------------------------------------------------------------------------------
1.00 14.47 14.90 449.53 29,503 0.47 6.67 2.34 4.80
- -----------------------------------------------------------------------------------------------------------------------
(1.43) 13.47 (2.98) 654.90 14,452 0.11 6.06 2.86 3.31
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON FROM NET
INVESTMENT, REALIZED NET
OPTION, GAIN ON INCREASE
NET ASSET FUTURES AND IN EXCESS INVESTMENT, (DECREASE)
VALUE AT NET FOREIGN CURRENCY FROM NET OF NET OPTION AND IN NET
BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES ASSET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $10.06 $0.59 $ 0.27 $(0.59) $(0.02) $(0.06) $0.19
1998 - Class B Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Class C Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Institutional
Shares 10.08 0.61 0.29 (0.61) (0.03) (0.06) 0.20
1998 - Administration
Shares 10.07 0.57 0.29 (0.57) (0.03) (0.06) 0.20
1998 - Service Shares 10.09 0.56 0.27 (0.56) (0.02) (0.06) 0.19
------------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.70 0.30 0.36 (0.30) -- -- 0.36
1997 - Class B Shares
(commenced May 1) 9.72 0.27 0.37 (0.27) -- -- 0.37
1997 - Class C Shares
(commenced August 15) 9.93 0.11 0.16 (0.11) -- -- 0.16
1997 - Institutional
Shares 9.85 0.64 0.23 (0.64) -- -- 0.23
1997 - Administration
Shares 9.84 0.62 0.23 (0.62) -- -- 0.23
1997 - Service Shares 9.86 0.59 0.23 (0.59) -- -- 0.23
------------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 10.00 0.64 (0.07) (0.64) -- (0.08) (0.15)
1996 - Administrative
Shares (commenced
February 28) 9.91 0.41 (0.07) (0.41) -- -- (0.07)
1996 - Service Shares
(commenced March 13) 9.77 0.38 0.09 (0.38) -- -- 0.09
------------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.24 0.64 0.76 (0.64) -- -- 0.76
FOR THE PERIOD ENDED OCTOBER 31,
1994 - Institutional
Shares (commenced
January 5) 10.00 0.46 (0.76) (0.46) -- -- (0.76)
------------------------------------------------------------------------------------------------------------
</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 or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
64
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES
OR EXPENSE
LIMITATIONS
---------------------
NET RATIO OF RATIO OF
ASSETS RATIO OF NET NET
NET ASSET AT END NET INVESTMENT RATIO OF INVESTMENT
VALUE, PORTFOLIO OF EXPENSES INCOME EXPENSES INCOME
END OF TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
PERIOD RETURN(B) RATE(E) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$10.25 8.76% 271.50% $56,267 0.74% 5.58% 1.21% 5.11%
10.28 7.94 271.50 7,209 1.49 4.82 1.75 4.56
10.28 7.94 271.50 5,587 1.49 4.81 1.75 4.55
10.28 9.15 271.50 195,730 0.46 5.95 0.72 5.69
10.27 8.88 271.50 12,743 0.71 5.70 0.97 5.44
10.28 8.50 271.50 5,263 0.96 5.44 1.22 5.18
- -----------------------------------------------------------------------------------------
10.06 6.94(d) 361.27 9,336 0.70(c) 6.13(c) 1.33(c) 5.50(c)
10.09 6.63(d) 361.27 621 1.45(c) 5.28(c) 1.83(c) 4.90(c)
10.09 2.74(d) 361.27 272 1.45(c) 4.84(c) 1.83(c) 4.46(c)
10.08 9.19 361.27 79,230 0.45 6.53 0.83 6.15
10.07 8.92 361.27 6,176 0.70 6.27 1.08 5.89
10.09 8.65 361.27 1,868 0.95 6.00 1.33 5.62
- -----------------------------------------------------------------------------------------
9.85 5.98 414.20 72,061 0.45 6.51 0.83 6.13
9.84 3.56(d) 414.20 702 0.70(c) 6.41(c) 1.08(c) 6.03(c)
9.86 4.90(d) 414.20 381 0.95(c) 6.37(c) 1.33(c) 5.99(c)
- -----------------------------------------------------------------------------------------
10.00 15.72 382.26 55,502 0.45 6.56 0.96 6.05
9.24 (3.00)(d) 285.25 24,508 0.45(c) 6.48(c) 1.46(c) 5.47(c)
- -----------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON FROM
INVESTMENT, NET REALIZED
OPTION, FUTURES GAIN ON NET
NET ASSET AND FOREIGN IN EXCESS INVESTMENT, INCREASE
VALUE, NET CURRENCY FROM NET OF NET OPTION AND FROM (DECREASE)
BEGINNING INVESTMENT RELATED INVESTMENT INVESTMENT FUTURES PAID IN IN NET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS CAPITAL ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $15.10 $0.72(e) $ 0.90(e) $(1.01) $-- $(0.06) $ -- $0.55
1998 - Class B
Shares 15.08 0.63(e) 0.92(e) (0.94) -- (0.06) -- 0.55
1998 - Class C
Shares 15.06 0.63(e) 0.91(e) (0.94) -- (0.06) -- 0.54
1998 -
Institutional
Shares 15.09 0.82(e) 0.90(e) (1.11) -- (0.06) -- 0.55
1998 - Service
Shares 15.09 0.74(e) 0.91(e) (1.04) -- (0.06) -- 0.55
-------------------------------------------------------------------------------------------------------------------------
1997 - Class A
shares 14.53 0.59 0.77 (0.79) -- -- -- 0.57
1997 - Class B
shares 14.53 0.72 0.56 (0.73) -- -- -- 0.55
1997 - Class C
shares
(commenced
August 15) 14.80 0.16 0.29 (0.19) -- -- -- 0.26
1997 -
Institutional
Shares 14.52 0.88 0.56 (0.87) -- -- -- 0.57
1997 - Service
Shares
(commenced March
12) 14.69 0.53 0.39 (0.52) -- -- -- 0.40
-------------------------------------------------------------------------------------------------------------------------
1996 - Class A
shares 14.45 0.71 0.80 (1.43) -- -- -- 0.08
1996 - Class B
shares
(commenced May
1) 14.03 0.34 0.52 (0.36) -- -- -- 0.50
1996 -
Institutional
shares 14.45 1.15 0.42 (1.50) -- -- -- 0.07
-------------------------------------------------------------------------------------------------------------------------
1995 - Class A
shares 13.43 0.89 1.07 (0.94) -- -- -- 1.02
1995 -
Institutional
shares
(commenced
August 1) 14.09 0.22 0.40 (0.26) -- -- -- 0.36
-------------------------------------------------------------------------------------------------------------------------
1994 - Class A
shares 15.07 0.84 (1.49) (0.22) -- (0.16) (0.61) (1.64)
-------------------------------------------------------------------------------------------------------------------------
</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 or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
66
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
-
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
--------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
VALUE, TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
END OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$15.65 11.21% 229.91% $217,362 1.31% 4.71% 1.75% 4.27%
15.63 10.66 229.91 8,135 1.83 4.19 2.24 3.78
15.60 10.65 229.91 4,090 1.83 4.20 2.24 3.79
15.64 11.95 229.91 178,532 0.66 5.40 1.07 4.99
15.64 11.43 229.91 1,058 1.16 4.92 1.57 4.51
- ------------------------------------------------------------------------------------------------------------------
15.10 9.66 383.72 167,096 1.17 5.19 1.60 4.76
15.08 9.04 383.72 3,465 1.71 4.76 2.10 4.37
15.06 3.03(d) 383.72 496 1.71(c) 4.98(c) 2.10(c) 4.59(c)
15.09 10.26 383.72 60,929 0.65 5.72 1.04 5.33
15.09 6.42(d) 383.72 151 1.15(c) 5.33(c) 1.54(c) 4.94(c)
- ------------------------------------------------------------------------------------------------------------------
14.53 11.05 232.15 198,665 1.16 5.81 1.64 5.33
14.53 6.24(d) 232.15 256 1.70(c) 5.16(c) 2.14(c) 4.72(c)
14.52 11.55 232.15 54,254 0.65 6.35 1.11 5.89
- ------------------------------------------------------------------------------------------------------------------
14.45 15.08 265.86 245,835 1.29 6.23 1.58 5.94
14.45 4.42(d) 265.86 31,619 0.65(c) 6.01(c) 1.08(c) 5.58(c)
- ------------------------------------------------------------------------------------------------------------------
13.43 (4.49) 343.74 396,584 1.28 5.73 1.53 5.48
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
GOLDMAN SACHS TRUST TAXABLE INVESTMENT GRADE FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Taxable
Investment Grade Fixed Income Funds:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Adjustable Rate Government Fund, Short Duration Government
Fund, Government Income Fund, Core Fixed Income Fund and Global Income Fund,
five of the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds
(a Delaware Business Trust), including the statements of investments, as of
October 31, 1998, and the related statements of operations and the statements
of changes in net assets and the financial highlights for the periods pre-
sented. These financial statements and the financial highlights are the re-
sponsibility 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of October 31, 1998 by correspondence with the custodian and brokers. An au-
dit 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 re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund, Core Fixed Income Fund and Global
Income Fund as of October 31, 1998, the results of their operations and the
changes in their net assets and the financial highlights for the periods pre-
sented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1998
68
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 4.5% for Class A and redemp-
tion charges of 5.0% for Class B and at NAV for the Institutional and Service
Classes) on August 1, 1997 (commencement of operations). For comparative pur-
poses, the performance of the Fund's benchmark (the Lehman High Yield Bond
Index) is shown. This performance data represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their origi-
nal cost. Performance of Class C shares will vary from Class A due to differ-
ences in fees and loads.
HIGH YIELD FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1997 TO
OCTOBER 31, 1998.
[HIGH YIELD FUND PERFORMANCE CHART APPEARS HERE]
Monthly Rtns
Lehman High
Class A Class B Institutional Service Yield Index
8/97 9560 10004 10013 10009 9977
9/97 9735 10190 10199 10191 10175
10/97 9694 10131 10158 10146 10184
11/97 9768 10203 10238 10222 10281
12/97 9953 10389 10433 10413 10372
1/98 10217 10648 10713 10688 10559
2/98 10289 10727 10800 10761 10621
3/98 10388 10823 10896 10863 10721
4/98 10391 10820 10902 10865 10763
5/98 10447 10871 10974 10932 10800
6/98 10451 10868 10969 10933 10839
7/98 10550 10965 11087 11036 10901
8/98 9815 10194 10317 10265 10299
9/98 9752 10133 10254 10208 10346
10/98 9627 9586 10126 10066 10133
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED AUGUST 1, 1997)
Excluding sales charges 0.63% -0.70%
Including sales charges -2.99% -5.17%
-----------------------------------------------------------------------------
CLASS B (COMMENCED AUGUST 1, 1997)
Excluding sales charges -0.11% -1.43%
Including sales charges -3.32% -6.36%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 0.01% -1.43%
Including sales charges 0.01% -2.42%
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST 1, 1997) 1.00% -0.32%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 1, 1997) 0.52% -0.79%
-----------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - 77.0%
Accuride Corp.(B-/B2)
$ 2,500,000 9.25% 02/01/2008 $ 2,275,000
Advance Holding Corp. (B-/Caa2)(a)(b)
1,500,000 0.00/12.88 04/15/2009 810,000
Advanstar Communication (B-/B2)(a)
2,500,000 9.25 05/01/2008 2,312,500
AEP Industries, Inc. (B/B2)
5,000,000 9.88 11/15/2007 4,650,000
Alaris Medical, Inc. (B-/Caa1)(a)(b)
2,750,000 0.00/11.13 08/01/2008 1,251,250
Allegiance Telecom, Inc. (CCC)(b)
1,500,000 0.00/11.75 02/15/2008 630,000
Alliance Imaging, Inc. (B-/B3)
3,000,000 9.63 12/15/2005 2,790,000
Allied Waste Industries, Inc. (B+/B3)(b)
8,500,000 0.00/11.30 06/01/2007 6,375,000
American Lawyer Media, Inc. (B/B1)
2,750,000 9.75 12/15/2007 2,736,250
Amtrol, Inc. (B-/B3)
3,000,000 10.63 12/31/2006 2,532,360
Anchor Lamina, Inc. (B-/B3)
1,500,000 9.88 02/01/2008 1,200,000
APCOA, Inc. (B-/Caa1)
5,000,000 9.25 03/15/2008 4,450,000
Argo-Tech Corp.(B-/B3)
5,000,000 8.62 10/01/2007 4,650,000
Aurora Foods, Inc. (B+/B1)
3,750,000 9.88 02/15/2007 4,012,500
Axiohm Transaction Solutions (B-/B3)
3,000,000 9.75 10/01/2007 2,610,000
BE Aerospace, Inc. (B/B1)
1,000,000 9.50 11/01/2008 1,020,000
Bell Sports, Inc. (B-/B3)(a)
2,000,000 11.00 08/15/2008 1,920,000
Benton Oil & Gas Co. (B+/B2)
4,000,000 9.38 11/01/2007 2,600,000
Birch Telecom (CCC)(a)
1,000,000 14.00 06/15/2008 880,000
Brunner Mond Group PLC (B-/B3)(a)
2,250,000 11.00 07/15/2008 1,935,000
Burke Industries, Inc. (B+/B2)
2,000,000 10.00 08/15/2007 1,905,000
Cabot Safety Acquisition Corp. (B/B3)
4,000,000 12.50 07/15/2005 4,240,000
Cellnet Data Systems, Inc (CCC)(b)
1,500,000 0.00/14.00 10/01/2007 480,000
Chancellor Media Corp. (B/Ba3)
2,000,000 8.13 12/15/2007 1,880,000
CHS Electronics, Inc. (B-/B2)
3,750,000 9.88 04/15/2005 3,337,500
Colt Telecom Group PLC (B/B2)(b)
5,500,000 0.00/12.00 12/15/2006 4,290,000
Communications Instruments, Inc. (B-/B3)
3,500,000 10.00 09/15/2004 3,115,000
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Corning Consumer Products (B/B3)
$ 7,500,000 9.63% 05/01/2008 $ 5,775,000
Cross Timbers Oil Co. (B/B2)
2,750,000 8.75 11/01/2009 2,447,500
Crown Castle International Corp. (B+/B3)(b)
7,500,000 0.00/10.63 11/15/2007 4,462,500
Day International Group, Inc. (B-/B3)
3,250,000 9.50 03/15/2008 2,981,875
Decisionone Holdings Corp. (B-/B3)
1,845,000 9.75 08/01/2007 1,014,750
Del Monte Foods Co. (B-/Caa2)(b)
4,250,000 0.00/12.50 12/15/2007 2,380,000
Delta Mills, Inc. (B+/B3)
3,000,000 9.63 09/01/2007 2,760,000
Derby Cycle Corp. (B/B3)(a)
2,500,000 10.00 05/15/2008 2,200,000
Details, Inc. (B-)
4,250,000 10.00 11/15/2005 3,952,500
DTI Holdings, Inc. (CCC)(a)(b)
750,000 0.00/12.50 03/01/2008 225,000
Eagle Family Foods Inc. (B-/B3)
4,500,000 8.75 01/15/2008 4,005,000
Eagle-Picher Industries, Inc. (B-/B3)
6,000,000 9.38 03/01/2008 5,325,000
Echostar Communications Co. (B-/B2)(b)
3,000,000 0.00/12.88 06/01/2004 2,910,000
Econophone, Inc. (CCC)(a)
2,000,000 13.50 07/15/2007 2,009,040
500,000 0.00/11.00(b) 02/15/2008 238,750
Exodus Communication, Inc. (CCC)(a)
1,000,000 11.25 07/01/2008 890,000
Facilicom International, Inc. (CCC)
2,250,000 10.50 01/15/2008 1,687,500
Fisher Scientific International, Inc. (B-/B3)
6,000,000 9.00 02/01/2008 5,760,000
Frontiervision Holdings LP (B/Caa1)(b)
2,750,000 0.00/11.88 09/15/2007 2,213,750
Galey & Lord, Inc. (B/B3)(a)
2,000,000 9.13 03/01/2008 1,780,000
Generac Portable Products LLC (B-/B3)(a)
1,000,000 11.25 07/01/2006 970,000
Global Crossing Holdings Ltd.(a)
3,750,000 9.63 05/15/2008 3,618,750
Global Telesystems Group (B-/Caa2)
3,000,000 9.88 02/15/2005 2,400,000
Globe Manufacturing Corp. (B-/B2)(a)
3,000,000 10.00 08/01/2008 2,460,000
Graham Packaging Co. (B-/B3)
3,500,000 8.75 01/15/2008 3,325,000
1,000,000 0.00/10.75(b) 01/15/2009 620,000
Graphic Controls Corp. (B-/B3)
3,520,000 12.00 09/15/2005 4,083,200
Greyhound Lines, Inc. (B-/B3)
2,000,000 11.50 04/15/2007 2,260,000
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
GST Equipment Funding, Inc. (CCC)
$ 2,000,000 13.25% 05/01/2007 $ 2,000,000
GST Telecommunications, Inc. (CCC)
1,000,000 12.75 11/15/2007 823,790
Hawk Corp. (B+/Ba3)
2,600,000 10.25 12/01/2003 2,704,000
Hayes Wheels International, Inc. (B/B3)
2,000,000 9.13 07/15/2007 2,020,000
1,500,000 9.13 07/15/2007 1,515,000
Hermes Europe Railtel B.V. (B/B3)
2,000,000 11.50 08/15/2007 2,065,000
HMV Media Group PLC (B/B3)(a)
1,250,000 10.25 05/15/2008 1,062,500
Hudson Respiratory Care, Inc. (B-/B3)
2,000,000 9.13 04/15/2008 1,330,000
ICN Pharmaceutical, Inc. (BB/Ba3)
2,000,000 9.25 08/15/2005 1,960,000
Imperial Home Decor Group (B-/B3)
2,000,000 11.00 03/15/2008 1,760,000
Integrated Health Services, Inc. (B-/B2)
7,000,000 9.25 01/15/2008 6,422,500
Intermedia Communications, Inc. (B/B2)
5,750,000 0.00/11.25(b) 07/15/2007 3,823,750
2,250,000 8.88 11/01/2007 2,148,750
International Home Foods, Inc. (B-/B2)
1,500,000 10.38 11/01/2006 1,586,430
International Wire Group (B-/B3)
5,000,000 11.75 06/01/2005 5,087,500
Intertek Finance PLC (B/B2)
8,500,000 10.25 11/01/2006 7,820,000
Iowa Select Farm LP (B-/B3)(a)
2,000,000 10.75 12/01/2005 1,770,000
Jitney-Jungle Stores of America, Inc. (B+/B2)
3,000,000 12.00 03/01/2006 3,240,000
Johnstown American Industries, Inc. (B)
2,000,000 11.75 08/15/2005 2,072,500
Jorgensen Earle Co. (B-/B3)
3,000,000 9.50 04/01/2005 2,610,000
K&F Industries, Inc. (B-/B3)
4,000,000 9.25 10/15/2007 3,800,000
Kabelmedia Holdings (B-/B3)(b)
5,500,000 0.00/13.63 08/01/2006 4,125,000
Kinetic Concepts, Inc. (B-/B3)
4,250,000 9.63 11/01/2007 3,878,125
Knology Holdings, Inc. (CCC)(b)
1,750,000 0.00/11.88 10/15/2007 805,000
Level 3 Communications, Inc. (B/B3)
3,000,000 9.13 05/01/2008 2,790,000
Lifestyle Furnishings International (B/B1)
1,500,000 10.88 08/01/2006 1,507,500
McLeod USA, Inc. (B+/B2)
2,000,000 9.50 11/01/2008 2,040,000
MCMS, Inc. (B-/B3)
2,000,000 9.75 03/01/2008 1,200,000
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Metronet Communications Co. (B/B3)(b)
$ 5,000,000 0.00/9.95% 06/15/2008 $ 2,700,000
Millicom International Cellular (B-/Caa1)(b)
5,000,000 13.50 06/01/2006 2,950,000
MSX International, Inc. (B-/Caa1)
1,000,000 11.38 01/15/2008 905,000
Multicare Companies, Inc. (B-/B3)
2,000,000 9.00 08/01/2007 1,745,000
Musicland Group, Inc. (CCC+/Caa1)
1,000,000 9.00 06/15/2003 925,000
National Equipment Services, Inc. (B-/B3)
3,000,000 10.00 11/30/2004 2,760,000
Newport News Shipbuilding, Inc. (B+/B1)
4,000,000 9.25 12/01/2006 4,220,000
Nextel Communications, Inc. (CCC+/B2)(b)
8,500,000 0.00/9.75 08/15/2004 7,777,500
1,000,000 0.00/10.65 09/15/2007 590,000
3,500,000 0.00/9.95 02/15/2008 1,907,500
Nextlink Communications, Inc. (B/B3)
2,250,000 9.00 03/15/2008 2,047,500
2,000,000 9.63 10/01/2007 1,860,000
Nortek, Inc. (B+/B1)
2,000,000 9.13 09/01/2007 1,970,000
2,000,000 8.88(a) 08/01/2008 1,930,000
Nortek, Inc. (B-/B3)
2,000,000 9.88 03/01/2004 1,980,000
Octel Developments PLC (B+/B2)(a)
500,000 10.00 05/01/2006 503,750
Orange PLC (B+/Ba3)
1,000,000 8.00 08/01/2008 970,000
P&L Coal Holdings Corp. (B/B2)(a)
3,750,000 9.63 05/15/2008 3,712,500
Packard Bioscience, Inc. (B-/B3)
8,250,000 9.38 03/01/2007 7,466,250
Pathmark Stores, Inc. (CCC+/Caa1)
3,000,000 9.63 05/01/2003 2,940,000
Pathnet, Inc. (CCC)
1,500,000 12.25 04/15/2008 1,072,500
PCI Chemicals Canada, Inc. (B+/B2)
2,000,000 9.25 10/15/2007 1,520,000
Polymer Group, Inc. (B/B2)
1,750,000 9.00 07/01/2007 1,627,500
3,000,000 8.75 03/01/2008 2,820,000
Premier Parks, Inc. (B-/B3)
2,250,000 9.25 04/01/2006 2,250,000
Prestolite Electric, Inc. (B+/B3)
4,000,000 9.63 02/01/2008 3,600,000
Printpack, Inc. (B+/B3)
4,000,000 10.63 08/15/2006 3,960,000
Psinet, Inc. (B-/B3)
3,250,000 10.00 02/15/2005 3,176,875
Purina Mills, Inc. (B/B2)
1,000,000 9.00 03/15/2010 1,015,000
PX Escrow Corp. (B-/B3)(a)(b)
500,000 0.00/9.63 02/01/2006 270,000
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Randalls Food Markets, Inc. (B-/B2)
$ 2,750,000 9.38% 07/01/2007 $ 2,866,875
Red Roof Inns, Inc. (B/B2)
2,000,000 9.63 12/15/2003 2,000,000
Republic Group, Inc. (B/B2)(a)
3,000,000 9.50 07/15/2008 2,790,000
Richmont Marketing Special (CCC+/B3)
3,000,000 10.13 12/15/2007 2,580,000
Riverwood International Corp. (B-/B3)
3,500,000 10.25 04/01/2006 3,228,750
RSL Communications Ltd. (B-/B3)
2,257,000 12.25 11/15/2006 2,257,000
1,000,000 9.13 03/01/2008 850,000
Sealy Mattress Co. (B-/B3)
2,000,000 9.88 12/15/2007 1,800,000
1,500,000 0.00/10.88(b) 12/15/2007 930,000
SFX Entertainment, Inc. (CCC+/B3)
2,000,000 9.13 02/01/2008 1,865,000
Simonds Industries, Inc. (B-/B3)(a)
750,000 10.25 07/01/2008 727,500
Southern Foods Group LP (B/B2)
5,000,000 9.88 09/01/2007 5,125,000
Sovereign Specialty Chemicals (B-/B3)
5,500,000 9.50 08/01/2007 5,225,000
Sparkling Spring Water Group (B-/Caa1)
1,500,000 11.50 11/15/2007 1,500,000
Stanadyne Automotive Corp. (B/Caa1)
2,250,000 10.25 12/15/2007 2,115,000
Sun World International, Inc. (B/B2)
2,000,000 11.25 04/15/2004 2,050,000
Tekni-Plex, Inc. (B-/B3)
3,000,000 11.25 04/01/2007 3,120,000
2,000,000 9.25 03/01/2008 1,960,000
Telewest PLC (B+/B1)
2,000,000 9.63 10/01/2006 1,950,000
10,000,000 0.00/11.00(b) 10/01/2007 7,850,000
3,500,000 11.25(c) 11/01/2008 3,648,750
Thermadyne Holdings Corp. (CCC+/Caa1)(b)
4,000,000 0.00/12.50 06/01/2008 1,810,000
Thermadyne Manufacturing LLC (CCC+/B3)
4,500,000 9.88 06/01/2008 3,915,000
Transwestern Publishing Co. (B-/B2)
2,000,000 9.63 11/15/2007 2,000,000
Trench Electric S.A. (B3)
5,000,000 10.25 12/15/2007 4,625,000
Trident Automotive PLC (B-/B2)
4,000,000 10.00 12/15/2005 4,000,000
United Rentals, Inc. (BB-/B2)(a)
5,000,000 9.50 06/01/2008 4,875,000
3,000,000 8.80 08/15/2008 2,835,000
Universal Hospital Services (B/B3)
1,000,000 10.25 03/01/2008 800,000
V2 Music Holdings PLC (CCC)(a)(b)
1,750,000 0.00/14.00 04/15/2008 831,250
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE BONDS - (CONTINUED)
Venture Holdings Trust (B+/B2)
$ 4,000,000 9.50% 07/01/2005 $ 3,735,720
Viasystems, Inc (B-/B3)
9,500,000 9.75 06/01/2007 8,312,500
WAM Net, Inc. (CCC)(b)
1,250,000 0.00/13.25 03/01/2005 587,500
Werner Holdings (B-/B2)
7,000,000 10.00 11/15/2007 6,160,000
Wesco Distribution, Inc. (B/B2)
7,500,000 9.13 06/01/2008 7,237,500
Wesco International, Inc. (B/B3)(b)
5,000,000 0.00/11.13 06/01/2008 2,700,000
WHX Corp. (B/B3)
2,500,000 10.50 04/15/2005 2,250,000
Williams Scotsman, Inc. (B-/B3)
3,000,000 9.88 06/01/2007 3,000,000
Young Broadcasting, Inc. (B/B2)
5,000,000 8.75 06/15/2007 4,675,000
-------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $448,760,174) $413,570,040
-------------------------------------------------------------------------------------------
EMERGING MARKET DEBT - 2.5%
Acindar Industries (B+/B2)
$ 670,000 11.66% 11/12/1998 $ 653,026
Banco Nacional de Comercio (BB/Ba2)
500,000 8.00 07/18/2002 465,000
Banco Nacional de Obras (BB/Ba2)
350,000 9.63 11/15/2003 322,000
Financiera Energy Nacional (BBB-)
1,480,000 9.38 06/15/2006 1,110,000
Grupo Industrial Durango (BB-/B1)
880,000 12.63 08/01/2003 686,400
Grupo Televisa (BB/Ba2)
470,000 11.38 05/15/2003 460,600
3,250,000 0.00/13.25(b) 05/15/2008 2,258,750
1,000,000 0.00/13.25(b) 05/15/2008 710,000
Impsa Industrias Metal (BB-/B2)
1,120,000 9.50 05/31/2002 504,000
MRS Logistica S.A. (B)(a)
120,000 10.63 08/15/2005 48,000
National Power (BB+/Ba1)
500,000 7.63 11/15/2000 446,500
Petroleos Mexicanos (BB/Ba2)
70,000 11.14 07/15/2005 63,175
Poland Communications, Inc. (B+/B2)
700,000 9.88 11/01/2003 476,000
Province of Tucuman (B1)
857,143 9.45 08/01/2004 593,837
Republic of Columbia (BBB-/Baa3)
1,860,000 7.25 02/15/2003 1,525,200
Republic of Korea (BB+/Ba1)
3,230,000 8.75 04/15/2003 3,058,936
-------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $16,387,076) $ 13,381,424
-------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
FOREIGN BONDS(D) - 8.9%
BRITISH POUND STERLING - 1.5%
IPC Magazines (B/B2)(b)
BPS 4,750,000 0.00/10.75% 03/15/2008 $ 4,163,326
Middleweb PLC (B/B2)(a)
3,000,000 10.50 05/30/2008 3,916,456
-----------
8,079,782
------------------------------------------------------------------------------------------
DEUTSCHEMARK - 6.6%
Colt Telecom Group PLC (B/B2)
DEM 5,000,000 8.88 11/30/2007 2,656,203
Derby Cycle Corp. (B/B3)(a)
2,500,000 9.38 05/15/2008 1,177,181
Exide Holdings (A/A1)(a)
5,000,000 9.13 04/15/2004 2,414,730
Fresenius Medical Care Capital Trust III (B+/Ba3)
5,000,000 7.38 02/01/2008 2,837,308
Geberit International S.A. (B+/B2)
11,600,000 10.13 04/15/2007 7,562,934
Impress Metal Pack (B/B2)
10,000,000 9.88 05/29/2007 6,097,193
Ineos PLC (B+/B3)(a)
12,000,000 8.62 04/30/2005 5,759,131
Sirona Dental Systems (B/B2)
7,000,000 9.13 07/15/2008 3,824,328
Texon International PLC (B/B3)(a)
6,500,000 10.00 02/01/2008 3,060,670
-----------
35,389,678
------------------------------------------------------------------------------------------
FRENCH FRANC - 0.8%
Financiere Neopost(a)(e)
FRF25,000,000 6.13 09/30/2007 4,274,735
------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $51,372,863) $47,744,195
------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.4%
Joint Repurchase Agreement Account(f)
$ 45,200,000 5.63% 11/02/1998 $45,200,000
------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $45,200,000) $45,200,000
------------------------------------------------------------------------------------------
<CAPTION>
DIVIDEND MATURITY
SHARES RATE DATE VALUE
<S> <C> <C> <C>
PREFERRED STOCKS - 2.3%
CSC Holdings, Inc. (BB-)(g)
51,737 11.13% 07/07/2007 $ 5,872,197
CSC Holdings, Inc. (BB-/B2)(g)
40,417 11.75 10/01/2007 4,425,682
Eagle-Picher Holdings, Inc. (B-/Caa)(b)(g)
175 0.00/11.75 03/01/2008 822,500
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND MATURITY
SHARES RATE DATE VALUE
<S> <C> <C> <C>
PREFERRED STOCKS - CONTINUED
Intermedia Communications, Inc. (CCC+/Caa)(g)
1,140 11.75% 06/01/2005 $ 1,285,350
River Holding Corp. (CCC)(g)
3,975 11.50 04/15/2010 174,909
------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $12,136,585) $ 12,580,638
------------------------------------------------------------------------------------------------
WARRANTS(H) - 0.4%
Allegiance Telecom, Inc., expiring February 3, 2008
1,500 $ 2,250
Cellnet Data Systems, Inc., expiring October 1, 2007
3,000 15,000
Colt Telecom Group PLC, expiring December 31, 2006
5,500 1,969,000
Econophone, Inc., expiring July 1, 2007
2,000 10,000
Knology Holdings, Inc., expiring October 15, 2007
1,750 3,500
RSL Communications Ltd., expiring November 15, 2006
725 66,700
------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(COST $36,250) $ 2,066,450
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $573,892,948)(I) $534,542,747
------------------------------------------------------------------------------------------------
</TABLE>
FEDERAL INCOME TAX INFORMATION:
<TABLE>
<S> <C>
Gross unrealized gain for investments in which value exceeds
cost $ 5,176,781
Gross unrealized loss for investments in which cost exceeds
value (44,526,982)
----------------------------------------------------------------------------
Net unrealized loss $(39,350,201)
----------------------------------------------------------------------------
</TABLE>
(a) Securities are exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of Rule 144A securities amounted to $65,458,693 as of
October 31, 1998.
(b) These securities are issued with a zero coupon or dividend rate which
increases to the stated rate at a set date in the future.
(c) When issued-security.
(d) The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
BPS = British Pound Sterling.
DEM = Deutschemark.
FRF = French Franc.
(e) Variable rate security. Coupon rate disclosed is that which is in effect
at October 31, 1998.
(f) Portion of this security is segregated for a when-issued security.
(g) Pay-in-kind securities.
(h) Non-income producing security.
(i) The amount stated also represents aggregate cost for federal income tax
purposes.
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.
9
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Assets and Liabilities
October 31, 1998
ASSETS:
<TABLE>
<S> <C>
Investment in securities, at value (cost $573,892,948) $534,542,747
Cash, at value 71,514
Receivables:
Investment securities sold 2,010,342
Interest, at value 12,280,674
Fund shares sold 12,232,332
Forward foreign currency exchange contracts 95,694
Deferred organization expenses, net 24,127
Other assets 176,925
----------------------------------------------------------------------------
TOTAL ASSETS 561,434,355
----------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 19,682,768
Income distribution 991,150
Fund shares repurchased 23,389
Amounts owed to affiliates 488,931
Forward foreign currency exchange contracts 2,677,953
Accrued expenses and other liabilities 162,333
----------------------------------------------------------------------------
TOTAL LIABILITIES 24,026,524
----------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 582,416,904
Accumulated undistributed net investment income 2,593,628
Accumulated net realized loss on investment transactions and
foreign currency transactions (5,741,879)
Net unrealized loss on investments and translation of assets
and liabilities denominated in foreign currencies (41,860,822)
----------------------------------------------------------------------------
NET ASSETS $537,407,831
----------------------------------------------------------------------------
Net asset value per share:(a)
Class A $9.16
Class B $9.16
Class C $9.16
Institutional $9.17
Service $9.17
----------------------------------------------------------------------------
Shares Outstanding:
Class A 43,833,257
Class B 3,192,424
Class C 931,617
Institutional 10,637,195
Service 48,736
----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 58,643,229
----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $9.59 (NAV
per share plus the maximum sales charge of 4.5%). At redemption, Class B
and Class C 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.
10
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Operations
For the Year Ended October 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest(a) $41,345,378
---------------------------------------------------------------------------
TOTAL INCOME 41,345,378
---------------------------------------------------------------------------
EXPENSES:
Management fees 3,075,443
Distribution and service fees(b) 2,124,233
Transfer agent fees 298,491
Custodian fees 162,310
Registration fees 138,589
Professional fees 64,600
Trustee fees 7,490
Amortization of deferred organization expenses 6,470
Service share fees 624
Other 113,170
---------------------------------------------------------------------------
TOTAL EXPENSES 5,991,420
---------------------------------------------------------------------------
Less -- expenses reimbursable and waived by Goldman Sachs (1,044,126)
---------------------------------------------------------------------------
NET EXPENSES 4,947,294
---------------------------------------------------------------------------
NET INVESTMENT INCOME 36,398,084
---------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN CUR-
RENCY TRANSACTIONS:
Net realized loss from:
Investment transactions (5,555,641)
Foreign currency related transactions (786,846)
Net change in unrealized loss on:
Investments (38,984,246)
Foreign currency related transactions (1,473,380)
---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT (46,800,113)
---------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(10,402,029)
---------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on interest were $2,652.
(b) Class A, Class B and Class C had distribution and service fees of
$1,844,618, $216,018 and $63,597, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997(A)
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 36,398,084 $ 4,414,904
Net realized gain (loss) from
investment and foreign currency
related transactions (6,342,487) 994,113
Net change in unrealized loss on
investments and translation of assets
and liabilities denominated in
foreign currencies (40,457,626) (1,403,196)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (10,402,029) 4,005,821
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (29,778,924) (4,377,263)
Class B (1,501,311) (85,036)
Class C (441,110) (10,842)
Institutional (2,125,426) (27)
Service (9,368) (26)
In excess of net investment income
Class A -- (126,300)
Class B -- (4,386)
Class C -- (755)
Institutional Class -- (1)
Service Class -- (1)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (33,856,139) (4,604,637)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 362,403,672 344,880,814
Reinvestment of dividends and
distributions 23,077,475 3,439,274
Cost of shares repurchased (141,829,404) (9,707,016)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 243,651,743 338,613,072
------------------------------------------------------------------------------
TOTAL INCREASE 199,393,575 338,014,256
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 338,014,256 --
------------------------------------------------------------------------------
End of year $537,407,831 $338,014,256
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS OF) NET
INVESTMENT INCOME $ 2,593,628 $ (131,443)
------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except
Class C, which commenced operations August 15, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements
October 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs High Yield Fund
(the "Fund"). The Fund is a diversified portfolio offering five classes of
shares -- Class A, Class B, Class C, Institutional and Service.
The Fund invests primarily in non-investment grade fixed-income securities
which are considered predominantly speculative by traditional investment
standards. In some cases, these obligations may be highly speculative and
have poor prospects for reaching investment grade standing. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality (commonly known as "junk bonds") are subject to the increased risk of
an issuer's inability to meet principal and interest obligations. These secu-
rities, also referred to as high yield securities, may be subject to greater
price volatility due to such factors as specific corporate developments, in-
terest rate sensitivity, negative perceptions of the junk bond markets gener-
ally and less secondary market liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Certain reclas-
sifications have been made to the prior period's amounts to conform with the
current period presentation. Such reclassifications have no effect on previ-
ously reported net asset values of the Fund.
A. INVESTMENT VALUATION -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices 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 val-
ued 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 using the identified cost basis. Interest income is
recorded on the basis of interest accrued. Market discounts and market premi-
ums on debt securities, other than mortgage backed securities, are amortized
to interest income over the life of the security with a corresponding adjust-
ment in the cost basis of that security.
C. FEDERAL TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of the 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, de-
pending on the type of book/tax differences that may exist.
The Fund, at its most recent tax year-end of October 31, 1998 had approxi-
mately $5,746,000 capital loss carryforwards expiring in 2006 for U.S. fed-
eral tax purposes. This amount is available to be carried forward to offset
future capital gains to the extent permitted by applicable laws or regula-
tions.
D. EXPENSES -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds based on the
nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective distribution and service plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions for their services with respect to such shares. Each class of shares
separately bears its respective class-specific transfer agency fees.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years.
F. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis (i) investment valua-
tions, foreign currency and 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 ex-
change rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) gains and losses from the sale and holdings of foreign
currencies and sale of investments; (ii) gains and losses between trade date
and settlement date on
13
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements
October 31, 1998
investment securities transactions and forward exchange contracts; and (iii)
gains and losses from the difference between amounts of interest and foreign
withholding taxes recorded and the amounts actually received.
G. Forward Foreign Currency Exchange Contracts -- The Fund may enter into
forward foreign currency 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. The
Fund may also purchase and sell forward contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable trans-
lation 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.
H. Futures Contracts -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the associated futures exchange. Subsequent payments for
futures contracts ("variation margin") are paid or received by the Fund dai-
ly, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Fund realizes a gain or loss which is reported
in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
tract may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's hedging
strategies and potentially result in a loss.
I. Option Accounting Principles -- When the Fund writes call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Fund exercises a purchased call option, the
cost of the security which the Fund purchases upon exercise will be increased
by the premium originally paid.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Fund's investment ad-
viser pursuant to an Investment Management Agreement (the "Agreement"). Under
the Agreement, GSAM, subject to the general supervision of the Trust's Board
of Trustees, manages the Fund's portfolio. As compensation for the services
rendered pursuant to the Agreement, the assumption of the expenses related
thereto and administering the Fund's business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly at
an annual rate equal to .70% of average daily net assets of the Fund. For the
year ended October 31, 1998, GSAM voluntarily agreed to waive approximately
$70,000 of its management fee. This waiver was discontinued as of March 16,
1998.
GSAM voluntarily agreed to limit "Other Expenses" for the Fund (excluding
management fees, Service share fees, distribution and services fees, taxes,
interest, brokerage, litigation, indemnification costs, transfer agent fees
and other extraordinary expenses) through September 30, 1998 to the extent
such expenses exceeded .09% of the average daily net assets of the Fund. Ef-
fective October 1, 1998, this expense limitation was modified until further
notice to .02% of the average daily net assets of the Fund. For the year
ended October 31, 1998, Goldman Sachs reimbursed approximately $92,000. At
October 31, 1998, approximately $92,000 is owed to the Fund.
14
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $1,419,000 for the year ended
October 31, 1998.
The Trust, on behalf of the Fund, had adopted Distribution Plans (the "Dis-
tribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from the Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of the Fund's av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively. For the year ended October 31, 1998, Goldman Sachs had volun-
tarily agreed to waive approximately $882,000 of its distribution fee attrib-
utable to Class A shares.
The Trust, on behalf of the Fund, had also adopted Authorized Dealer Serv-
ice Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and
Authorized Dealers were compensated for providing personal and account main-
tenance services. The Fund paid a fee under its Dealer Service Plans equal,
on an annual basis, up to .25% of the average daily net assets attributable
to the Class A, Class B and Class C shares.
Effective October 1, 1998, the Distribution Plans and Dealer Service Plans
were combined into Distribution and Service Plans. Under the Distribution and
Service Plans, Goldman Sachs and or Authorized Dealers are entitled to a
monthly fee for distribution and shareholder maintenance services equal, on
an annual basis, to .25%, 1.00% and 1.00% of the average daily net assets at-
tributable to Class A, Class B and Class C shares, respectively.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Ef-
fective October 1, 1998, fees charged for such transfer agency services are
calculated daily and payable monthly at an annual rate as follows: .19% of
average daily net assets for Class A, Class B and Class C shares and .04% of
average daily net assets for Institutional and Service Class shares.
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
..50% (on a annualized basis), of the average daily net asset value of the
Service shares.
At October 31, 1998, the Fund owed approximately $293,000, $112,000 and
$84,000 for Management, Distribution and Service and Transfer Agent Fees, re-
spectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchase and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1998, were $680,062,284 and $475,784,159, respective-
ly.
At October 31, 1998, the Fund had outstanding forward foreign currency ex-
change 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>
British Pound Sterling
expiring 11/30/98 $ 5,170,351 $ 5,246,526 $ (76,175)
expiring 9/15/99 3,632,843 3,716,016 (83,173)
Deutsche Mark
expiring 11/2/98 51,161 55,678 (4,517)
expiring 11/16/98 67,114 71,218 (4,104)
expiring 11/30/98 403,839 432,776 (28,937)
expiring 1/15/99 186,775 203,230 (16,455)
expiring 2/1/99 234,387 252,988 (18,601)
expiring 4/15/99 639,791 634,369 5,422
expiring 4/30/99 293,345 314,762 (21,417)
expiring 5/3/99 51,559 56,077 (4,518)
expiring 5/17/99 67,330 71,314 (3,984)
expiring 6/1/99 7,479,649 7,975,918 (496,269)
expiring 7/15/99 179,365 194,695 (15,330)
expiring 8/2/99 6,729,648 7,268,776 (539,128)
expiring 10/15/99 10,596,658 10,506,386 90,272
expiring 11/1/99 7,147,403 7,655,073 (507,670)
expiring 11/15/99 1,513,963 1,601,294 (87,331)
expiring 11/29/99 1,869,812 2,035,029 (165,217)
expiring 1/18/00 4,141,603 4,487,936 (346,333)
French Franc
expiring 11/4/98 4,389,417 4,648,211 (258,794)
---------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $54,846,013 $57,428,272 $(2,582,259)
---------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements
October 31, 1998
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At October 31,
1998, the Fund had sufficient cash and/or securities to cover any commitments
under these contracts.
The Fund has recorded a "Receivable for forward foreign currency exchange
contracts" and "Payable for forward foreign currency exchange contracts" re-
sulting from open forward foreign currency exchange contracts of $95,694 and
$2,677,953, respectively, in the accompanying Statement of Assets and Liabil-
ities.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, 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 at the Fund's custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM, transfers uninvested cash into joint accounts, the
daily aggregate balance of which is invested in one or more repurchase agree-
ments. At October 31, 1998, the Fund had an undivided interest in the repur-
chase agreement in the following joint account which equaled $45,200,000 in
principal amount. At October 31, 1998, the following repurchase agreements
held in this joint account were fully collateralized by U.S. Treasury and
agency obligations.
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY AMORTIZED
AMOUNT RATE DATE COST
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CS FIRST BOSTON CORP. $ 25,000,000 5.50% 11/02/98 $ 25,000,000
----------------------------------------------------------------------
NATIONSBANC MONTGOMERY
SECURITIES LLC 800,000,000 5.65 11/02/98 800,000,000
----------------------------------------------------------------------
CHASE MANHATTAN BANK 600,000,000 5.60 11/02/98 600,000,000
----------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,425,000,000
----------------------------------------------------------------------
</TABLE>
8. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Fund participates in a $50,000,000 com-
mitted, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restric-
tive arrangement, the Fund must own securities having a market value in ex-
cess 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 by the Fund based on the amount of the commitment which has not
been utilized. For the year ended October 31, 1998, the Fund did not have any
borrowings under these facilities.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$711,605 from accumulated undistributed net investment income to accumulated
net realized loss. In addition, the Fund has reclassified $152,089 and
$183,126 from accumulated net realized loss to paid-in capital and accumu-
lated undistributed net investment income, respectively. These reclassifica-
tions have no impact on the net asset value of the Funds and are designed to
present the Fund's capital accounts on a tax basis.
16
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 and the period ended Octo-
ber 31, 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1998 FOR THE PERIOD ENDED OCTOBER 31, 1997(A)
-------------------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sales 20,547,277 $ 201,740,256 33,312,862 $ 332,722,875
Reinvestment of
dividends and
distributions 2,130,085 21,255,656 337,850 3,381,418
Shares repurchased (11,530,271) (111,870,637) (964,546) (9,674,791)
-------------------------------------------------------------------------------
11,147,091 111,125,275 32,686,166 326,429,502
----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Sales 2,759,954 27,841,336 1,031,591 10,350,661
Reinvestment of
dividends and
distributions 81,407 806,446 4,944 49,476
Shares repurchased (682,765) (6,734,611) (2,707) (27,285)
-------------------------------------------------------------------------------
2,158,596 21,913,171 1,033,828 10,372,852
----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Sales 1,861,343 18,919,754 179,285 1,804,260
Reinvestment of
dividends and
distributions 29,086 287,624 834 8,342
Shares repurchased (1,138,437) (11,521,691) (494) (4,940)
-------------------------------------------------------------------------------
751,992 7,685,687 179,625 1,807,662
----------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Sales 11,706,944 113,387,326 150 1,501
Reinvestment of
dividends and
distributions 75,487 720,684 3 28
Shares repurchased (1,145,389) (11,673,396) -- --
-------------------------------------------------------------------------------
10,637,042 102,434,614 153 1,529
----------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sales 51,049 515,000 152 1,517
Reinvestment of
dividends and
distributions 743 7,065 1 10
Shares repurchased (3,209) (29,069) -- --
-------------------------------------------------------------------------------
48,583 492,996 153 1,527
----------------------------------------------------------------------------------------------------------
NET INCREASE 24,743,304 $ 243,651,743 33,899,925 $ 338,613,072
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of operations was August 1, 1997 for all classes except
Class C, which commenced operations August 15, 1997.
17
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT
OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------- ----------------------------------
NET REALIZED
AND UNREALIZED FROM
NET ASSET GAIN (LOSS) ON FROM IN EXCESS NET REALIZED NET INCREASE
VALUE, NET INVESTMENT AND NET OF NET GAIN ON (DECREASE)
BEGINNING INVESTMENT FOREIGN CURRENCY INVESTMENT INVESTMENT INVESTMENT IN NET
OF PERIOD INCOME RELATED TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.97 $0.82 $(0.85) $(0.78) $ -- $-- $(0.81)
1998 - Class B Shares 9.97 0.75 (0.86) (0.70) -- -- (0.81)
1998 - Class C Shares 9.97 0.75 (0.86) (0.70) -- -- (0.81)
1998 - Institutional
Shares 9.97 0.84 (0.83) (0.81) -- -- (0.80)
1998 - Service Shares 9.97 0.80 (0.84) (0.76) -- -- (0.80)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) -- (0.03)
1997 - Class B Shares
(commenced August 1) 10.00 0.15 (0.02) (0.15) (0.01) -- (0.03)
1997 - Class C Shares
(commenced August 15) 9.97 0.14 0.01 (0.14) (0.01) -- --
1997 - Institutional
Shares (commenced
August 1) 10.00 0.18 (0.02) (0.18) (0.01) -- (0.03)
1997 - Service Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) -- (0.03)
-----------------------------------------------------------------------------------------------------------------
</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 or redemption charge was
taken into account.
(c) Annualized.
(d) Not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
------------------------------------
RATIO OF RATIO OF
NET ASSETS RATIO OF NET INVESTMENT RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES TO INCOME
VALUE, END TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE
OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$9.16 (0.70)% 113.44% $401,626 1.09% 8.25% 1.36% 7.98%
9.16 (1.43) 113.44 29,256 1.84 7.61 1.88 7.57
9.16 (1.43) 113.44 8,532 1.84 7.61 1.88 7.57
9.17 (0.32) 113.44 97,547 0.84 9.47 0.88 9.43
9.17 (0.79) 113.44 447 1.34 9.17 1.38 9.13
9.97 1.50(d) 44.80(d) 325,911 0.95(c) 7.06(c) 1.57(c) 6.44(c)
9.97 1.31(d) 44.80(d) 10,308 1.70(c) 6.28(c) 2.07(c) 5.91(c)
9.97 1.46(d) 44.80(d) 1,791 1.70(c) 6.17(c) 2.07(c) 5.80(c)
9.97 1.58(d) 44.80(d) 2 0.70(c) 7.16(c) 1.07(c) 6.79(c)
9.97 1.46(d) 44.80(d) 2 1.20(c) 6.69(c) 1.57(c) 6.32(c)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- High
Yield Fund:
We have audited the accompanying statement of assets and liabilities of the
Goldman Sachs High Yield Fund, one of the portfolios constituting Goldman
Sachs Trust -- Fixed Income Funds (a Delaware Business Trust), including the
statement of investments, as of October 31, 1998, and the related statement
of operations and the statements of changes in net assets and the financial
highlights for the periods presented. These financial statements and the fi-
nancial highlights are the responsibility of the Fund's management. Our re-
sponsibility is to express an opinion on these financial statements and the
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of October 31, 1998 by correspondence with the custodian and brokers. An au-
dit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs High Yield Fund as of October 31, 1998, the results of
its operations and the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1998
20
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000
investment made in Institutional shares on October 1, 1992 (commencement of
operations). For comparative purposes, the performance of the Fund's
benchmark (the Lehman Brothers 3-Year Municipal Bond Index ("Lehman 3-Year
Muni Bond Index")) is shown. This performance data represents past
performance and should not be considered indicative of future performance
which will fluctuate with changes in market conditions. These performance
fluctuations will cause an investor's shares, when redeemed, to be worth more
or less than their original cost. Performance of Class A, Class B, Class C,
Administration and Service shares will vary from the Institutional shares due
to differences in fees and loads.
SHORT DURATION TAX-FREE FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED OCTOBER 1, 1992 TO
OCTOBER 31, 1998.
[LINE GRAPH APPEARS HERE]
Date SDTF Institutional Lehman 3-Year
Muni Bond Index
10/1/92 10000 10000
10/92 9966 9961
11/92 10041 10031
12/92 10127 10091
1/93 10199 10167
2/93 10406 10326
3/93 10350 10295
4/93 10425 10355
5/93 10427 10383
6/93 10512 10449
7/93 10504 10455
8/93 10590 10552
9/93 10656 10598
10/93 10667 10620
11/93 10643 10607
12/93 10755 10718
1/94 10841 10805
2/94 10703 10704
3/94 10562 10575
4/94 10627 10637
5/94 10632 10687
6/94 10618 10690
7/94 10710 10779
8/94 10738 10818
9/94 10715 10791
10/94 10685 10765
11/94 10685 10746
12/94 10707 10792
1/95 10726 10881
2/95 10831 10997
3/95 10879 11096
4/95 10909 11133
5/95 11053 11304
6/95 11087 11331
7/95 11191 11451
8/95 11271 11540
9/95 11287 11573
10/95 11325 11627
11/95 11399 11702
12/95 11428 11751
1/96 11548 11842
2/96 11575 11845
3/96 11521 11816
4/96 11526 11830
5/96 11532 11841
6/96 11597 11912
7/96 11650 11978
8/96 11681 11996
9/96 11758 12069
10/96 11836 12153
11/96 11949 12266
12/96 11967 12272
1/97 12007 12326
2/97 12062 12387
3/97 11995 12322
4/97 12062 12375
5/97 12153 12476
6/97 12232 12549
7/97 12359 12699
8/97 12340 12673
9/97 12432 12764
10/97 12475 12820
11/97 12518 12857
12/97 12610 12945
1/98 12690 13030
2/98 12721 13057
3/98 12750 13078
4/98 12729 13060
5/98 12848 13182
6/98 12878 13226
7/98 12909 13274
8/98 13016 13403
9/98 13085 13489
10/98 13129 13553
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED MAY 1, 1997)
Excluding sales charges 5.59% n/a 4.97%
Including sales charges 4.20% n/a 2.83%
-----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1997)
Excluding sales charges 4.89% n/a 4.25%
Including sales charges 4.21% n/a 2.18%
-----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 4.26% n/a 4.19%
Including sales charges 4.26% n/a 3.16%
-----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED OCTOBER
1, 1992) 4.57% 4.24% 5.25%
-----------------------------------------------------------------------------
ADMINISTRATION CLASS (COMMENCED MAY 20,
1993) 4.08% 3.98% 4.99%
-----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED SEPTEMBER 20,
1994) 4.55% n/a 4.73%
-----------------------------------------------------------------------------
</TABLE>
9
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - 82.4%
ALABAMA - 1.3%
Alabama Building Renovation Finance Authority Building Renovation RB
Series 1990 (A2/A+)
$ 1,000,000 7.40% 09/01/2006 $ 1,080,560
-----------------------------------------------------------------------------------------------
ARIZONA - 4.3%
Mesa IDA Health Care Facilities (BIGI) (AAA/Aaa)
$ 890,000 7.50% 01/01/2004 $ 912,980
Tempe Union High School District No. 213 GO Series 1998 (FGIC) (AAA/Aaa)
2,500,000 6.00 07/01/2003 2,734,000
-----------------------------------------------------------------------------------------------
$ 3,646,980
-----------------------------------------------------------------------------------------------
CALIFORNIA - 2.3%
ABAG Finance Authority for Non-Profit Corporations Refunding Bond (BBB)
$ 900,000 5.25% 10/01/2007 $ 918,270
Sacramento County Housing Authority MF Hsg. RB for Rancho Natomas
Apartments (LOC) (A1)
1,000,000 4.80 12/15/2007 1,000,000
-----------------------------------------------------------------------------------------------
$ 1,918,270
-----------------------------------------------------------------------------------------------
COLORADO - 2.8%
Denver City & County Airport Prerefunded RB Series 1992 A (AAA/Baa1)
$ 2,000,000 7.50% 11/15/2006 $ 2,316,620
-----------------------------------------------------------------------------------------------
FLORIDA - 1.5%
Broward County GO Series 1986 (Aa2)
$ 1,000,000 12.50% 01/01/2002 $ 1,258,220
-----------------------------------------------------------------------------------------------
ILLINOIS - 10.0%
Illinois Health Facilities Authority Highland Park Hospital, Series A
(FGIC) (AAA/Aaa)
$ 1,000,000 5.20% 10/01/2001 $ 1,045,460
Illinois Housing Development Authority Series 1991 A (A+/A1)
1,000,000 7.90 07/01/1999 1,022,770
Illinois Municipal Electric Power RB Series 1998 (FSA) (AAA/Aaa)
2,095,000 4.75 02/01/2003 2,178,716
Regional Transportation Authority Prerefunded RB Series 1994 D (FGIC)
(AAA/Aaa)
2,000,000 6.75 06/01/2025 2,309,840
Southern Illinois University Housing & Auxiliary Facility RB Series 1996
A (MBIA) (AAA/Aaa)
1,730,000 5.00 04/01/2003 1,812,037
-----------------------------------------------------------------------------------------------
$ 8,368,823
-----------------------------------------------------------------------------------------------
IOWA - 5.4%
Davenport Hospital Facility Prerefunded RB for Mercy Hospital Series 1992
(MBIA) (AAA/Aaa)
$ 4,040,000 6.63% 07/01/2014 $ 4,511,266
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
KENTUCKY - 2.5%
Kentucky State Property and Building Commission RB (A+/A2)
$ 2,000,000 6.10% 10/01/2001 $ 2,128,280
-----------------------------------------------------------------------------------------------
LOUISIANA - 3.9%
Lafayette Parish Public School Board Sales Tax RB (FGIC) (AAA/Aaa)
$ 2,000,000 6.00% 04/01/2004 $ 2,209,680
Louisiana Offshore Deepwater Port Authority Term B RB (A/Baa1)
1,000,000 5.85 09/01/2000 1,032,540
-----------------------------------------------------------------------------------------------
$ 3,242,220
-----------------------------------------------------------------------------------------------
MARYLAND - 3.2%
Maryland Health and Higher Educational Facilities Authority RB (LOC) (A)
$ 1,000,000 4.75% 07/01/2021 $ 1,015,330
Maryland State Health and Higher Educational Facilities Authority (A-)
1,600,000 5.50 01/01/2021 1,671,904
-----------------------------------------------------------------------------------------------
$ 2,687,234
-----------------------------------------------------------------------------------------------
MASSACHUSETTS - 3.3%
Massachusetts Bay Transportation Authority Prerefunded RB Series 1994 B
(AA-/Aa3)
$ 2,500,000 5.88% 03/01/2019 $ 2,769,525
-----------------------------------------------------------------------------------------------
MISSOURI - 2.0%
St. Louis Municipal Finance Leasehold Series A RB (LOC) (A/Aa3)
$ 1,655,000 5.30% 07/15/2002 $ 1,719,512
-----------------------------------------------------------------------------------------------
NEBRASKA - 2.5%
Nebraska Public Power District RB Series 1998 A (MBIA) (AAA/Aaa)
$ 2,000,000 5.00% 01/01/2002 $ 2,072,500
-----------------------------------------------------------------------------------------------
NEVADA - 1.5%
Nevada State Colorado River Community Prerefunded RB Series 1994 (AA/AAA)
$ 1,130,000 6.50% 07/01/2019 $ 1,283,816
-----------------------------------------------------------------------------------------------
NEW JERSEY - 2.6%
Monmouth County Import Authority Sewage Facility Prerefunded RB Series
1991 (MBIA) (AAA/Aaa)
$ 2,000,000 6.75% 02/01/2013 $ 2,173,560
-----------------------------------------------------------------------------------------------
NEW YORK - 17.9%
Metropolitan Transportation Authority Transit Facilities Prefunded RB
Series J (FGIC) (AAA/Aaa)
$ 1,650,000 6.38% 07/01/2010 $ 1,828,481
New York City Prerefunded GO Series 1992 C (MBIA) (AAA/AAA)
3,000,000 6.38 08/01/2006 3,317,040
-----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
NEW YORK - (CONTINUED)
New York State Dorm Authority RB Series 1998 (AAA)
$3,050,000 5.50% 02/15/2003 $ 3,244,102
New York State Medical Care RB (MBIA) (AAA/Aaa)
1,520,000 6.00 08/15/2003 1,663,625
New York State Power Authority Prerefunded RB Series 1991 Z (AAA/AAA)
3,000,000 6.50 01/01/2019 3,301,470
Yonkers GO Series C (FGIC) (AAA/Aaa)
1,500,000 6.00 08/01/2003 1,636,575
----------------------------------------------------------------------------------------------
$14,991,293
----------------------------------------------------------------------------------------------
OHIO - 2.8%
Ohio State Building Authority RB Series 1996 A (AA-/Aa3)
$2,255,000 5.00% 10/01/2002 $ 2,352,348
----------------------------------------------------------------------------------------------
PENNSYLVANIA - 4.7%
Bethlehem Pennsylvania Area School District GO Series 1997 (FGIC)
(AAA/Aaa)
$1,715,000 5.00% 09/01/2003 $ 1,801,951
Philadelphia GO Series 1996 (MBIA) (AAA/Aaa)
2,005,000 6.00 05/15/2002 2,154,232
----------------------------------------------------------------------------------------------
$ 3,956,183
----------------------------------------------------------------------------------------------
TENNESSEE - 1.8%
Clarksville Public Building Authority (AA)
$1,500,000 4.75% 12/01/2000 $ 1,534,153
----------------------------------------------------------------------------------------------
TEXAS - 3.2%
Edinburg Consolidated Independent School District Public Facilities
Corp. Lease RB (AMBAC) (AAA)
$1,810,000 5.00% 08/15/2001 $ 1,874,925
Memorial Villages Water Authority RB (Aa)
760,000 7.00 09/01/2000 793,653
----------------------------------------------------------------------------------------------
$ 2,668,578
----------------------------------------------------------------------------------------------
WISCONSIN - 2.9%
Milwaukee County Series 1997 A (MBIA) (AAA/Aaa)
$1,030,000 5.25% 10/01/2003 $ 1,094,509
Wisconsin State Health and Educational Facility RB for Medical College
of Wisconsin Series 1993 (A)
1,240,000 5.30 12/01/2003 1,301,901
----------------------------------------------------------------------------------------------
$ 2,396,410
----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $68,432,892) $69,076,351
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS - 14.7%
ALABAMA - 2.5%
Columbia Alabama Power Co. Series D VRDN (A/A2)(a)
$2,100,000 3.60% 11/02/1998 $ 2,100,000
----------------------------------------------------------------------------------------------
GEORGIA - 2.0%
Burke County PCRB for Georgia Power Co. Second Series (A+/A1)(a)
$1,700,000 3.70% 11/02/1998 $ 1,700,000
----------------------------------------------------------------------------------------------
INDIANA - 1.8%
Jasper County PCRB for Nipsco Series 1994 C (A/A2)(a)
$1,500,000 3.75% 11/02/1998 $ 1,500,000
----------------------------------------------------------------------------------------------
MICHIGAN - 1.9%
Michigan Strategic Funding Limited Obligation for Dow Chemical Series
1994 (A/A1)(a)
$1,600,000 3.75% 11/02/1998 $ 1,600,000
----------------------------------------------------------------------------------------------
NEW YORK - 2.9%
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1994 C (AA+)(a)
$2,400,000 3.60% 11/02/1998 $ 2,400,000
----------------------------------------------------------------------------------------------
TEXAS - 2.8%
Harris County Health Facilities Development Corp. RB for St. Luke's
Episcopal Hospital Series 1997 B (AA)(a)
$2,300,000 3.65% 11/02/1998 $ 2,300,000
----------------------------------------------------------------------------------------------
WYOMING - 0.8%
Sweetwater County PCRB for Idaho Power Co. Series 1998 C (A/A3)(a)
$ 700,000 3.75% 11/02/1998 $ 700,000
----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $12,300,000) $12,300,000
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $80,732,892)(B) $81,376,351
</TABLE>
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $679,975
Gross unrealized loss for investments in which cost exceeds
value (36,516)
----------------------------------------------------------------------------
Net unrealized gain $643,459
----------------------------------------------------------------------------
</TABLE>
(a) Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
<TABLE>
-------------------------------------------------------------
<C> <S>
INVESTMENT
ABBREVIATIONS:
AMBAC --Insured by American Municipal Bond Assurance Corp.
BIGI --Insured by Bond Investors Guaranty Corporation
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Insured by Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
VRDN --Variable Rate Demand Note
-------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Performance Summary
October 31, 1998
The following graph shows the value as of October 31, 1998, of a $10,000
investment made (with the maximum sales charge of 4.5%) in Class A shares on
August 1, 1993. For comparative purposes, the performance of the Fund's
benchmark (the Lehman Brothers 15-Year Municipal Bond Index ("Lehman 15-Year
Muni Index")) is shown. This performance data represents past performance and
should not be considered indicative of future performance which will fluctu-ate
with changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost. Performance of Class B, Class C, Institutional and Serv-ice shares will
vary from Class A due to differences in fees and loads.
MUNICIPAL INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED AUGUST 1, 1993 TO
OCTOBER 31, 1998.(A)
Date Municipal Income Class A Lehman
15-Year
Muni Index
8/1/93 9550 10000
8/93 9786 10237
9/93 9926 10374
10/93 9983 10389
11/93 9891 10293
12/93 10082 10538
1/94 10202 10677
2/94 9933 10355
3/94 9459 9863
4/94 9514 9974
5/94 9591 10077
6/94 9542 10003
7/94 9753 10201
8/94 9776 10233
9/94 9613 10061
10/94 9433 9862
11/94 9245 9651
12/94 9468 9889
1/95 9774 10223
2/95 9972 10560
3/95 10085 10691
4/95 10105 10695
5/95 10406 11066
6/95 10277 10940
7/95 10348 11045
8/95 10494 11213
9/95 10573 11314
10/95 10734 11478
11/95 10936 11682
12/95 11068 11804
1/96 11224 11913
2/96 11134 11836
3/96 10920 11662
4/96 10870 11611
5/96 10851 11601
6/96 10981 11733
7/96 11071 11857
8/96 11074 11855
9/96 11235 12009
10/96 11394 12169
11/96 11621 12422
12/96 11570 12353
1/97 11608 12398
2/97 11741 12526
3/97 11584 12349
4/97 11687 12471
5/97 11833 12669
6/97 11993 12823
7/97 12390 13236
8/97 12214 13086
9/97 12392 13252
10/97 12446 13340
11/97 12534 13428
12/97 12777 13657
1/98 12907 13825
2/98 12912 13821
3/98 12899 13832
4/98 12822 13767
5/98 13045 14012
6/98 13087 14074
7/98 13098 14100
8/98 13297 14347
9/98 13447 14556
10/98 13416 14537
<TABLE>
<CAPTION>
SINCE INCEPTION
OF CLASS FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C> <C>
CLASS A (COMMENCED JULY 20, 1993)
Excluding sales charges 6.48% 6.09% 7.79%
Including sales charges 5.56% 5.11% 2.92%
---------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding sales charges 7.94% n/a 6.91%
Including sales charges 6.76% n/a 1.73%
---------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)
Excluding sales charges 7.24% n/a 6.98%
Including sales charges 7.24% n/a 5.94%
---------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED AUGUST
15, 1997) 8.39% n/a 8.00%
---------------------------------------------------------------------------
SERVICE CLASS (COMMENCED AUGUST 15,
1997) 6.45% n/a 7.68%
---------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following the commencement of operations.
13
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - 98.0%
ARIZONA - 4.5%
Maricopa County MF Hsg. IDA RB (A)
$1,795,000 5.85% 01/01/2008 $ 1,983,385
Maricopa County United School District No. 41 RB (FSA) (AAA)
2,500,000 6.25 07/01/2015 2,848,976
----------------------------------------------------------------------------------------------
$ 4,832,361
----------------------------------------------------------------------------------------------
CALIFORNIA - 8.5%
California State GO Bonds (A+/A1)
$3,000,000 5.00% 02/01/2014 $ 3,066,090
Carlsbad Unified School District GO Series 1997 (FGIC) (AAA/Aaa)(a)
2,700,000 4.86 11/01/2014 1,253,313
Orange County Public Finance Authority Waste Management Systems RB
(AMBAC) (Aaa)
2,110,000 5.25 12/01/2013 2,236,326
Santa Clara County Housing Authority MF Hsg. RB for Orchard Glen Apart-
ments Series 1998 (LOC) (AA)(b)
2,500,000 4.50 11/01/2007 2,490,075
----------------------------------------------------------------------------------------------
$ 9,045,804
----------------------------------------------------------------------------------------------
CONNECTICUT - 5.4%
Connecticut State GO Bonds Series A (AA-/Aa3)
$3,265,000 5.25% 03/15/2013 $ 3,439,482
Mashantucket Western Pequot Tribe Prerefunded RB Series A (BBB-)(c)
1,000,000 6.50 09/01/2005 1,141,550
Mashantucket Western Pequot Tribe Unrefunded RB Series A (BBB-/Baa2)(c)
1,000,000 6.50 09/01/2005 1,128,240
----------------------------------------------------------------------------------------------
$ 5,709,272
----------------------------------------------------------------------------------------------
FLORIDA - 3.3%
Escambia County Housing Authority (AMT) (Aaa)
$ 680,000 6.80% 10/01/2015 $ 738,915
Santa Rosa Bay Bridge Authority RB (BBB-)
2,500,000 6.25 07/01/2028 2,780,250
----------------------------------------------------------------------------------------------
$ 3,519,165
----------------------------------------------------------------------------------------------
HAWAII - 1.6%
Hawaii GO Bond Series CA (FGIC) (AAA)
$1,500,000 6.00% 01/01/2009 $ 1,704,795
----------------------------------------------------------------------------------------------
ILLINOIS - 11.0%
Chicago Midway Airport RB (MBIA) (AAA/Aaa)
$2,500,000 5.50% 01/01/2010 $ 2,681,475
Lake County Unified School District No. 116 GO (FSA) (AAA)
1,000,000 7.60 02/01/2013 1,299,710
2,000,000 7.60 02/01/2014 2,607,980
Lake, Cook, Kane and McHenry County's Community Unit School District No.
220 GO Bonds (FSA) (AAA/Aaa)
2,465,000 6.20 12/01/2012 2,872,760
Rock Island County School District No. 41 GO Series 1998 (FSA) (AAA)
2,300,000 5.13 12/01/2014 2,341,469
----------------------------------------------------------------------------------------------
$11,803,394
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
DEBT OBLIGATIONS - (CONTINUED)
INDIANA - 4.1%
Indiana Bond Bank for Hendricks County RB (LOC) (AA-)
$1,420,000 6.00% 02/01/2012 $ 1,537,945
Indiana Transportation Airport Series A RB (AMBAC) (AAA/Aaa)
2,500,000 6.00 11/01/2011 2,865,400
----------------------------------------------------------------------------------------------
$ 4,403,345
----------------------------------------------------------------------------------------------
KENTUCKY - 1.0%
Nelson County Industrial Building Mabex Universal Corp. Project (AMT)
(LOC) (A3)
$1,000,000 6.50% 04/01/2005 $ 1,089,220
----------------------------------------------------------------------------------------------
LOUISIANA - 2.0%
Orleans Levee District Improvement Bonds (FSA) (AAA/Aaa)
$1,945,000 5.95% 11/01/2015 $ 2,161,906
----------------------------------------------------------------------------------------------
MAINE - 0.6%
Maine Educational Loan Authority RB Series A-1 (AMT) (Aaa)(d)
$ 640,000 6.80% 12/01/2007 $ 687,699
----------------------------------------------------------------------------------------------
MICHIGAN - 11.9%
Birmingham Michigan City School District GO Bonds (AA+/Aa2)
$3,500,000 5.25% 11/01/2012 $ 3,680,040
Michigan Higher Education Facility RB for the Thomas M. Cooley Law
School Series 1998 (LOC) (A+)
4,000,000 5.40 05/01/2018 4,046,120
Oakland County Econimic Development Corp. RB for Cranbrook Community Se-
ries 1998 (Aa2)
5,000,000 5.00 11/01/2017 4,975,500
----------------------------------------------------------------------------------------------
$12,701,660
----------------------------------------------------------------------------------------------
MISSOURI - 2.0%
St. Louis Municipal Finance Leasehold Series A RB (LOC) (A/Aa3)
$2,100,000 5.30% 07/15/2002 $ 2,181,858
----------------------------------------------------------------------------------------------
NEVADA - 1.9%
Washoe County GO RB (MBIA) (AAA/Aaa)
$2,000,000 5.00% 06/01/2017 $ 1,998,740
----------------------------------------------------------------------------------------------
NEW MEXICO - 8.2%
New Mexico Finance Authority Anticipation RB for Federal Highway Grant
Series 1998 A (AMBAC) (AAA/Aaa)(d)
$5,100,000 5.25% 09/01/2014 $ 5,295,687
Santa Fe County Correctional System RB (FSA) (AAA/Aaa)
3,000,000 6.00 02/01/2027 3,518,370
----------------------------------------------------------------------------------------------
$ 8,814,057
----------------------------------------------------------------------------------------------
NEW YORK - 5.0%
New York City Municipal Water Finance Authority Series B (MBIA)
(AAA/Aaa)
$3,000,000 5.50% 06/15/2027 $ 3,137,460
New York State Dormatory RB for Department of Health Series 1996 (MBIA)
(AAA)
2,000,000 5.63 07/01/2012 2,154,160
----------------------------------------------------------------------------------------------
$ 5,291,620
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
DEBT OBLIGATIONS - (CONTINUED)
<S> <C> <C> <C>
NORTH DAKOTA - 2.1%
Mercer County PCRB for Basin Electric & Power 2nd Series (AMBAC)
(AAA/Aaa)
$2,000,000 6.05% 01/01/2019 $ 2,204,280
-----------------------------------------------------------------------------------------------
OHIO - 5.1%
Cuyahoga County for Rock & Roll Hall of Fame RB
$600,000 5.45% 12/01/2005 $ 618,366
Ohio State Turnpike Community RB Series 1998 A (FGIC) (AAA/Aaa)(d)
4,500,000 5.50 02/15/2017 4,880,250
-----------------------------------------------------------------------------------------------
$ 5,498,616
-----------------------------------------------------------------------------------------------
PENNSYLVANIA - 5.3%
Pennsylvania Higher Education RB for University of Pennsylvania Health
Services Series 1998 A (MBIA) (AAA/Aaa)
$2,040,000 5.38% 01/01/2014 $ 2,123,926
Philadelphia Gas Works RB Series 1998 B (FSA) (AAA/Aaa)
3,420,000 5.38 07/01/2015 3,547,292
-----------------------------------------------------------------------------------------------
$ 5,671,218
-----------------------------------------------------------------------------------------------
TENNESSEE - 3.2%
Dickson County GO Bonds (FGIC) (Aaa)
$1,840,000 5.00% 04/01/2016 $ 1,849,973
McMinnville Housing Authority RB (A2)
1,420,000 6.00 10/01/2009 1,519,783
-----------------------------------------------------------------------------------------------
$ 3,369,756
-----------------------------------------------------------------------------------------------
TEXAS - 6.1%
East Texas Criminal Justice Facilities Financing Corp. Prerefunded RB
(AMBAC) (AAA/Aaa)
$2,000,000 5.75% 11/01/2009 $ 2,200,600
Lago Vista Independent School District Refunding Bonds Series 1997 (Aaa)
1,000,000 5.50 08/15/2027 1,038,900
Tarrant County Health Facilities Development Corp. RB (MBIA) (AAA/Aaa)
3,000,000 5.75 02/15/2015 3,311,850
-----------------------------------------------------------------------------------------------
$ 6,551,350
-----------------------------------------------------------------------------------------------
WASHINGTON - 5.2%
Chelan County Public Utility RB (MBIA) (AAA/Aaa)
$2,500,000 6.35% 07/01/2028 $ 2,838,050
Washington State Public Power Supply System Series A RB (AMBAC) (AAA/Aaa)
2,500,000 5.70 07/01/2011 2,718,000
-----------------------------------------------------------------------------------------------
$ 5,556,050
-----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(COST $99,945,528) $104,796,166
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
SHORT-TERM OBLIGATIONS - 2.6%
<S> <C> <C> <C>
GEORGIA - 1.7%
Burke County IDA for Georgia Power Co. (A/A2)(e)
$800,000 3.80% 11/02/1998 $ 800,000
Monroe County Development Authority PCRB (A2)(e)
700,000 3.70 11/02/1998 700,000
Monroe County PCRB for Georgia Power Company Series 1998-2 (A+/A1)(e)
300,000 3.70 11/02/1998 300,000
-----------------------------------------------------------------------------------------------
$ 1,800,000
-----------------------------------------------------------------------------------------------
NEW YORK - 0.6%
New York City IDRB for Nippon Cargo Airlines Co. Series 1998 (A-)(e)
$400,000 4.25% 11/02/1998 $ 400,000
New York State Energy Research and Development PCRB for Niagara Mohawk
Power Series 1998 A (AA)(e)
300,000 3.70 11/02/1998 300,000
-----------------------------------------------------------------------------------------------
$ 700,000
-----------------------------------------------------------------------------------------------
WYOMING - 0.3%
Sweetwater County PCRB for Idaho Power Co. Series 1998 C (A/A3)(e)
$300,000 3.75% 11/02/1998 $ 300,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $2,800,000) $ 2,800,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $102,745,528)(F) $107,596,166
-----------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS SETTLEMENT UNREALIZED
TYPE (SHORT) (G) MONTH GAIN
---------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Municipal Bond Futures (47) December 1998 $24,920
-------
$24,920
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME TAX
INFORMATION
Gross unrealized gain for in-
vestments in which
value exceeds cost
$4,875,731
Gross unrealized loss for in-
vestments in which
cost exceeds value
(25,093)
----------------------------------
Net unrealized gain
$4,850,638
----------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments (continued)
October 31, 1998
------------------------------------------------------------------------------
(a) The interest rate disclosed for this security represents effective yield
to maturity.
(b) When-issued security.
(c) Securities are exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total
market value of Rule 144A securities amounted to $2,269,790 as of October
31, 1998.
(d) Portion of these securities are segregated for a when issued security,
open futures contracts and futures margin requirements.
(e) Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
(f) The amount stated also represents aggregate cost for federal income tax
purposes.
(g) Each Municipal Bond Future contracts represents $100,000 in notional par
value. The total notional amount and market value at risk are $4,700,000
and $5,897,031, respectively. The determination of notional amounts 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.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<TABLE>
<C> <S>
INVESTMENT ABBREVIATIONS:
AMBAC --Insured by American Municipal Bond Assurance Corp.
AMT --Alternative Minimum Tax
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Insured by Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
-------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
SHORT DURATION MUNICIPAL
TAX-FREE FUND INCOME FUND
ASSETS:
<S> <C> <C>
Investment in securities, at value (identified
cost $80,732,892 and $102,745,528,
respectively) $81,376,351 $107,596,166
Cash 792,930 342,083
Receivables:
Investment securities sold 1,901,021 --
Interest 1,199,975 1,681,132
Fund shares sold 46,316 366,727
Variation margin -- 35,250
Other assets 111,416 122,060
------------------------------------------------------------------------------
TOTAL ASSETS 85,428,009 110,143,418
------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 701,790 2,801,080
Income distribution 21,826 124,292
Fund shares repurchased 731,482 117,519
Amounts owed to affiliates 41,014 98,711
Accrued expenses and other liabilities 88,771 103,715
------------------------------------------------------------------------------
TOTAL LIABILITIES 1,584,883 3,245,317
------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 86,792,633 101,765,249
Accumulated undistributed net investment income 62,046 138,393
Accumulated net realized gain (loss) on
investment transactions (3,655,012) 118,901
Net unrealized gain on investments and futures 643,459 4,875,558
------------------------------------------------------------------------------
NET ASSETS $83,843,126 $106,898,101
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net asset value per share:(a)
Class A $10.19 $15.47
Class B $10.18 $15.47
Class C $10.18 $15.47
Institutional $10.18 $15.47
Administration $10.18 --
Service $10.18 $15.48
------------------------------------------------------------------------------
Shares Outstanding:
Class A 1,951,709 5,891,043
Class B 95,661 434,408
Class C 221,543 184,954
Institutional 5,660,817 397,731
Administration 51,537 --
Service 251,505 106
------------------------------------------------------------------------------
Total Shares Outstanding, $.001 Par Value
(unlimited number of shares authorized) 8,232,772 6,908,242
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share for Class A shares is $10.40 (NAV
per share plus the maximum sales charge of 2.0%) and $16.20 (NAV per
share plus the maximum sales charge of 4.5%) for Short Duration Tax-Free
and Municipal Income, respectively. At redemption, Class B and Class C
shares may be 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.
17
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Operations
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
SHORT DURATION MUNICIPAL
TAX-FREE FUND INCOME FUND
<S> <C> <C>
INVESTMENT INCOME:
Interest $2,059,329 $ 4,344,155
-----------------------------------------------------------------------------
TOTAL INCOME 2,059,329 4,344,155
-----------------------------------------------------------------------------
EXPENSES:
Management fees 189,646 467,578
Transfer agent fees 129,376 176,709
Distribution and service fees(a) 68,846 426,683
Custodian fees 83,823 71,330
Registration fees 64,947 98,906
Professional fees 55,339 51,165
Printing fees 39,638 65,795
Amortization of deferred organization expenses -- 12,545
Trustee fees 5,861 5,779
Service share fees 2,142 --
Administration share fees 221 --
Other 36,690 26,444
-----------------------------------------------------------------------------
TOTAL EXPENSES 676,529 1,402,934
-----------------------------------------------------------------------------
Less -- expenses reimbursable and fees waived
by Goldman Sachs (406,089) (630,379)
-----------------------------------------------------------------------------
NET EXPENSES 270,440 772,555
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 1,788,889 3,571,600
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVEST-
MENT AND FUTURES TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 393,554 697,378
Futures transactions (123,687) (554,852)
Net change in unrealized gain on:
Investments 263,420 2,434,663
Futures -- 1,295
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT
AND FUTURES TRANSACTIONS 533,287 2,578,484
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $2,322,176 $ 6,150,084
-----------------------------------------------------------------------------
</TABLE>
(a) Class A, Class B and Class C had distribution and service fees of
$53,564, $2,943 and $12,339 and $376,793, $37,316 and $12,574 for Short
Duration Tax-Free and Municipal Income Funds, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
18
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
SHORT
DURATION
TAX-FREE MUNICIPAL
FUND INCOME FUND
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,788,889 $ 3,571,600
Net realized gain from investment and futures
transactions 269,867 142,526
Net change in unrealized gain on investments and
futures 263,420 2,435,958
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 2,322,176 6,150,084
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (420,239) (3,301,234)
Class B (9,424) (125,487)
Class C (36,571) (41,577)
Institutional shares (1,297,489) (34,610)
Administration shares (9,873) --
Service shares (70,477) (64)
Net realized gain on investment transactions
Class A -- (123,858)
Class B -- (3,541)
Class C -- (467)
Institutional shares -- (658)
Administration shares -- --
Service shares -- (3)
-----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,844,073) (3,631,499)
-----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 79,620,422 50,919,586
Reinvestment of dividends and distributions 1,551,849 2,344,160
Cost of shares repurchased (32,887,113) (15,670,581)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 48,285,158 37,593,165
-----------------------------------------------------------------------------
TOTAL INCREASE 48,763,261 40,111,750
-----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 35,079,865 66,786,351
-----------------------------------------------------------------------------
End of year $83,843,126 $106,898,101
-----------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 62,046 $ 138,393
-----------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statement of Changes in Net Assets
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
SHORT
DURATION
TAX-FREE MUNICIPAL
FUND INCOME FUND
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,495,109 $ 2,677,281
Net realized gain from investment and futures
transactions 214,761 1,129,596
Net change in unrealized gain on investments and
futures 177,615 1,448,471
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 1,887,485 5,255,348
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (36,026) (2,651,661)
Class B (864) (33,375)
Class C (18) (172)
Institutional shares (1,407,585) (56)
Administration shares (3,501) --
Service shares (47,115) (14)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,495,109) (2,685,278)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 28,091,361 21,242,873
Reinvestment of dividends and distributions 1,232,957 1,598,487
Cost of shares repurchased (30,193,481) (11,147,479)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS (869,163) 11,693,881
------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (476,787) 14,263,951
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 35,556,652 52,522,400
------------------------------------------------------------------------------
End of year $ 35,079,865 $ 66,786,351
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 110,881 $ 69,879
------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements
October 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs Short Duration
Tax-Free Fund (Short Duration Tax-Free) and the Goldman Sachs Municipal In-
come Fund (Municipal Income), collectively, "the Funds" or individually a
"Fund." Short Duration Tax-Free is a diversified portfolio offering six clas-
ses of shares -- Class A, Class B, Class C, Institutional, Administration,
and Service. Municipal Income, also a diversified portfolio, offers five
classes of shares -- Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices 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 val-
ued 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 using the identified cost basis. Interest income is
recorded on the basis of interest accrued. 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
the security.
C. 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 tax-ex-
empt and taxable income and capital gains to its shareholders. Accordingly,
no federal tax provisions are required.
The characterization of distributions to shareholders for financial report-
ing 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, de-
pending on the type of book/tax differences that may exist as well as timing
differences associated with having different book and tax year ends.
The Short Duration Tax-Free Fund, at its most recent tax year-end of Decem-
ber 31, 1997 had approximately the following amount of capital loss
carryforwards for U.S. federal tax purposes. This amount is available to be
carried forward to offset future capital gains to the extent permitted by ap-
plicable laws or regulations.
<TABLE>
<CAPTION>
YEAR OF
FUND AMOUNT EXPIRATION
-----------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $3,868,000 2002-2003
-----------------------------------------------
</TABLE>
21
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1998
D. EXPENSES -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds based on the
nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective distribution and service plans. Share-
holders of Service and Administration shares bear all expenses and fees paid
to service organizations for their services with respect to such shares. Ef-
fective October 1, 1998, each class of shares of the Funds now separately
bears its respective class-specific transfer agency fees.
E. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs were amor-
tized on a straight-line basis over a period of five years. The Short Dura-
tion Tax-Free and Municipal Income Fund's organizational costs are fully
amortized.
F. FUTURES CONTRACTS -- The Funds may enter into futures transactions in or-
der to hedge against changes in interest rates, securities prices or to seek
to increase total return.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the associated futures exchange. Subsequent payments
for futures contracts ("variation margin") are paid or received by the Funds
daily, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Funds realize a gain or loss which is reported
in the Statements of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
hedging strategies and potentially result in a loss.
G. OPTION ACCOUNTING PRINCIPLES -- When the Funds write call or put options,
an amount equal to the premium received is recorded as an asset and as an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current market value of the option written. When a
written option expires on its stipulated expiration date or the Funds enter
into a closing purchase transaction, the Funds realize a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Funds realize a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Funds purchase upon exercise. There is a risk of loss from a change in value
of such options which may exceed the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Funds have purchased expires on the stipulated expiration date, the Funds
will realize a loss in the amount of the cost of the option. If the Funds en-
ter into a closing sale transaction, the Funds will realize a gain or loss,
depending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Funds exercise a pur-
chased put option, the Funds will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by the
premium originally paid. If the Funds exercise a purchased call option, the
cost of the security which the Funds purchase upon exercise will be increased
by the premium originally paid.
22
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's investment ad-
viser pursuant to Investment Management Agreements (the "Agreements"). Under
the Agreements, GSAM, subject to the general supervision of the Trust's Board
of Trustees, manages the Funds' portfolios. As compensation for the services
rendered pursuant to the Agreements and the assumption of the expenses re-
lated thereto and administering the Funds' business affairs, including pro-
viding facilities, GSAM is entitled to a fee, computed daily and payable
monthly at an annual rate equal to .40% and .55% of average daily net assets
of Short Duration Tax-Free and Municipal Income, respectively. GSAM has vol-
untarily agreed to waive a portion of its management fee for each Fund. For
the period ended October 31, 1998, GSAM waived approximately $3,000 and
$4,000 of its management fee attributable to the Short Duration Tax-Free and
Municipal Income Funds, respectively. GSAM may discontinue or modify these
waivers in the future at its discretion.
GSAM voluntarily agreed to limit "Other Expenses" (excluding management,
distribution and service fees, Administration and Service share fees, taxes,
interest, brokerage, litigation, indemnification costs and other extraordi-
nary expenses) through September 30, 1998 to the extent such expenses ex-
ceeded .05% of the average daily net assets of each Fund. Effective October
1, 1998, the expense limitations were modified until further notice to .00%
of the average daily net assets of each Fund. For the year ended October 31,
1998, Goldman Sachs reimbursed approximately $402,000 and $509,000 to Short
Duration Tax-Free and Municipal Income, respectively. At October 31, 1998 ap-
proximately $103,000 and $122,000 was owed to Short Duration Tax-Free and Mu-
nicipal Income, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Funds that it retained approximately $55,000 and $126,000 for the
year ended October 31, 1998 for Short Duration Tax-Free and Municipal Income,
respectively.
The Trust, on behalf of each Fund, had adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of each Fund's
average daily net assets attributable to Class A, Class B and Class C shares,
respectively. For the year ended October 31, 1998, the Distributor had
voluntarily agreed to waive approximately $25,000 and $179,000 of its
distribution fee attributable to Class A shares of Short Duration Tax-Free
and Municipal Income, respectively.
The Trust, on behalf of each Fund, had also adopted Authorized Dealer Serv-
ice Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and
Authorized Dealers were compensated for providing personal and account main-
tenance services. Each Fund paid a fee under its Dealer Service Plan equal,
on an annual basis, up to .25% of the average daily net assets attributable
to the Class A, Class B and Class C shares.
Effective October 1, 1998, the Distribution Plans and Dealer Service Plans
were combined into Distribution and Service Plans. Under the Distribution and
Service Plans, Goldman Sachs and/or Authorized Dealers are entitled to a
monthly fee from each fund for distribution and shareholder maintenance serv-
ices equal, on an annual basis, to .25%, 1.00% and 1.00% of the average daily
net assets attributable to Class A, Class B and Class C shares, respectively.
For the year ended October 31, 1998, Goldman Sachs has voluntarily agreed to
waive approximately $1,000 of the combined prior 12b-1 Distribution fees and
Distribution and Service fees attributable to the Class B shares of Short Du-
ration Tax-Free. Goldman Sachs may discontinue or modify this waiver in the
future at its discretion.
23
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1998
Goldman Sachs also serves as the Transfer Agent of the Funds for a fee. Ef-
fective October 1, 1998, fees charged for such transfer agency services are
calculated daily and payable monthly at an annual rate as follows: .19% of
average daily net assets for Class A, Class B and Class C Shares and .04% of
average daily net assets for Institutional, Service and Administration
Shares.
The Trust, on behalf of the Funds, has adopted Service Plans. In addition,
the Trust, on behalf of Short Duration Tax-Free, has adopted an Administra-
tion Plan. These plans allow for Service shares and Administration shares,
respectively, to compensate service organizations for providing varying lev-
els of account administration and shareholder liaison services to their cus-
tomers who are beneficial owners of such shares. The Service and
Administration Plans provide for compensation to the service organizations in
an amount up to .50% and .25% (on an annualized basis), respectively, of the
average daily net asset value of the respective shares.
At October 31, 1998, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
DISTRIBUTION TRANSFER
FUND MANAGEMENT AND SERVICE AGENT
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short Duration Tax-Free $21,000 $ 6,000 $14,000
----------------------------------------------------------------------------------------
Municipal Income 44,000 27,000 28,000
----------------------------------------------------------------------------------------
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
SALES OR
FUND PURCHASES MATURITIES
-------------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $97,878,412 $64,401,870
-------------------------------------------------
Municipal Income 84,053,318 47,308,925
-------------------------------------------------
</TABLE>
For the year ended October 31, 1998, Short Duration Tax-Free and Municipal
Income incurred commission expenses of approximately $1,000 and $3,000, re-
spectively, in connection with futures contracts entered into with Goldman
Sachs. At October 31, 1998, Goldman Sachs owed approximately $35,000 to Mu-
nicipal Income related to variation margin on futures contracts.
24
<PAGE>
GOLDMAN SACHS TAX-FREE FUND
5. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility to be used solely for temporary or emergency purposes. Un-
der 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. For the year ended Oc-
tober 31, 1998, the Funds did not have any borrowings under this facility.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Short Duration Tax-Free has
reclassified $6,349 and $229 from paid-in capital to accumulated undistrib-
uted net investment income and accumulated net realized loss, respectively.
Municipal Income Fund has reclassified $82 and $114 from paid-in capital and
undistributed net investment income, respectively, to accumulated net real-
ized gain. These reclassifications have no impact on the net asset value of
the Funds and are designed to present the Fund's capital accounts on a tax
basis.
25
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1998
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 is as follows:
<TABLE>
<CAPTION>
SHORT DURATION TAX-
FREE FUND MUNICIPAL INCOME FUND
--------------------------------
SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 2,956,094 $29,981,070 2,331,248 $35,680,920
Reinvestment of dividends
and distributions 36,408 369,107 144,878 2,217,736
Shares repurchased (1,439,779) (14,600,893) (890,339) (13,671,669)
--------------------------------
1,552,723 15,749,284 1,585,787 24,226,987
---------------------------------------------------------------------------
CLASS B SHARES
Shares sold 113,668 1,154,981 363,405 5,570,533
Reinvestment of dividends
and distributions 716 7,572 4,818 73,917
Shares repurchased (29,252) (296,080) (50,499) (771,483)
--------------------------------
85,132 866,473 317,724 4,872,967
---------------------------------------------------------------------------
CLASS C SHARES
Shares sold 260,602 2,643,664 236,415 3,613,212
Reinvestment of dividends
and distributions 3,289 33,332 2,421 37,200
Shares repurchased (42,508) (430,853) (62,563) (957,474)
--------------------------------
221,383 2,246,143 176,273 2,692,938
---------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 4,094,699 41,604,670 391,005 6,054,921
Reinvestment of dividends
and distributions 105,149 1,065,181 988 15,243
Shares repurchased (1,399,986) (14,177,195) (17,697) (269,955)
--------------------------------
2,799,862 28,492,656 374,296 5,800,209
---------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 45,558 460,529 -- --
Reinvestment of dividends
and distributions 948 9,613 -- --
Shares repurchased (2,644) (26,596) -- --
--------------------------------
43,862 443,546 -- --
---------------------------------------------------------------------------
SERVICE SHARES
Shares sold 373,021 3,775,508 -- --
Reinvestment of dividends
and distributions 6,622 67,044 4 64
Shares repurchased (331,731) (3,355,496) -- --
--------------------------------
47,912 487,056 4 64
---------------------------------------------------------------------------
NET INCREASE 4,750,874 $48,285,158 2,454,084 $37,593,165
---------------------------------------------------------------------------
</TABLE>
26
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Share activity for the year ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
SHORT DURATION TAX-FREE
FUND MUNICIPAL INCOME FUND
---------------------------------
SHARES DOLLARS SHARES DOLLARS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 492,769 $ 4,950,140 1,303,279 $19,055,213
Reinvestment of dividends
and distributions 3,459 34,811 107,716 1,579,312
Shares repurchased (97,242) (977,758) (743,175) (10,871,802)
---------------------------------
398,986 4,007,193 667,820 9,762,723
----------------------------------------------------------------------------
CLASS B SHARES
Shares sold 11,933 119,768 116,039 1,702,581
Reinvestment of dividends
and distributions 86 861 1,286 18,970
Shares repurchased (1,490) (15,000) (18,419) (273,177)
---------------------------------
10,529 105,629 98,906 1,448,374
----------------------------------------------------------------------------
CLASS C SHARES
Shares sold 2,151 21,604 8,837 132,078
Reinvestment of dividends
and distributions 1 10 12 176
Shares repurchased (1,992) (20,080) (168) (2,500)
---------------------------------
160 1,534 8,681 129,754
----------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,897,550 18,922,030 23,434 351,500
Reinvestment of dividends
and distributions 115,179 1,152,524 1 15
Shares repurchased (2,646,181) (26,425,414) -- --
---------------------------------
(633,452) (6,350,860) 23,435 351,515
----------------------------------------------------------------------------
ADMINISTRATION SHARES
Shares sold 33,608 336,065 -- --
Reinvestment of dividends
and distributions 281 2,813 -- --
Shares repurchased (31,059) (312,126) -- --
---------------------------------
2,830 26,752 -- --
----------------------------------------------------------------------------
SERVICE SHARES
Shares sold 373,847 3,741,754 101 1,501
Reinvestment of dividends
and distributions 4,184 41,937 1 14
Shares repurchased (244,134) (2,443,102) -- --
---------------------------------
133,897 1,340,589 102 1,515
----------------------------------------------------------------------------
NET INCREASE (DECREASE) (87,050) $ (869,163) 798,944 $11,693,881
----------------------------------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ------------------------------------
NET REALIZED
AND UNREALIZED FROM NET
GAIN (LOSS) REALIZED GAIN NET
NET ASSET ON INVESTMENT, IN EXCESS ON INVESTMENT, INCREASE
VALUE, NET OPTION AND FROM NET OF NET OPTION (DECREASE)
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT AND FUTURES IN NET
OF PERIOD INCOME(E) TRANSACTIONS(E) INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $10.08 $0.36 $0.13 $(0.38) -- $ -- $0.11
1998 - Class B Shares 10.08 0.30 0.12 (0.32) -- -- 0.10
1998 - Class C Shares 10.07 0.28 0.14 (0.31) -- -- 0.11
1998 - Institutional
Shares 10.07 0.39 0.13 (0.41) -- -- 0.11
1998 - Administration
Shares 10.07 0.36 0.13 (0.38) -- -- 0.11
1998 - Service Shares 10.07 0.34 0.13 (0.36) -- -- 0.11
----------------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.94 0.20 0.14 (0.20) -- -- 0.14
1997 - Class B Shares
(commenced May 1) 9.94 0.16 0.14 (0.16) -- -- 0.14
1997 - Class C Shares
(commenced August 15) 10.04 0.07 0.03 (0.07) -- -- 0.03
1997 - Institutional
Shares 9.96 0.42 0.11 (0.42) -- -- 0.11
1997 - Administration
Shares 9.96 0.39 0.11 (0.39) -- -- 0.11
1997 - Service Shares 9.97 0.37 0.10 (0.37) -- -- 0.10
----------------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 9.94 0.42 0.02 (0.42) -- -- 0.02
1996 - Administration
Shares 9.94 0.39 0.02 (0.39) -- -- 0.02
1996 - Service Shares 9.95 0.37 0.02 (0.37) -- -- 0.02
----------------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.79 0.42 0.15 (0.42) -- -- 0.15
1995 - Administration
Shares 9.79 0.40 0.15 (0.40) -- -- 0.15
1995 - Service Shares 9.79 0.37 0.16 (0.37) -- -- 0.16
----------------------------------------------------------------------------------------------------------------
1994 - Institutional
Shares 10.23 0.38 (0.36) (0.38) -- (0.08) (0.44)
1994 - Administration
Shares 10.23 0.35 (0.36) (0.35) -- (0.08) (0.44)
1994 - Service Shares
(commenced September 20) 9.86 0.05 (0.07) (0.05) -- -- (0.07)
----------------------------------------------------------------------------------------------------------------
</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 or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
-----------------------
NET RATIO OF NET RATIO OF NET
ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
VALUE, TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
END OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$10.19 4.97% 140.72% $19,881 0.71% 3.54% 1.74% 2.51%
10.18 4.25 140.72 974 1.31 3.06 2.27 2.10
10.18 4.19 140.72 2,256 1.46 2.82 2.27 2.01
10.18 5.25 140.72 57,647 0.45 3.92 1.26 3.11
10.18 4.99 140.72 525 0.70 3.58 1.51 2.77
10.18 4.73 140.72 2,560 0.95 3.44 1.76 2.63
- ----------------------------------------------------------------------------------------------------
10.08 3.39(d) 194.75 4,023 0.70(c) 3.81(c) 1.73(c) 2.78(c)
10.08 3.07(d) 194.75 106 1.30(c) 3.31(c) 2.23(c) 2.38(c)
10.07 0.97(d) 194.75 2 1.45(c) 2.60(c) 2.23(c) 1.82(c)
10.07 5.40 194.75 28,821 0.45 4.18 1.23 3.40
10.07 5.14 194.75 77 0.70 3.91 1.48 3.13
10.07 4.77 194.75 2,051 0.95 3.66 1.73 2.88
- ----------------------------------------------------------------------------------------------------
9.96 4.50 231.65 34,814 0.45 4.21 1.01 3.65
9.96 4.24 231.65 48 0.70 3.96 1.26 3.40
9.97 3.98 231.65 695 0.95 3.74 1.51 3.18
- ----------------------------------------------------------------------------------------------------
9.94 5.98 259.52 58,389 0.45 4.31 0.77 3.99
9.94 5.76 259.52 46 0.70 4.14 1.02 3.82
9.95 5.59 259.52 454 0.95 3.87 1.27 3.55
- ----------------------------------------------------------------------------------------------------
9.79 0.17 354.00 83,704 0.45 3.74 0.61 3.58
9.79 (0.11) 354.00 3,866 0.70 3.51 0.86 3.35
9.79 (0.32)(d) 354.00 440 0.95(c) 4.30(c) 1.11(c) 4.14(c)
- ----------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(A) DISTRIBUTIONS TO SHAREHOLDERS
------------------------- ----------------------------------
NET REALIZED FROM
AND UNREALIZED NET REALIZED
GAIN (LOSS) ON GAIN ON NET
NET ASSET INVESTMENT, FROM IN EXCESS INVESTMENT, INCREASE
VALUE, NET OPTION AND NET OF NET OPTION AND (DECREASE)
BEGINNING INVESTMENT FUTURES INVESTMENT INVESTMENT FUTURES IN NET
OF PERIOD INCOME TRANSACTIONS INCOME INCOME TRANSACTIONS ASSET VALUE
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $14.99 $0.65 $ 0.50 $(0.64) $-- $(0.03) $ 0.48
1998 - Class B Shares 15.00 0.53 0.49 (0.52) -- (0.03) 0.47
1998 - Class C Shares 14.99 0.53 0.50 (0.52) -- (0.03) 0.48
1998 - Institutional
Shares 15.00 0.68 0.50 (0.68) -- (0.03) 0.47
1998 - Service Shares 14.99 0.64 0.49 (0.61) -- (0.03) 0.49
-------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.37 0.67 0.62 (0.67) -- -- 0.62
1997 - Class B Shares 14.37 0.56 0.63 (0.56) -- -- 0.63
1997 - Class C Shares
(commenced August 15) 14.85 0.12 0.14 (0.12) -- -- 0.14
1997 - Institutional
Shares (commenced August
15) 14.84 0.15 0.16 (0.15) -- -- 0.16
1997 - Service Shares
(commenced August 15) 14.84 0.14 0.15 (0.14) -- -- 0.15
-------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.17 0.65 0.20 (0.65) -- -- 0.20
1996 - Class B Shares
(commenced May 1) 14.03 0.27 0.34 (0.27) -- -- 0.34
-------------------------------------------------------------------------------------------------------------
1995 - Class A Shares 13.08 0.67 1.09 (0.67) -- -- 1.09
-------------------------------------------------------------------------------------------------------------
1994 - Class A Shares 14.64 0.73 (1.51) (0.73) -- (0.05) (1.56)
-------------------------------------------------------------------------------------------------------------
</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 the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
--------------------------------
RATIO OF NET RATIO OF NET
NET ASSETS RATIO OF INVESTMENT RATIO OF INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME EXPENSES INCOME
VALUE, TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
END OF PERIOD RETURN(B) RATE (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
$15.47 7.79% 56.51% $91,158 0.87% 4.25% 1.64% 3.48%
15.47 6.91 56.51 6,722 1.62 3.44 2.16 2.90
15.47 6.98 56.51 2,862 1.62 3.38 2.16 2.84
15.47 8.00 56.51 6,154 0.58 4.41 1.12 3.87
15.48 7.68 56.51 2 1.08 4.21 1.62 3.67
- ------------------------------------------------------------------------------------------------------------------
14.99 9.23 153.12 64,553 0.85 4.60 1.62 3.83
15.00 8.48 153.12 1,750 1.60 3.74 2.12 3.22
14.99 1.75(d) 153.12 130 1.60(c) 3.24(c) 2.12(c) 2.72(c)
15.00 2.10(d) 153.12 351 0.60(c) 4.41(c) 1.12(c) 3.89(c)
14.99 1.93(d) 153.12 2 1.10(c) 4.24(c) 1.62(c) 3.72(c)
- ------------------------------------------------------------------------------------------------------------------
14.37 6.13 344.13 52,267 0.85 4.58 1.55 3.88
14.37 4.40(d) 344.13 255 1.60(c) 3.55(c) 2.05(c) 3.10(c)
- ------------------------------------------------------------------------------------------------------------------
14.17 13.79 335.55 53,797 0.76 4.93 1.49 4.20
- ------------------------------------------------------------------------------------------------------------------
13.08 (5.51) 357.54 47,373 0.45 5.28 1.55 4.18
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
GOLDMAN SACHS TRUST - TAX-FREE FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Tax-Free
Fixed Income Funds:
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs Short Duration Tax-Free Fund and Municipal Income Fund, two of
the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds (a Del-
aware Business Trust), including the statement of investments, as of October
31, 1998, and the related statements of operations and the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and the financial highlights are the responsibil-
ity 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, 1998 by correspondence with the custodian
and brokers. 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 Goldman Sachs Short Duration Tax-Free Fund and Municipal Income
Fund as of October 31, 1998, the results of their operations and the changes
in their net assets and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1998
32
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") 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. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds employed;
conservative capitalization structure with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior 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.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps employs
three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic
conditions.
"C" - Securities possess high default risk. This designation indicates that
default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest category and
indicates a very high likelihood that principal and interest will be paid on a
timely basis.
A-3
<PAGE>
"TBW-2" - This designation represents Thomson BankWatch's second-highest
category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest investment-
grade category and indicates that while the obligation is more susceptible to
adverse developments (both internal and external) than those with higher
ratings, the capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest rating
category and indicates that the obligation is regarded as non-investment grade
and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse
A-4
<PAGE>
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
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.
A-5
<PAGE>
"Aa" - Bonds 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 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 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.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
A-6
<PAGE>
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A," "BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity.
A-7
<PAGE>
"BB" - Bonds considered to be speculative. These ratings indicate that there
is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA ratings
from and including "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal and
interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade category and
indicates an acceptable capacity to repay principal and interest. Issues rated
"BBB" are more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
A-8
<PAGE>
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a plus
or minus sign designation which indicates where within the respective category
the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to pay
principal and interest. Those issues determined to possess very strong
characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk.
The following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"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, with margins of
protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades.
A-9
<PAGE>
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in this
category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-10
<PAGE>
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these 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.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
B-11
<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 of approximately $_______ billion as of November, 1997.
.. With thirty-four offices worldwide Goldman Sachs employs over 9,000
professionals focused on opportunities in major markets.
.. The number one underwriter of all international equity issues from 1993-
1996.
.. A research budget of $200 million for 1997.
.. 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 for the past
eight years (1989-1996).*
.. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).
B-12
<PAGE>
* Source: Securities Data Corporation. Common stock ranking excludes REITS,
-----------------------------------
Investment Trusts and Rights.
B-13
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing
client relationship)
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
1970 Goldman Sachs opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Goldman Sachs provides advisory services for the largest privatization
in the region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over 1996
B-14
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
--------
The following exhibits relating to Goldman Sachs Trust are incorporated
herein by reference to Post-Effective Amendment No. 26 to Goldman Sachs Trust's
Registration Statement on Form N-1A (Accession No. 000950130-95-002856); to
Post-Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931); to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No. 0000950130-97-000573); to Post-Effective Amendment No.
31 to such Registration Statement (Accession No. 0000950130-97-000805); to Post-
Effective Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-0001846); to Post-Effective Amendment No. 40 to such Registration
Statement (Accession No. 0000950130-97-004495); and to Post-Effective Amendment
No. 41 to such Registration Statement (Accession No 0000950130-98-000676); Post-
Effective Amendment No. 43 to such Registration Statement (Accession No.
0000950130-98-000965); to Post-Effective Amendment No. 44 to such Registration
Statement (Accession No. 0000950130-98-002160); to Post-Effective Amendment No.
46 to such Registration Statement (Accession No. 0000950130-98-003563); to Post-
Effective Amendment No. 47 to such Registration Statement (Accession No.
0000950130-98-004845) and to Post-Effective Amendment No. 48 to such
Registration Statement (Accession No. 0000950109-98-005275).
(a)(1). Agreement and Declaration of Trust dated January 28, 1997.
(Accession No. 0000950130-97-000573)
(a)(2). Amendment No. 1 dated April 24, 1997 to Agreement and Declaration
of Trust January 28, 1997. (Accession No. 0000950130-97-004495)
(a)(3). Amendment No. 2 dated July 21, 1997 to Agreement and Declaration
of Trust, as amended, dated January 28, 1997. (Accession No.
0000950130-97-004495)
(a)(4). Amendment No.3 dated October 21, 1997 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676)
(a)(5). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676)
<PAGE>
(a)(6). Amendment No. 5 dated April 23, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845)
(a)(7). Amendment No. 6 dated July 22, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845)
(b). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997. (Accession No. 0000950130-97-000573)
(c). Not applicable.
(d)(1). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676)
(d)(2). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Adjustable Rate Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676)
(d)(3). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Tax-Free Fund, and Goldman
Sachs Asset Management. (Accession No.
0000950130-98-000676)
(d)(4). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Core Fixed Income Fund, and Goldman Sachs
Asset Management. (Accession No. 0000950130-98-000676)
(d)(5). Management Agreement dated April 30, 1997 between the Registrant,
on behalf of Goldman Sachs - Institutional Liquid Assets, and
Goldman Sachs Asset Management. (Accession No. 0000950130-98-
000676)
(d)(6). Management Agreement dated April 30, 1997 as amended November 3,
1998, between Registrant, Goldman Sachs Asset Management,
Goldman Sachs Fund Management L.P. and Goldman, Sachs Asset
Management International (Accession No. 0000950109-98-005275).
<PAGE>
(e)(1). Distribution Agreement dated April 30, 1997 as amended November
3, 1998 between Registrant and Goldman, Sachs & Co. (Accession
No. 0000950109-98-005275).
(f). Not applicable.
(g)(1). Custodian Agreement dated July 15, 1991, between Registrant and
State Street Bank and Trust Company. (Accession No. 0000950130-
95-002856)
(g)(2). Custodian Agreement dated December 27, 1978 between Registrant
and State Street Bank and Trust Company, on behalf of Goldman
Sachs - Institutional Liquid Assets, filed as Exhibit 8(a).
(Accession No. 0000950130-98-000965).
(g)(3). Letter-agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the fees payable by
Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(b). (Accession No. 0000950130-98-000965).
(g)(4). Amendment dated May 28, 1981 to the Custodian Agreement referred
to above as Exhibit (g)(2) (Accession No. 0000950130-98-000965).
(g)(5). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank and Trust Company. (Accession
No. 0000950130-97-004495).
(g)(6). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges under the Custodian Agreement, filed as Exhibit 8(d).
(Accession No. 0000950130-98-000965).
(g)(7). Letter Agreement dated March 29, 1983 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the latter's
designation of Bank of America, N.T. and S.A. as its subcustodian
and certain other
<PAGE>
matters, filed as Exhibit 8(f). (Accession No.
0000950130-98-000965).
(g)(8). Letter Agreement dated March 21, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the creation of a
joint repurchase agreement account, filed as Exhibit 8(g).
(Accession No. 0000950130-98-000965).
(g)(9). Letter Agreement dated November 7, 1985, with attachments,
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
authorizing State Street Bank and Trust Company to permit
redemption of units by check, filed as Exhibit 8(h). (Accession
No. 0000950130-98-000965).
(g)(10). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street Bank
and Trust Company, on behalf of Goldman Sachs - Institutional
Liquid Assets, pertaining to transfers of funds on deposit with
State Street Bank and Trust Company, filed as Exhibit 8(i).
(Accession No. 0000950130-98-000965).
(g)(11). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
(g)(12). Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges. (Accession No. 0000950130-98-000965).
(g)(13). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
<PAGE>
(g)(14). Letter Agreement between Registrant and State Street Bank and
Trust Company, on behalf of Goldman Sachs - Institutional Liquid
Assets, pertaining to the latter's designation of Security
Pacific National Bank as its sub-custodian and certain other
matters. (Accession No. 0000950130-98-000965).
(g)(15). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets. (Accession No.
0000950130-98-000965).
(g)(16). Amendment dated December 19, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets. (Accession
No. 0000950130-98-000965).
(h)(1). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust
Company. (Accession No. 0000950130-98-000965).
(h)(2). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company.
(Accession No. 0000950130-98-000965).
(h)(3). Transfer Agency Agreement dated July 15, 1991 between Registrant
and Goldman, Sachs & Co. (Accession No.
0000950130-95-002856).
(h)(4). Fee schedule relating to Transfer Agency Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman, Sachs & Co. (Accession No. 0000950130-
97-004495).
(h)(7). Fee schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of all Funds of Goldman Sachs Trust other than the Institutional
Liquid Assets and Financial Square Money Market Funds.
(Accession No. 0000950130-98-004845).
<PAGE>
(i)(1). Opinion of Drinker, Biddle & Reath LLP. (With respect to the
Asset Allocation Portfolios). (Accession No. 0000950130-97-
004495).
(i)(2). Opinion of Morris, Nichols, Arsht & Tunnell. (Accession No.
0000950130-97-001846)
(i)(3). Opinion of Drinker, Biddle & Reath LLP.(With respect to Japanese
Equity and International Small Cap). (Accession No. 0000950130-
98-003563).
(i)(4). Opinion of Drinker Biddle & Reath LLP. (With respect to Cash
Management Shares). (Accession No. 0000950130-98-003563)
(k). Not applicable.
(l). Not applicable.
(m)(1). Class A Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(2). Class B Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(3). Class C Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(o). Plan dated September 1, 1998 entered into by Registrant pursuant
to Rule 18f-3. (Accession No. 0000950130-98-004845)
(p)(1). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805)
(p)(2). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-
98-000676)
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
<PAGE>
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant and
State Street Bank and Trust Company on behalf of Goldman Sachs
Capital Growth Fund.
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State Street
Bank and Trust Company and Bank of America, National Trust and
Savings Association on behalf of Goldman Sachs Institutional
Liquid Assets.
(h)(8). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co.
(h)(9). Transfer Agency Agreement dated April 30, 1997 between Registrant
and Goldman, Sachs & Co. on behalf of the Financial Square
Funds.
(h)(10). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth fund, Inc. and Goldman Sachs & Co.
(h)(11). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998.
(h)(12). FST Administration Class Administration Plan dated April 22,
1998.
(h)(13). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998.
(h)(14). FST Service Class Service Plan dated April 22, 1998.
(h)(15). FST Preferred Class Preferred Administration Plan dated April 22,
1998.
(h)(16). Goldman Sachs Trust Administration Class Administration Plan
dated April 23, 1998.
<PAGE>
(h)(17). Goldman Sachs Trust Service Class Service Plan dated April 22,
1998.
(h)(18). Cash Management Shares Service Plan dated May 1, 1998.
(h)(19). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to Class A Shares of Goldman Sachs Asset Allocation
Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds and Goldman Sachs International Equity
Funds.
(h)(20). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to the Preferred Class, Administration Class, Service
Class and Cash Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs - International Liquid
Asset Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds, Goldman Sachs International Equity Funds
and Goldman Sachs Asset Allocation Portfolios.
(h)(21). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the Administrative Class, Service Class and
Cash Management Class of Goldman Sachs - Institutional Liquid
Assets Portfolios.
(h)(22). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the FST Shares, FST Preferred Shares, FST
Administration Shares and FST Service Shares of Goldman Sachs
Financial Square Funds.
(h)(23). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of ILA Money Market Funds.
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to the
European Equity Fund).
<PAGE>
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to the CORE
Large Cap Value Fund).
(j). Consent of Independent Auditors
(m)(4). Cash Management Shares Plan of Distribution pursuant to Rule 12b-
1 dated May 1, 1998.
(n). Financial Data Schedules.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
ITEM 25. INDEMNIFICATION
---------------
Article IV of the Declaration of Trust of Goldman Sachs Trust, Delaware business
trust, provides for indemnification of the Trustees, officers and agents of the
Trust, subject to certain limitations. The Declaration of Trust is incorporated
by reference to Exhibit (a)(1).
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 willful misfeasance, bad faith or gross negligence on the part 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
Management 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
willful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Management Agreement. The Management
Agreements are incorporated by reference to Exhibits (d)(1) through (d)(6);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997, as amended November 3, 1998 and Section 7 of the Transfer
Agency Agreements between the Registrant and Goldman, Sachs & Co. dated July 15,
1991, May 1, 1988, April 30, 1997 and April 6, 1990 each provide that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of such Agreements are incorporated as Exhibits (e)(1), (h)(3) and included
herewith as Exhibits
<PAGE>
(h)(8), (h)(9) and (h)(10), respectively, to the Registrant's Registration
Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Trust for Credit Unions, The Northern Institutional Funds
(formerly The Benchmark Funds), Goldman Sachs Variable Insurance Trust and The
Commerce Funds insure such persons and their respective trustees, partners,
officers and employees, subject to the policies' coverage limits and exclusions
and varying deductibles, against loss resulting from claims by reason of any
act, error, omission, misstatement, misleading statement, neglect or breach of
duty.
ITEM 26. 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 texts of which are hereby incorporated by
reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
----------------------
(a) Goldman, Sachs & Co. or an affiliate or a division thereof currently serves
as investment adviser and distributor of the units of Trust for Credit Unions,
for shares of Goldman Sachs Trust and for shares of Goldman Sachs Variable
Insurance Trust. Goldman, Sachs & Co., or a division thereof currently serves as
administrator and distributor of the units or shares of Northern Institutional
Funds (formerly 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, who are members
of Goldman, Sachs & Co.'s Executive Committee. None of the members of the
executive committee holds a position or office with the Registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
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
------------------------
<PAGE>
(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 28. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Declaration of Trust, By-laws, minute books of the Registrant and certain
investment adviser records are in the physical 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 Rules 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 29. MANAGEMENT SERVICES
-------------------
Not applicable.
Item 30. UNDERTAKINGS
------------
Not applicable.
<PAGE>
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. 50 to its Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City and State of New York on the 29th day
of December, 1998.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/ Michael Richman
-------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
*Douglas C. Grip President and
--------------- Trustee December 29, 1998
Douglas C. Grip
*John M. Perlowski Principal Accounting
----------------- Officer And Principal
John M. Perlowski Financial Officer December 29, 1998
*David B. Ford Trustee December 29, 1998
-------------
David B. Ford
*Mary Patterson McPherson Trustee December 29, 1998
------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee December 29, 1998
---------------
Ashok N. Bakhru
*Alan A. Shuch Trustee December 29, 1998
-------------
Alan A. Shuch
*Jackson W. Smart Trustee December 29, 1998
----------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee December 29, 1998
---------------
John P. McNulty
*William H. Springer Trustee December 29, 1998
-------------------
William H. Springer
*Richard P. Strubel Trustee December 29, 1998
------------------
Richard P. Strubel
*By: /s/ Michael Richman
-------------------
</TABLE>
<PAGE>
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
<PAGE>
GOLDMAN SACHS TRUST
Certificate of Secretary
The undersigned Secretary of Goldman Sachs Trust hereby certifies that the
following resolution was duly adopted by the Board of Trustees of said Trust on
April 22, 1998 and remains in effect on the date hereof:
FURTHER RESOLVED, that the Trustees and Officers of the Trusts who may
be required to execute any amendments to the Trust's Registration Statement
be, and each hereby is, authorized to execute a power of attorney
appointing James A. Fitzpatrick, Douglas C. Grip, John W. Mosior, Nancy L.
Mucker, John W. Perlowski, Michael J. Richman, Howard B. Surloff and
Valerie A. Zondorak, jointly and severally, their attorneys-in-fact, each
with power of substitution, for said Trustees and Officers in any and all
capacities to sign the Registration Statement under the Securities Act of
1933 and the Investment Company Act of 1940 of the Trusts and any and all
amendments to such Registration Statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of December,
1998.
GOLDMAN SACHS TRUST
/s/ Michael J. Richman
----------------------
Michael J. Richman
Secretary
<PAGE>
EXHIBIT INDEX
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant and
State Street Bank and Trust Company on behalf of Goldman Sachs
Capital Growth Fund.
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State Street
Bank and Trust Company and Bank of America, National Trust and
Savings Association on behalf of Goldman Sachs Institutional
Liquid Assets.
(h)(8). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co.
(h)(9). Transfer Agency Agreement dated April 30, 1997 between Registrant
and Goldman, Sachs & Co. on behalf of the Financial Square Funds.
(h)(10). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth fund, Inc. and Goldman Sachs & Co.
(h)(11). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998.
(h)(12). FST Administration Class Administration Plan dated April 22,
1998.
(h)(13). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998.
(h)(14). FST Service Class Service Plan dated April 22, 1998.
(h)(15). FST Preferred Class Preferred Administration Plan dated April 22,
1998.
(h)(16). Goldman Sachs Trust Administration Class Administration Plan
dated April 23, 1998.
(h)(17). Goldman Sachs Trust Service Class Service Plan dated April 22,
1998.
(h)(18). Cash Management Shares Service Plan dated May 1, 1998.
<PAGE>
(h)(19). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to Class A Shares of Goldman Sachs Asset Allocation
Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds and Goldman Sachs International Equity
Funds.
(h)(20). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to the Preferred Class, Administration Class, Service
Class and Cash Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs - International Liquid
Asset Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds, Goldman Sachs International Equity Funds
and Goldman Sachs Asset Allocation Portfolios.
(h)(21). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the Administrative Class, Service Class and
Cash Management Class of Goldman Sachs - Institutional Liquid
Assets Portfolios.
(h)(22). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the FST Shares, FST Preferred Shares, FST
Administration Shares and FST Service Shares of Goldman Sachs
Financial Square Funds.
(h)(23). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of ILA Money Market Funds.
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to the
European Equity Fund).
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to the CORE
Large Cap Value Fund).
(j). Consent of Independent Auditors
(m)(4). Cash Management Shares Plan of Distribution pursuant to Rule
12b-1 dated May 1, 1998.
(n). Financial Data Schedules.
<PAGE>
Exhibit (a)(8)
AMENDMENT NO. 7
TO THE
DECLARATION OF TRUST
OF
GOLDMAN SACHS TRUST
This AMENDMENT NO. 7 dated the 3rd day of November, 1998 to the
AGREEMENT AND DECLARATION OF TRUST (the "Declaration"), as amended, dated the
28th day of January, 1997 is made by the Trustees name below;
WHEREAS, the Trustees have established a trust for the
investment and reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in
the trust assets into transferable shares of beneficial interest
and divided such shares of beneficial interest into separate Series;
WHEREAS, the Trustees desire to create new Series and
designate new Classes of shares;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust and acting in accordance with Article V, Section 1 of the Declaration,
hereby amend the Declaration as follows:
The Trust shall consist of one or more Series. Without limiting the
authority of the Trustees to establish and designate any further
Series, the Trustees hereby establish the following 47 Series:
Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs Short
Duration Government Fund, Goldman Sachs Short Duration Tax-Free
Fund, Goldman Sachs Core Fixed Income Fund, Goldman Sachs Global
Income Fund, Goldman Sachs Government Income Fund, Goldman Sachs
Municipal Income Fund, Goldman Sachs High Yield Fund, Goldman Sachs
Balanced Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman
Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman
Sachs Mid Cap Equity Fund, Goldman Sachs Small Cap Value Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Asia Growth
Fund, Goldman Sachs Emerging Markets Equity Fund, Goldman Sachs Real
Estate Securities Fund, Goldman Sachs International Small Cap Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs European Equity
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs Growth
Strategy Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Income Strategy Portfolio, Goldman Sachs
Growth and Income Strategy Portfolio, Institutional Liquid Assets--
Prime Obligations Portfolio, Institutional Liquid Assets-Government
Portfolio, Institutional Liquid Assets-Treasury Obligations
Portfolio, Institutional Liquid Assets-Money Market Portfolio,
Institutional Liquid Assets-Federal Portfolio, Institutional Liquid
Assets-Treasury Instruments Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional Liquid
Assets-Tax-Exempt New York Portfolio, Institutional Liquid
Assets-Tax-Exempt California Portfolio, Goldman Sachs-Financial
Square Prime Obligations Fund, Goldman Sachs-Financial Square
Government Fund, Goldman Sachs-Financial Square Treasury Obligations
Fund, Goldman Sachs-Financial Square
<PAGE>
Money Market Fund, Goldman Sachs-Financial Square Premium Money
Market Fund, Goldman Sachs-Financial Square Municipal Money Market
Fund, Goldman Sachs-Financial Square Tax-Free Fund, Goldman Sachs-
Financial Square Federal Fund, and Goldman Sachs-Financial Square
Treasury Instruments Fund (the "Existing Series"). Each additional
Series shall be established and is effective upon the adoption of a
resolution of a majority of the Trustees or any alternative date
specified in such resolution. The Trustees may designate the
relative rights and preferences of the Shares of each Series. The
Trustees may divide the Shares of any Series into Classes. Without
limiting the authority of the Trustees to establish and designate
any further Classes, the Trustees hereby establish the following
classes of shares with respect to the series set forth below:
Class A Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Global Income Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Short Duration Government Fund, Goldman
Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE
U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs
CORE Large Cap Growth Fund, Goldman Sachs Growth and Income
Fund, Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets
Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs Real
Estate Securities Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs
European Equity Fund, Goldman Sachs CORE Large Cap Value Fund,
Goldman Sachs Growth Strategy Portfolio, Goldman Sachs
Aggressive Growth Strategy Portfolio, Goldman Sachs Income
Strategy Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio.
Class B Shares: Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman
Sachs CORE Large Cap Growth Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs Small Cap Value Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund, Goldman
Sachs International Small Cap Fund, Goldman Sachs Japanese
Equity Fund, Goldman Sachs CORE Large Cap Value Fund,
Institutional Liquid Assets Prime Obligations Portfolio,
Goldman Sachs Real Estate Securities Fund, Goldman Sachs
European Equity Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and
Income Strategy Portfolio.
Class C Shares: Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman
Sachs CORE Large Cap Growth Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs Small Cap Value Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund, Goldman
Sachs International Small Cap Fund, Goldman Sachs Japanese
Equity Fund, Institutional Liquid Assets Prime Obligations
Portfolio, Goldman Sachs Real Estate Securities Fund, Goldman
Sachs European Equity
<PAGE>
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman
Sachs Growth Strategy Portfolio, Goldman Sachs Aggressive
Growth Strategy Portfolio, Goldman Sachs Income Strategy
Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio.
Institutional Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Global Income Fund,
Goldman Sachs High Yield Fund, Goldman Sachs Balanced
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Mid-Cap Equity
Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia
Growth Fund, Goldman Sachs International Small Cap Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs Real
Estate Securities Fund, Goldman Sachs European Equity
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman
Sachs-Financial Square Prime Obligations Fund, Goldman
Sachs-Financial Square Government Fund, Goldman Sachs-
Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman Sachs-
Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Fund, Goldman
Sachs-Financial Square Federal Fund, Goldman Sachs-
Financial Square Treasury Instruments Fund, Institutional
Liquid Assets-Prime Obligations Portfolio, Institutional
Liquid Assets-Government Portfolio, Institutional Liquid
Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional
Liquid Assets-Federal Portfolio, Institutional Liquid
Assets-Treasury Instruments Portfolio, Institutional
Liquid Assets-Tax-Exempt Diversified Portfolio,
Institutional Liquid Assets-Tax-Exempt New York
Portfolio, Institutional Liquid Assets-Tax-Exempt
California Portfolio, Goldman Sachs Growth Strategy
Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Income Strategy Portfolio,
Goldman Sachs Growth and Income Strategy Portfolio.
Service Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs Global Income Fund,
Goldman Sachs High Yield Fund, Goldman Sachs Balanced
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Capital Growth Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Mid-Cap Equity
Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia
Growth Fund, Goldman Sachs International Small Cap Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs Real
Estate Securities Fund, Goldman Sachs European Equity
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman
Sachs-Financial Square Prime Obligations Fund, Goldman
Sachs-Financial Square Government Fund, Goldman Sachs-
Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman Sachs-
Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Fund, Goldman
Sachs-Financial Square Federal Fund, Goldman Sachs-
Financial Square Treasury Instruments Fund, Institutional
Liquid Assets-Prime Obligations Portfolio, Institutional
Liquid Assets-Government Portfolio, Institutional Liquid
Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional
Liquid Assets-Federal Portfolio, Institutional Liquid
Assets-Treasury Instruments Portfolio, Institutional
Liquid Assets-Tax-Exempt Diversified Portfolio,
Institutional Liquid Assets-Tax Exempt New York
Portfolio, Institutional Liquid Assets-
<PAGE>
Tax-Exempt New York Portfolio, Institutional Liquid
Assets-Tax-Exempt California Portfolio, Goldman Sachs
Growth Strategy Portfolio, Goldman Sachs Aggressive
Growth Strategy Portfolio, Goldman Sachs Income Strategy
Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio.
Administration Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Core Fixed Income
Fund, Goldman Sachs-Financial Square Prime Obligations
Fund, Goldman Sachs-Financial Square Government Fund,
Goldman Sachs-Financial Square Treasury Obligations Fund,
Goldman Sachs-Financial Square Money Market Fund, Goldman
Sachs-Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Fund, Goldman
Sachs-Financial Square Federal Fund, Goldman Sachs-
Financial Square Treasury Instruments Fund, Institutional
Liquid Assets-Prime Obligations Portfolio, Institutional
Liquid Assets-Government Portfolio, Institutional Liquid
Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional
Liquid Assets-Federal Portfolio, Institutional Liquid
Assets-Treasury Instruments Portfolio, Institutional
Liquid Assets-Tax-Exempt Diversified Portfolio,
Institutional Liquid Assets-Tax- Exempt New York
Portfolio and Institutional Liquid Assets-Tax-Exempt
California Portfolio.
Preferred
Administration Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman Sachs-
Financial Square Premium Money Market Fund, Goldman
Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Fund, Goldman
Sachs-Financial Square Federal Fund and Goldman Sachs-
Financial Square Treasury Instruments Fund.
Cash Management
Shares: Institutional Liquid Assets-Prime Obligations Portfolio,
Institutional Liquid Assets-Money Market Portfolio,
Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified
Portfolio, Institutional Liquid Assets-Tax-Exempt
California Portfolio, Institutional Liquid Assets-Tax-
Exempt New York Portfolio.
All capitalized terms which are not defined herein shall have the
same meanings as are assigned to those terms in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the date first written above.
-------------------------------
Ashok N. Bakhru,
as Trustee and not individually
-------------------------------
David B. Ford,
as Trustee and not individually
<PAGE>
-------------------------------
Douglas Grip,
as Trustee and not individually
-------------------------------
John P. McNulty,
as Trustee and not individually,
-------------------------------
Mary P. McPherson
as Trustee and not individually,
-------------------------------
Alan A. Shuch
as Trustee and not individually,
-------------------------------
Jackson W. Smart,
as Trustee and not individually,
-------------------------------
William H. Springer
as Trustee and not individually,
-------------------------------
Richard P. Strubel
as Trustee and not individually,
<PAGE>
Exhibit (g)(17)
CUSTODIAN CONTRACT
Between
GS CAPITAL GROWTH FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT...................................................1
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES.2
2.1 Holding Securities.............................................................................2
2.2 Delivery of Securities.........................................................................3
2.3 Registration of Securities.....................................................................6
2.4 Bank Accounts..................................................................................7
2.5 Availability of Federal Funds..................................................................8
2.6 Collection of Income...........................................................................8
2.7 Payment of Fund Monies.........................................................................9
2.8 Liability for Payment in Advance of Receipt of Securities Purchased...........................11
2.9 Appointment of Agents.........................................................................11
2.10 Deposit of Fund Assets in Securities Systems..................................................11
2.10A Fund Assets Held in the Custodian's Direct Paper System.......................................14
2.11 Segregated Account............................................................................15
2.12 Ownership Certificates for Tax Purposes.......................................................16
2.13 Proxies.......................................................................................16
2.14 Communications Relating to Portfolio Securities...............................................17
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE OF THE UNITED STATES.........17
3.1 Appointment of Foreign Sub-Custodians.........................................................17
3.2 Assets to be Held.............................................................................18
3.3 Foreign Securities Depositories...............................................................18
3.4 Segregation of Securities.....................................................................18
3.5 Agreements with Foreign Banking Institutions..................................................19
3.6 Access of Independent Accountants of the Fund.................................................19
3.7 Reports by Custodian..........................................................................19
3.8 Transactions in Foreign Custody Account.......................................................20
3.9 Liability of Foreign Sub-Custodians...........................................................20
3.10 Liability of Custodian........................................................................21
3.11 Reimbursement for Advances....................................................................22
3.12 Monitoring Responsibilities...................................................................22
3.13 Branches of U.S. Banks........................................................................23
4. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES OF THE FUND.................................23
5. PROPER INSTRUCTIONS....................................................................................24
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY............................................................25
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C> <C>
7. EVIDENCE OF AUTHORITY..................................................................................26
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET
INCOME.................................................................................................26
9. RECORDS................................................................................................27
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT...............................................................27
11. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS......................................................27
12. COMPENSATION OF CUSTODIAN..............................................................................28
13. RESPONSIBILITY OF CUSTODIAN............................................................................28
14. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT............................................................30
15. SUCCESSOR CUSTODIAN....................................................................................32
16. INTERPRETIVE AND ADDITIONAL PROVISIONS.................................................................34
17. ADDITIONAL FUNDS.......................................................................................34
18. MASSACHUSETTS LAW TO APPLY.............................................................................34
19. PRIOR CONTRACTS........................................................................................34
</TABLE>
-ii-
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between GS Capital Growth Fund, Inc., a corporation
organized and-existing under the laws of Maryland, having its principal place of
business at 4900 Sears Tower, Chicago, Illinois 60606-6303 hereinafter called
the "Fund," and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian,"
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the
Capital Growth Portfolio (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFOR, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Articles of
Incorporation. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital
<PAGE>
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of capital stock of the Fund representing interests
in the Portfolios, ("Shares") as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Directors of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
- ------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate for
------------------
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury,
collectively referred to herein as "Securities System" and (b) commercial
paper of an
-2-
<PAGE>
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
----------------------
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section
-3-
<PAGE>
2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
-4-
<PAGE>
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral
----
as agreed upon from time to time by the Custodian and the Fund
on behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States Government, its
agencies or instrumentalities, except that in connection with
any loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by
the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only against
--------
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures
-5-
<PAGE>
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of
the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently
effective prospectus and statement of additional information of
the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only upon receipt
--- ----
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Directors or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee
-6-
<PAGE>
of the Fund on behalf of the Portfolio or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Portfolio,
unless the Fund has authorized in writing the appointment of a nominee
------
to be used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or nominee
name of any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Portfolio under
the terms of this Contract shall be in "street name" or other good
delivery form. If, however, the Fund directs the Custodian to maintain
securities in "street name," the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
--------
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust
-7-
<PAGE>
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Directors of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that Capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
-----------------------------
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as
-8-
<PAGE>
may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Portfolio is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
----------------------
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or
in proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in the case of
a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.10A; (d) in the case
of repurchase agreements entered into between the Fund on
behalf of the Portfolio and the Custodian, or another bank, or
a broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry
-9-
<PAGE>
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Portfolio or
(e) for transfer to a time deposit account of the Fund in any
bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions from
the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
-10-
<PAGE>
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
--------
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
--------------------------------------------
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities
-11-
<PAGE>
and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934, which acts as a securities depository, or in the book-
entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the
-12-
<PAGE>
Portfolio. The Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices
from the Securities System of transfers of securities for the
account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights
as it may have against the Securities System; at the election
of the Fund, it shall be
-13-
<PAGE>
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the S6curities System or any other
person which the Custodian may have as a consequence of any such
loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System
-------------------------------------------------------
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of
-14-
<PAGE>
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on behalf
of each such Portfolio, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by
the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding
-15-
<PAGE>
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Portfolio or
commodity futures contracts or options thereon purchased or sold by the
Portfolio, (iii) for the purposes of compliance by the Portfolio with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
-16-
<PAGE>
2.14 Communications Relating to Portfolio Securities. Subject to the provisions
-----------------------------------------------
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations, of rights
in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers
of the securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
-------------------------------------------------------------------------
of the United States
- --------------------
3.1 Appointment of Foreign Sub-Custodians
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as sub-
custodians for the Portfolio's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign sub-
custodians"). Upon receipt of "Proper Instructions," as defined in Section
5 of this Contract, together with a certified resolution of the Fund's
Board of Directors, the Custodian and the Fund may agree to amend Schedule
A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act
-17-
<PAGE>
as sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
-------------------------------
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
-------------------------
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution
shall require that such institution establish a custody account for the
Custodian on behalf of the Fund for each applicable Portfolio of the Fund
and physically segregate in each account, securities and other assets of
the Portfolios, and, in the event that such institution deposits the
securities of one or more of the Portfolios in a foreign securities
depository, that it shall identify on its books as belonging to the
Custodian, as agent for each applicable Portfolio, the securities so
deposited.
-18-
<PAGE>
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution or
its creditors or agent, except a claim of payment for their safe custody
or administration; (b) beneficial ownership for the assets of each
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted under
applicable law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian; and (e)
assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
---------------------------------------------
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of such
foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or
-19-
<PAGE>
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities acquired
for a Portfolio, the identity of the entity having physical possession of
such securities.
3.8 Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 3.8,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside
----------------
the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of
each applicable Portfolio and delivery of securities maintained for
the account of each applicable Portfolio may be effected in
accordance with the customary established securities trading or
securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of
record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
-----------------------------------
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the
-20-
<PAGE>
institution to exercise reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Custodian and each Fund from and
against any loss, damage, cost, expense, liability or claim arising out of
or in connection with the institution's performance of such obligations.
At the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear
-21-
<PAGE>
incident or other losses under circumstances where the Custodian and State
Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
--------------------------
cash or securities for any purpose for the benefit of a Portfolio
including the purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
---------------------------
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition or custodial
capabilities of a foreign sub-custodian or any material loss of the assets
of the Fund or in the case of any foreign sub-custodian not the subject of
an exemptive order from the Securities and Exchange Commission is notified
by such foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200 million
(U.S. dollars or the
-22-
<PAGE>
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this Contract, the provisions of
this Article 3 shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall
be maintained in an interest bearing account established for the Fund
with the Custodian's London branch, which account shall be subject to
the direction of the Custodian, State Street London Ltd. or both.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
-23-
<PAGE>
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing signed
or initialled by one or more person or persons as the Board of Directors shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected directly
between electromechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian
-24-
<PAGE>
pursuant to any three party agreement which requires a segregated asset account
in accordance with Section 2.11.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as otherwise
directed by the Board of Directors of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Directors pursuant to the Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
-25-
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and Calculation of
---------------------------------------------------------------------------
Net Asset Value and Net Income
- ------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 3la-1 and
3la-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall,
-26-
<PAGE>
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
-27-
<PAGE>
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence or misconduct; provided,
however, that the Custodian uses reasonable care to provide prompt notice to the
Fund of (i) the circumstances and all pertinent facts of which the Custodian has
knowledge giving rise to the claim for indemnification or the reasonable
likelihood that such a claim may be made, and (ii) the Custodian's claim for
such indemnification. The Fund, using counsel of its choice, shall have the
option to defend the Custodian against any claim which may be the subject of
this indemnification and upon the exercise of such option the Custodian shall
not be entitled to indemnification for further legal or other expenses in
connection therewith. The Custodian shall in no case confess any claim or make
any compromise or settlement in any case in which the Fund shall be asked to
indemnify the Custodian, except with the prior written consent of the Fund. The
Custodian shall be entitled to rely on and may act up6n advice of counsel (who
may be counsel for the Fund) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Notwithstanding
the foregoing, the responsibility of the Custodian with respect to redemptions
effected by check shall be in accordance with a separate Agreement entered into
between the Custodian and the Fund.
-28-
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign
institution appointed pursuant to the provisions of Article 3 to the same extent
as set forth in Article 1 hereof with respect to sub-custodians located in the
United States (except as specifically provided in Article 3.10) and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian to advance cash or securities for any
purpose for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian
-29-
<PAGE>
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Portfolio-act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System by such Portfolio and the receipt
of an annual certificate of the Secretary or an Assistant Secretary that the
Board of Directors has reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the Investment Company Act
of 1940, as amended and that the Custodian shall not with respect to a Portfolio
act under Section 2.10A hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Directors has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
----------------
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Articles of Incorporation,
and further provided, that the Fund on behalf of one or more of the Portfolios
may at any time by action of its Board of Directors (i) substitute another bank
or trust company for the Custodian by
-30-
<PAGE>
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than
-31-
<PAGE>
$25,000,000, all securities, funds and other properties held by the Custodian on
behalf of each applicable Portfolio and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract on behalf
of each applicable Portfolio and to transfer to an account of such successor
custodian all of the securities of each such Portfolio held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
-32-
<PAGE>
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
--------
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Capital Growth Portfolio with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
-33-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 6th day of April, 1990.
ATTEST GS CAPITAL GROWTH FUND, INC.
/s/ Michelle Lenzmeier By: /s/ Stephen Brent Wells
- ---------------------------------- ----------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ [Signature Illegible] By: /s/ [Signature Illegible]
- ---------------------------------- ----------------------------
Assistant Secretary Vice President
-34-
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of GS Capital Growth
Fund, Inc. for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
/s/ Stephen Brent Wells
- --------------------------
Fund's Authorized Officer
Date: 4/6/90
------------
<PAGE>
SUBCUSTODIAN AGREEMENT Exhibit (g)(18)
AGREEMENT dated as of March 29th, 1983, between State Street Bank and
Trust Company organized under the laws of the Commonwealth of Massachusetts (the
"Custodian"), and Bank of America, National Trust and Savings Association (the
"Subcustodian").
WITNESSETH:
WHEREAS, the Custodian has entered into a custodian agreement with
Institutional Liquid Assets (the "Fund") dated December 27, 1978;
WHEREAS, the Fund is a Series Company with multiple portfolios (each
such portfolio being referred to herein as a "Portfolio" and all such Portfolios
being collectively referred to herein as the "Portfolios") and pursuant to
Section 18(f) (2) of the Investment Company Act of 1940 each series of the
Fund's Units, representing the interests in a Portfolio is preferred over all
other series in respect of the assets specifically allocated to such Portfolio;
WHEREAS, the Custodian desires to utilize Subcustodian for the purpose
of holding cash and securities of the Fund;
WHEREAS, the Subcustodian is a bank within the meaning of Section 2(a)
(5) of the Investment Company Act of 1940 having an aggregate capital surplus
and undivided profits of not less than two million dollars ($2,000,000);
NOW THEREFORE, the Custodian and Subcustodian hereby agree as follows:
I. The Custodian may from time to time deposit securities or cash with the
Subcustodian. The Subcustodian shall not be responsible for any
property of the Fund not delivered to the Subcustodian.
<PAGE>
II. The Subcustodian shall hold and dispose of the securities hereafter
held by or deposited with the Subcustodian as follows:
A. 1) The Subcustodian shall hold in a separate account, and
physically segregated at all times from those of any other persons,
firms, corporations, or other Portfolios, pursuant to the provisions
hereof, all securities received by it for the account of the Custodian
as custodian with respect to such Portfolio. If any securities of a
Portfolio are registered in nominee name, such nominee name shall be
used solely for such Portfolio. All such securities are to be held or
disposed of by the Subcustodian for, and subject at all times to, the
instructions of the Custodian pursuant to the terms of this Agreement.
2) Notwithstanding any other provisions of this Agreement, it
is expressly understood and agreed that the Subcustodian is authorized
in the performance of its duties hereunder to deposit all or any part
of the securities owned by the Fund in the book-entry system of the
Federal Reserve Banks (hereinafter called the "System") and to use the
facilities of such system, all as provided under the provisions of Rule
17f-4 under the Investment Company Act of 1940 as from time to time
amended.
In connection with the use of the System Subcustodian will be
liable to Custodian for any losses and damages relating to the failure
to effectively enforce such rights as may exist against the System.
B. Upon receipt of instructions from the Custodian, the Subcustodian
shall release or deliver securities owned by a Portfolio only for the
following purposes:
(1) upon sale of securities for the account of such
Portfolio against receipt of payment therefor in Federal funds or, in
extraordinary circumstances, in clearing house funds;
-2-
<PAGE>
(2) to the issuer thereof or its agent when securities are
called, redeemed, retired or otherwise become payable, provided that
--------
payment as aforesaid is to be delivered to the Subcustodian;
(3) for exchange for a different number of bonds or
certificates representing the same aggregate face amount or number of
units, for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new securities and
--------
cash, if any, are to be delivered to the Subcustodian;
(4) in the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants, rights or
similar securities; provided that the surrender of interim receipts or
--------
temporary securities for definitive securities may be made at any time;
provided that, in any such case, the new securities are to be delivered
--------
to the Subcustodian;
(5) in the case of tender offers or similar offers to
purchase received in writing, the delivery of securities to the
designated depository or other receipt agent. The Subcustodian shall
have full responsibility for transmitting to the Custodian any such
offers received by it. Thereafter, the Custodian, if it desires to
respond to such offer, shall have full responsibility for providing the
Subcustodian with all necessary instructions in timely enough fashion
for the Subcustodian to act thereon prior to any expiration time for
such offer;
(6) upon receipt from the Custodian of instructions
directing disposition of securities in a manner other than or for
purposes other than the manners and purposes
-3-
<PAGE>
enumerated in the foregoing five items; provided, however, the
-------- -------
disposition pursuant to this item (6) shall be made by the Subcustodian
only upon receipt of instructions from the Custodian specifying the
amount of such securities to be delivered, the purpose for which the
delivery is to be made, and the name of the person or persons to whom
such delivery is to be made.
III. The Subcustodian shall hold and dispose of cash held by or deposited
with the Subcustodian as follows:
A. The Subcustodian shall open and maintain a separate account or
accounts for each Portfolio in the name of the Custodian as custodian
with respect to such Portfolios, subject only to draft or order by the
Subcustodian acting pursuant to the terms of this Agreement. The
Subcustodian shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it for the account of the
Custodian as custodian for such Portfolio.
B. Upon receipt of instructions from the Custodian, the Subcustodian
shall make payments of cash for the account of a Portfolio from such
cash only for the following purposes:
(1) upon the purchase of securities for the account of such
Portfolio but only against the delivery of such securities to the
Subcustodian. In the case of repurchase agreements entered into between
such Portfolio and the Subcustodian, Paragraph 3 of Exhibit B attached
hereto will apply and by its execution of this Agreement the
Subcustodian is deemed to have delivered the written undertaking
referred to in clause (a) thereof, and agrees to comply with clauses
(a) (i) through (iii) and (b);
-4-
<PAGE>
(2) in connection with the subscription, conversion,
exchange, tender or surrender of securities owned by such Portfolio as
set forth in Paragraph II.B hereof; and
(3) for deposit with the Custodian or with such other
banking institutions as may from time to time be approved by the Fund.
All deposits will be effected by the transfer of Federal Reserve funds
to the Custodian or such other banks.
IV. All instructions shall be in writing executed by the Custodian, and the
Subcustodian shall not be required to act on instructions otherwise
communicated; provided, however, that the Subcustodian may in its discretion act
-------- -------
on the basis of instructions received from the Custodian via telecommunications
facilities. The Subcustodian may require that instructions received via
telecommunications facilities be authenticated. The Subcustodian may receive and
accept a certificate signed by the Assistant Secretary of the Custodian as
conclusive evidence of the authority of any person to act on behalf of the
Custodian, and such certificate may be considered as in full force and effect
until receipt by the Subcustodian of written notice to the contrary. V. Unless
and until the Subcustodian receives instructions from the Custodian to the
contrary, the Subcustodian shall:
A. Present for payment all coupons and other income items held by it
for the account of the Custodian as custodian for the Fund which call for
payment upon presentation and hold the cash received by it upon such payment for
the account of the Custodian as custodian for the Fund;
B. Collect interest and cash dividends received, with notice to the
Custodian, for the account of the Custodian as custodian for the Fund;
-5-
<PAGE>
C. Hold for the account of the Custodian as custodian for the Fund
hereunder all stock dividends, rights and similar securities issued
with respect to any securities held by it hereunder.
VI. The Subcustodian shall execute on behalf of the Custodian, in the
Fund's name, any declarations, affidavits, or certificates of ownership which
may be necessary or useful from time to time for the Subcustodian to perform any
or several of its obligations arising under the provisions of this Agreement.
VII. If the Subcustodian shall receive any notices or reports in respect of
securities held by it hereunder, it shall promptly upon receipt thereof transmit
to the Custodian by airmail, telecommunications facilities, or comparable means
any such notices or reports.
VIII. The Subcustodian may, from time to time, appoint (and may at any time
remove) any bank or trust company within the meaning of the Investment Company
Act of 1940, as its agent for purposes of acquiring or disposing of securities
or carrying out such provisions of this Agreement as the Subcustodian may, from
time to time, direct; provided that the Subcustodian shall be fully liable to
--------
the Custodian for the acts or omissions of such agents to the same extent as if
the acts or omissions of the agents were the acts or omissions of the
Subcustodian.
IX. On each day on which there is a cash or securities transaction for the
account of the Custodian as custodian for the Fund, the Subcustodian shall
dispatch to the Custodian (and to the Fund if requested) separate cash and
securities advices (each designating the affected Portfolio). The Subcustodian
shall furnish to the Custodian at the end of every month a statement of the cash
and securities held by the Subcustodian and any agent for the Custodian as
custodian for the Fund. Such statements shall be broken down by Portfolio and
shall be sent by airmail, telecommunications facilities or comparable means to
the Custodian within 15 days after the end
-6-
<PAGE>
of each month. The Subcustodian shall furnish the Custodian with such additional
statements as the Custodian may reasonably request.
X. As compensation for the services rendered pursuant to this Agreement,
the Custodian shall pay the Subcustodian a fee computed in accordance with the
schedule attached hereto as Exhibit A, as such schedule may be amended from time
to time by written agreement between the Custodian and the Subcustodian. The
Custodian shall reimburse the Subcustodian for any reasonable out-of-pocket
expenses incurred by the Subcustodian in connection with its obligations
hereunder.
XI. Upon request, the Custodian shall deliver, or shall request the Fund to
deliver, to the Subcustodian, such proxies, powers-of-attorney or other
instruments as may be necessary or desirable in connection with the performance
by the Subcustodian of its obligations under this Agreement.
XII. So long as and to the extent that it is in the exercise of reasonable
care, the Subcustodian (a) shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement, and (b) shall be protected in acting
upon any notice, instruction, request, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper party or
parties. The Subcustodian shall be entitled to and may act upon advice of
counsel (who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice
provided that such action taken or omitted is not in violation of Federal or
State laws or regulations and is taken or omitted in good faith and without
negligence. The Subcustodian shall be liable for all acts or omissions not in
good faith or with negligence or
-7-
<PAGE>
misconduct on its part, the standard for which shall be that applicable to a
bailee for hire under Massachusetts law.
XIII. This Agreement may be terminated at any time by the Custodian or the
Subcustodian by giving written notice to the other party at least thirty (30)
days prior to the date on which such termination is to become effective. In the
event of termination, the Subcustodian will deliver any securities held by it or
any agent to the Custodian or to such successor subcustodian as the Custodian
shall instruct in a manner to be mutually agreed upon by the parties hereto or,
in the absence of such agreement, in a reasonable manner. Further in the event
of termination, the Subcustodian shall be entitled to receive prior to the
delivery of the securities held by it or any agent all accrued fees and
unreimbursed expenses the payment of which is contemplated by Paragraph X hereof
upon receipt by the Custodian of a final statement setting forth such fees and
expenses.
XIV. Except as the parties shall from time to time otherwise agree, all
instructions, notices, reports and other communications contemplated by this
Agreement shall be dispatched as follows:
If to the Custodian: State Street Bank and Trust Company
Custody & Shareholder Services
P.O. Box 1713
Boston, MA 02105
Attention: Kenneth Bergeron
Telex Number: 940956 St St BK2QNCY
If to the Subcustodian: Bank of America National Trust & Savings
Assoc.
Securities Service Department # 3298
555 California Street
Concourse Level
San Francisco, CA 94104
Attention: Clearance Department/
Ray Mathis
Rapifax Number: 415-622-2617
-8-
<PAGE>
XV. This Agreement constitutes the entire understanding and agreement of
the parties hereto, and neither this Agreement nor any provisions hereof may be
changed, waived, discharged or terminated except by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
XVI. This Agreement shall be binding upon and shall inure to the benefit of
the Custodian and the Subcustodian and their successors and assignees provided
--------
that neither the Custodian nor the Subcustodian may assign this Agreement or any
of the rights or obligations hereunder without the prior written consent of the
other party.
XVII. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Massachusetts.
XVIII. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument. This Agreement shall become effective when one or more
counterparts have been signed and delivered by each of the parties.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
STATE STREET BANK AND TRUST COMPANY
(the "Custodian")
/s/ [Signature Illegible]
-------------------------------------
Vice President
BANK OF AMERICA, NATIONAL TRUST
AND SAVINGS ASSOCIATION
(the "Subcustodian")
/s/ [Signature Illegible]
-------------------------------------
Asst. Vice President
-10-
<PAGE>
EXHIBIT A
---------
To the Subcustodian Agreement between
State Street Bank and Trust Company
and
Bank of America, National Trust and Savings Association
Re: Institutional Liquid Assets
---------------------------
The fee pursuant to Section X shall be $ 10.00 Book entry
-----
$ 20.00 Physical
for each transfer of a security into or out of the Subcustodian Account.
Dated: March 29, 1983
--------------
-11-
<PAGE>
Exhibit (h)(8)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the 1st day of May, 1988 by and between
Institutional Liquid Assets (the "Fund"), a Massachusetts business trust, and
Goldman, Sachs and Co. ("Goldman Sachs"), a New York limited partnership.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Fund is empowered to issue units of beneficial interest
("Units") in separate series ("Series") with each such Series representing the
interests in a separate portfolio of securities and other assets;
WHEREAS, the Fund desires to appoint Goldman Sachs as Transfer Agent and
Dividend Disbursing Agent and to perform the other services contemplated hereby
with respect to the Fund and each Series of Units thereof and Goldman Sachs
desires to accept such appointment; and
WHEREAS, this Agreement shall be regarded as superseding the Agency
Agreement, dated December 27, 1978, as amended, between the Fund and DST
Systems, Inc. ("DST") relating to the Fund's Prime Obligations, Government and
Treasury Obligations Portfolios and the Transfer Agency Agreement, dated
November 11, 1987, between the Fund and Goldman Sachs relating to the Fund's
Money Market Portfolio.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment
-----------
1.01 Subject to the terms set forth in this Agreement, the Fund
hereby appoints Goldman Sachs as Transfer Agent and dividend
Disbursing Agent and to perform the other services contemplated
hereby with respect to the Fund and each Series of Units
thereof.
1.02 Goldman Sachs hereby accepts such appointment and agrees that
it will act as Transfer Agent and Dividend Disbursing Agent and
perform the other services described herein with respect to the
Fund and each Series of Units thereof.
1
<PAGE>
1.03 Goldman Sachs agrees to provide in Chicago, Illinois the
necessary facilities, equipment and executive, administrative
and clerical personnel to perform its duties and obligations
hereunder in accordance with the terms hereof.
2. Transfer Agent
--------------
2.01 Goldman Sachs shall, subject to any Instructions (as defined in
Section 5 hereof), record the issuance, transfer and redemptions of
Units in accordance with the following provisions of this Section 2.
2.02 After being notified by the Fund's custodian (the "Custodian")
or, if applicable, the Custodian's sub-custodian (the "Sub-Custodian")
that the purchase price in respect of orders to purchase Units has been
received in the form of federal funds, Goldman Sachs shall compute in
accordance with the Fund's Prospectus (the term "Prospectus," as used
herein, shall be deemed to mean the Fund's then current Prospectus, all
supplements thereto, the Fund's then current Statement of Additional
Information and all supplements thereto unless the context otherwise
requires) the number of Units to be purchased at the net asset value of
such Units applicable to such order and shall:
(i) credit the account of the purchaser with the number of Units so
purchased as of the time contemplated by the Fund's Prospectus
and
(ii) subject to paragraph 2.05, mail to the purchaser a confirmation
of such purchase and notice of such credit.
2.03 Upon receipt of requests for transfer in proper form, Goldman
Sachs shall transfer on the records of the Fund maintained by its Units
and shall credit a like amount of Units to the transferee.
2.04 Goldman Sachs shall make an adequate and accurate record of the
date and time of receipt of all requests for redemption of Units
transmitted or delivered to it, and shall process such requests in
accordance with the following provisions. If such redemption requests
comply with the standards for redemption approved by the Fund (as
evidenced by the Fund's Prospectus or by Instructions), Goldman Sachs
shall compute in accordance with the Fund's Prospectus the amount of
redemption proceeds payable to each Unitholder requesting redemption. If
any such request for redemption does not comply with the standards for
redemption approved by the Fund, Goldman Sachs shall take such actions
as it reasonably
2
<PAGE>
deems appropriate under the circumstances and shall effect such redemption at
the price applicable to the date and time of receipt of a redemption request
(including any necessary documents) complying with such standards. At such times
as may be agreed upon by Goldman Sachs and the Custodian so as to provide for
the timely payment of redemptions in accordance with the Fund's Prospectus,
Goldman Sachs shall advise the Custodian of aggregate redemption requests for
which the Custodian is authorized to effect payment and shall advise the
Custodian of the amount required to pay any portion of such redemptions which is
payable by wire and the amount required to pay any portion of such redemptions
which is payable by check. Goldman Sachs shall, as applicable, instruct the
Custodian to wire transfer such redemptions to the Sub-Custodian or to the
Fund's checking account established and maintained at the Northern Trust Company
("Northern") in accordance with Section 17(f) of the 1940 Act. At such times as
may be agreed upon by Goldman Sachs and the Sub-Custodian so as to provide for
the timely payment of redemptions in accordance with the provisions of the
Fund's Prospectus, Goldman Sachs shall give wiring instructions to the Sub-
Custodian so as to effect payment for redemptions to Unitholders who requested
such payment by wire. In accordance with the provisions of the resolutions of
the Fund's Trustees and the Fund's Prospectus and with the terms of this
Agreement, Goldman Sachs shall prepare and mail checks for redemptions to
Unitholders who requested that redemption proceeds be remitted by check. Upon
inquiry from the Custodian, Goldman Sachs shall promptly advise as to whether
there are a sufficient number of Units in the Unitholder's account to cover a
redemption check, taking into account any limits on the availability of some or
all of such Units to cover such check due to the fact that such Units were
purchased other than by federal funds wire within 15 calendar days immediately
prior to the presentment of such redemption check. Goldman Sachs shall mail to
the redeeming Unitholder a confirmation of the redemption.
2.05 In lieu of mailing the confirmation notice to purchasers as provided in
paragraph 2.02 and the confirmation to redeeming Unitholders as provided in
paragraph 2.04, Goldman Sachs may instead, if the Fund's Prospectus so provides,
provide a monthly statement to Unitholders, provided such statement complies
with the requirements of paragraph (c) of Rule 10b-10 under the Securities
Exchange Act of 1934 (the "1934 Act").
3
<PAGE>
3. Dividends and Distributions
---------------------------
3.01 With respect to those Unitholders which have elected
reinvestment of dividends and distributions in additional Units, Goldman
Sachs shall credit the account of such Unitholders with the requisite
number of additional Units relative to each such dividend or
distribution. With respect to those Unitholders which have elected to
receive such dividends and distributions in cash, at such times as may
be agreed upon by Goldman Sachs and the Custodian so as to provide for
the timely payment of dividends or distributions to Unitholders in
accordance with the provisions of the Fund's Prospectus, Goldman Sachs
shall advise the Custodian orally and confirm to it in writing of the
aggregate amount of dividends or distributions payable to Unitholders
and shall advise the Custodian orally and confirm to it in writing of
the amount required to pay any portion of any such dividend or
distribution which is payable by wire and the amount required to pay any
portion of any such dividend or distribution which is payable by check.
Goldman Sachs shall, as applicable, instruct the Custodian to wire
transfer dividends or distributions to the Sub-Custodian or to the
Fund's checking account established and maintained at Northern in
accordance with Section 17(f) of the 1940 Act. At such times as may be
agreed upon by Goldman Sachs and the Sub-Custodian so as to provide for
the timely payment of dividends and distributions in accordance with the
provisions of the Fund's prospectus, Goldman Sachs shall give wiring
instructions to the Sub-Custodian so as to effect payment for dividends
and distributions to Unitholders who requested such payment by wire. In
accordance with the provisions of the resolutions of the Fund's Trustees
and the Fund's Prospectus and with the terms of this Agreement, Goldman
Sachs shall prepare and mail checks for dividends or distributions to
Unitholders who requested payment thereof by check.
4. Additional Duties
-----------------
4.01 Goldman Sachs shall establish and maintain separate accounts
with respect to each Unitholder. Goldman Sachs shall perform the
"master" and "subaccounting" services as described in the Fund's
Prospectus, provided that the Fund shall not change the description of
such services in the Prospectus without obtaining the advance consent of
Goldman Sachs. Goldman Sachs shall maintain records showing for each
Unitholder's account the following: (a) name, address, tax identifying
number and number of Units held; (b) historical information
4
<PAGE>
regarding the account, including dividends and distributions paid and date and
price for all transactions; (c) any stop or restraining order placed against the
account; (d) information with respect to withholdings; (e) any dividend or
distribution reinvestment order, dividend or distribution address and
correspondence relating to the current maintenance of the account; and (f) any
information required in order for Goldman Sachs to perform the calculations and
make the determinations contemplated or required by this Agreement. Goldman
Sachs shall maintain all records relating to its activities and obligations
under this Agreement in such manner as will enable the Fund and Goldman Sachs to
meet their respective obligations under: (g) the Fund's Prospectus, (h) the
required recording keeping and reporting provisions of the 1934 Act,
particularly Section 17A thereof, and of the 1940 Act, particularly Sections 30
and 31 thereof, and state securities or Blue Sky laws, and the rules and
regulations thereunder; and (i) applicable federal and state tax laws. Goldman
Sachs shall accept and maintain in accordance with the provisions of the
preceding two sentences all records delivered to it by the Fund or DST in
connection with the termination of DST's services as Transfer Agent to the Fund;
provided, however, that Goldman Sachs shall not be responsible for the accuracy
- -------- -------
or completeness of the records so delivered to it. All records maintained by
Goldman Sachs in connection with the performance of its duties under this
Agreement will remain the property of the Fund, shall returned to the Fund
promptly upon request and, in the event of termination of this Agreement, will
be promptly returned to or delivered as directed by the Fund. Such records may
be inspected by the Fund at reasonable times. In the event such records are
returned to or delivered as directed by the Fund, Goldman Sachs may at its
option retain copies of such records.
4.02 Goldman Sachs shall furnish to the Fund: (a) information as to the Units
distributed or to be distributed in each state for "Blue Sky" purposes at such
times and in such degree of detail as is necessary for the Fund to verify the
satisfaction of or to satisfy its obligations to register such Units under
applicable "Blue Sky" laws, and (b) copies of Unitholder lists and other
information and statistical data as any reasonably be requested in Instructions.
4.03 With respect to the 1988 calendar year and each calendar year
thereafter, Goldman Sachs shall prepare and file with the Internal Revenue
Service and with the appropriate state agencies, and, if required, mail to
Unitholders such returns for reporting (i) dividends and
5
<PAGE>
distributions paid, credited or withheld as are required by the Fund's
Prospectus or applicable law or regulation to be so filed and mailed and (ii)
Fund expenses incurred as are required by applicable federal law. With respect
to the 1988 calendar year, Goldman Sachs shall be entitled to rely on
information provided to it by DST with respect to the period of such calendar
year in which DST acted as Transfer Agent for the Fund in the preparation of the
returns referred to in the preceding sentence, and Goldman Sachs shall not be
responsible for the accuracy or completeness of such information.
4.04 Goldman Sachs shall prepare and mail an individual monthly statement for
each Unitholder showing all activity in such Unitholder's account for the month.
Upon request from a Unitholder, Goldman Sachs shall prepare and mail a year-to-
date statement showing all activity in such Unitholder's account on a year-to-
date basis. With respect to monthly and year-to-date statements which include
periods in which DST acted as Transfer Agent for the Fund, Goldman Sachs shall
be entitled to rely on information provided to it by DST with respect to such
periods, and Goldman Sachs shall not be responsible for the accuracy or
completeness of such information.
4.05 Goldman Sachs shall mail such Unitholder reports and such proxy
material, proxy cards and other material supplied to it by the Fund in
connection with Unitholder meetings of the Fund and shall receive, examine and
tabulate returned proxies and certify the vote to the Fund, all as and to the
extent requested by the Fund. Goldman Sachs shall mail blank redemption checks
to Unitholders for their use in effecting redemptions and such other related
materials as the Fund shall request from time to time.
4.06 Goldman Sachs shall cooperate with the Fund and the Fund's independent
public accountants in connection with: (a) the preparation of reports to
Unitholders, to the Securities and Exchange Commission (including all required
periodic and other reports), to state securities commissioners, and to others,
(b) annual and other audits of the books and records of the Fund, and (c) other
matters of a like nature.
4.07 Goldman Sachs shall maintain adequate procedures and systems to
safeguard from loss or damage attributable to fire, theft, misuse or any other
cause the Fund's records and other data and Goldman Sachs' records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder.
6
<PAGE>
4.08 Goldman Sachs shall comply with the provisions of Investment Company Act
release No. 6863 dated December 8, 1971 entitled "Guidelines relating to
Checking Accounts Established Pursuant to Section 17(f) of The Investment
Company Act of 1940, as Amended, by Investment Companies Having Bank Custodians"
(the "Release") with regard to the establishment and maintenance of the Fund's
checking account at Northern in accordance with Section 17(f) of the 1940 Act.
At the end of each calendar month, Goldman Sachs shall represent in writing to
the Trustees of the Fund that it has complied with the terms of the Release
during the month. Goldman Sachs shall establish and maintain procedures
reasonably designed to assure the safekeeping of checks delivered to Goldman
Sachs by Northern for signature by employees of Goldman Sachs and the security
and integrity of the signing of such checks. Goldman Sachs' employees are not
permitted to sign any such checks which are made payable to "Cash" or to the
order of the Fund or to any named petty cashier of the Fund or which are not
made payable to the order of a designated payee.
4.09 Goldman Sachs shall maintain expedited redemption and dividend
instructions from Unitholders in the form of such records as are necessary to
honor telephone, telegraph or other redemption requests from Unitholders without
signature guarantee and to effect the payment of dividends and distributions in
accordance with the provisions of the Fund's Prospectus. Goldman Sachs shall
apply such instructions as necessary to effect dividends, distributions,
redemptions and other transactions in accordance with the provisions of the
Fund's prospectus. Goldman Sachs shall establish and maintain procedures
reasonably designed to assure the accuracy, safekeeping and proper application
or records of expedited redemption and dividend instructions.
4.10 Goldman Sachs, in the performance of its duties hereunder:
(a) shall use the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; and
(b) shall act in conformity the Fund's Agreement and Declaration of Trust
dated December 6, 1978 together with Amendment Nos. 1 and 2 thereto
(such Agreement and Declaration of Trust, as presently in effect and as
amended from time, is herein called the "Trust Agreement"), the Fund's
By-Laws (such By-laws, as presently in
7
<PAGE>
effect and as amended from time to time, are herein called the
"By-Laws"), the Fund's Prospectus and any Instruction, and will
subject to the standard set forth in paragraph 4.10(a) above
comply with and conform to the requirements of the 1940 Act, the
1934 Act, particularly Section 17A thereof, and all other
applicable federal and state laws, regulations and rulings.
5. Instructions
------------
5.01 Goldman Sachs shall be deemed to have received Instructions (as
that term is used herein) upon receipt of written instructions
(including receipt by telecopier, telegram, cable or Telex), which may
be continuing instructions, signed by a majority of the Trustees of the
Fund or by a person the Trustees shall have from time to time authorized
to give the particular class of Instructions in question. Different
persons may be authorized to give Instructions for different purposes,
and Instructions may be general or specific in terms. A certified copy
of a By-law, resolution or action of the Trustees of the Fund may be
received and accepted by Goldman Sachs as conclusive evidence of the
authority of any such persons to act and may be considered to be in full
force and effect until receipt of written notice to the contrary.
5.02 The Fund may also authorize one or more designated persons to
issue oral (such term as used herein including, without limitation,
telephoned) instructions, specifying the type or types of instructions
that may be so issued, in which case the Fund shall deliver to Goldman
Sachs resolutions of the Trustees to such effect. One or more of the
persons designated by the Trustees to give oral instructions shall
promptly confirm such oral instructions in writing to Goldman Sachs.
Such instructions when given in accordance with the provisions hereof
and with such resolutions shall be deemed Instructions hereunder. In
case of conflict between oral Instructions given by a person designated
in the resolution of the Trustees referred to in the first sentence of
this paragraph 5.02 and any written Instructions, the Instructions most
recently received by Goldman Sachs shall prevail, and in case of
conflict between oral Instructions given by a person designated in such
resolution and any written confirmation or purported confirmation of
oral Instructions, such written confirmation shall prevail; provided
that any transaction initiated by Goldman Sachs pursuant to such oral
Instructions may, but need not, be completed by Goldman Sachs
notwithstanding Goldman Sachs' receipt of
8
<PAGE>
conflicting written Instructions hereunder or written confirmation or
purported confirmation of oral Instructions hereunder subsequent to
Goldman Sachs' initiation of such transaction.
6. Compensation
------------
6.01 For the services provided and the expenses assumed by Goldman
Sachs pursuant to this Agreement, the Fund will pay to Goldman Sachs as
full compensation therefor the compensation set forth in the schedule of
even date herewith delivered by Goldman Sachs to the Fund until a
different compensation schedule shall be agreed upon in writing between
the parties.
6.02 The Fund shall reimburse Goldman Sachs for the cost of any and
all forms (excluding the cost of developing the format of the form)
prepared for use in connection with its actions hereunder, as well as
the cost of postage, telephone and telegraph used in communicating with
Unitholders of the Fund to the extent such communications are required
under the terms of this Agreement. Goldman Sachs shall be entitled to
all property rights to the format of all forms it has prepared for use
in connection with its actions hereunder. Goldman Sachs hereby grants
the Fund a perpetual, nonexclusive, royalty-free, assignable license to
use forms of identical or similar format to such forms, and all forms
for which Goldman Sachs has received reimbursement from the Fund shall
be and remain the physical property of the Fund until used. The Fund
shall also reimburse Goldman Sachs for all microfiche, microfilm and
other mediums for the permanent storage of the Fund's records consumed
by Goldman Sachs in the performance of its obligations hereunder. Except
as provided in this paragraph 6.02; Goldman Sachs will pay all expenses
incurred by it in connection with the performance of its duties under
this Agreement.
7. Indemnification
---------------
7.01 The Fund hereby agrees to indemnify and hold harmless Goldman
Sachs its officers, partners and employees and each person, if any, who
controls Goldman Sachs (collectively, the "Indemnified Parties") against
any and all losses, claims, damages or liabilities, joint or several, to
which any such Indemnified Party may become subject under the 1934 Act,
the 1940 Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon Goldman Sachs acting hereunder. The Fund will reimburse each
9
<PAGE>
Indemnified Party for any legal or other expenses incurred by such
Indemnified Party in connection with investigating or defending any such
loss, claim, damages, liability or action.
7.02 It is understood, however, that nothing in this Section 7 shall
protect any Indemnified Party, or entitle any Indemnified Party to
indemnification, to an extent or in a manner inconsistent with Sections
17(h) or (i) of the 1940 Act.
8. Term of Agreement
-----------------
8.01 This Agreement shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated (except as to the
second and third sentences of paragraph 6.02 and as to paragraphs 7.01
and 7.02) by either party by an instrument in writing delivered or
mailed, postage prepaid, to the other party, such termination to take
effect no sooner than 120 days after the date of such delivery or
mailing.
8.02 Goldman Sachs and the Fund may agree from time to time, by
written instrument signed by both parties, on such provisions
interpretative of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this
Agreement.
9. Miscellaneous
-------------
9.01 Without limiting the other provisions hereof, notice and other
writings delivered or mailed postage prepaid to the Fund in care of
Institutional Liquid Assets, 4900 Sears Tower, Chicago, Illinois 60606,
Attention: E.J. Whitman, Jr., or to Goldman Sachs at 4900 Sears Tower,
Chicago, Illinois 60606, Attention: John W. Mosior, or to such other
address as the Fund or Goldman Sachs may hereafter specify by written
notice to the most recent address specified by the party to whom such
notice is addressed, shall be deemed to have been properly delivered or
given hereunder to the respective addressee.
9.02 This Agreement shall be binding on and shall inure to the benefit
of the Fund and Goldman Sachs and their respective successors, shall be
construed according to the laws of Illinois (except as to paragraph 9.03
hereof which shall be construed in accordance with the laws of
Massachusetts) and may be executed in two or more counterparts, each of
which shall be deemed an original. This Agreement may not be assigned by
Goldman Sachs nor may
10
<PAGE>
Goldman Sachs' duties hereunder be performed by any other person without the
prior written consent of the Fund authorized and approved by a resolution of the
Trustees. The term "assigned" shall be construed consistently with the term
"assignment" as defined in Section 2(a)(4) of the 1940 Act and Rule 2a-6
thereunder as if such Rule applied to transfer and dividend disbursing agents.
The headings in this Agreement have been inserted for convenience of reference
only and shall not affect the meaning or interpretation of this Agreement. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Any provision in this Agreement requiring compliance with
any statute or regulation shall mean such statute or regulation as amended and
in effect from time to time.
9.03 This Agreement is executed by or on behalf of the Fund and the obligations
hereunder are not binding upon any of the Trustees, officers or Unitholders of
the Fund individually but are binding only upon the Fund and its assets and
property. The Fund's Trust Agreement, as amended, is on file with the Secretary
of the Commonwealth of Massachusetts.
INSTITUTIONAL LIQUID ASSETS
By [signature illegible]
------------------------------
as its President
--------------------------
GOLDMAN, SACHS & CO.
By [signature illegible]
------------------------------
General Partner
------------------------------
11
<PAGE>
4900 Sears Tower
Chicago, Illinois 60606
Telephone: 312-993-4400
Toll Free: 800-621-2302
Goldman Sachs--Institutional Liquid Assets
April 19, 1990
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
Gentlemen:
Reference is made to the Transfer Agency Agreement dated May 1, 1988 between
Goldman, Sachs- Institutional Liquid Assets and Goldman, Sachs & Co. (the
"Agreement"). The purpose of this letter is to confirm our agreement that the
term "Series" as used in the Agreement shall be deemed to include any Class of
Units within each Series and that the term "Prospectus" as used in the Agreement
shall be deemed to mean, with respect to any one or more Series, the Fund's
current Prospectus, all supplements thereto, the Fund's then current Statement
of Additional Information and all supplements thereto unless the context
otherwise requires.
In addition, this letter confirms that you agree to take all necessary steps,
with State Street Bank and Trust Company if required, to assure compliance with
the terms and conditions of the Fund's exemptive application relating to the
creation of Classes within a Series.
This letter shall be deemed an amendment to the Agreement which shall otherwise
continue in full force and effect.
Please acknowledge and confirm the foregoing by signing and dating the enclosed
copy of this letter where indicated and returning it to the undersigned.
GOLDMAN SACHS - INSTITUTIONAL LIQUID ASSETS
By: /s/ Stephen Brent Wells,
--------------------------------------
Stephen Brent Wells, President
Acknowledge and confirmed this
19 day of April, 1990.
GOLDMAN, SACHS & CO.
By:
--------------------------------------
As its: General Partner
12
<PAGE>
February 11, 1992
Goldman, Sachs & Co.
4900 Sears Tower
Chicago, IL 60606
Re: Transfer Agency Agreement
Dear Sirs:
Reference is made to the Transfer Agency Agreement dated May 1, 1988 between
Goldman Sachs-Institutional Liquid Assets and you.
The purpose of this letter is to confirm that Paragraph 4.08 of the Transfer
Agency Agreement is amended in its entirety as follows:
4.8 Goldman Sachs shall comply with the provisions of Investment Company
Act Release No 6863 dated December 8, 1971 entitled "Guidelines
Relating to Checking Accounts Established Pursuant to Section 17(f)
of The Investment Company Act of 1940, as Amended, by Investment
companies Having Bank Custodians" (the "Release") with regard to the
establishment and maintenance of any checking account for the Fund.
Goldman Sachs shall establish and maintain procedures reasonably
designed to assure the safekeeping of checks delivered to Goldman
Sachs for signature by employees of Goldman and the security and
integrity of the signing of such checks. Goldman Sachs' employees are
not permitted to sign any such checks which are made payable to
"Cash" or to the order of the Fund or to any named petty cashier of
the Fund or which are not made payable to the order of a designated
payee.
Please acknowledge and confirm the foregoing by signing and dating the enclosed
copy of this letter where indicated and returning it to the undersigned.
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
By: [signature illegible]
-------------------------------
GOLDMAN, SACHS & CO.
By: [signature illegible]
----------------------------
Date: 4/22/92
--------------------------
13
<PAGE>
Exhibit (h)(9)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the 30th day of April, 1997 by and between GOLDMAN
SACHS MONEY MARKET TRUST on behalf of the Financial Square Funds (the "Trust"),
a Delaware business trust, and GOLDMAN, SACHS & CO. ("Goldman Sachs"), a New
York limited partnership.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Trust is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is empowered to issue shares of beneficial interest
("Shares") in separate series with each such series representing the interests
in a separate portfolio of securities and other assets (a "Fund" or collectively
the "Funds");
WHEREAS, the Trust presently offers Shares in nine Financial Square funds:
Financial Square Treasury Obligations Fund; Financial Square Treasury
Instruments Fund; Financial Square Tax-Free Money Market Fund; Financial Square
Government Fund; Financial Square Federal Fund; Financial Square Prime
Obligations Fund; Financial Square Money Market Fund; Financial Square Money
Market Plus Fund; and
WHEREAS, the Trust desires to appoint Goldman Sachs as Transfer Agent and
Dividend Disbursing Agent and to perform the other services contemplated hereby
with respect to the Trust and each Fund thereof; and
WHEREAS, Goldman Sachs is a registered transfer agent and is authorized to
enter into this agreement and desires to accept appointment as Transfer Agent
and Dividend Disbursing Agent; and
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment
-----------
1.01. Subject to the terms set forth in this Agreement, the Trust hereby
appoints Goldman Sachs as Transfer Agent and Dividend Disbursing Agent and to
perform the other services contemplated hereby with respect to the Trust and
each Fund thereof.
1.02. Goldman Sachs hereby accepts such appointment and agrees that it will
act as Transfer Agent and Dividend Disbursing Agent and perform the other
services described herein with respect to the Trust and each Fund thereof.
1.03. Goldman Sachs agrees to provide the necessary facilities, equipment
and executive, administrative and clerical personnel to perform its duties and
obligations hereunder in accordance with the terms hereof.
2. Transfer Agent
--------------
<PAGE>
2.01. Goldman Sachs shall, subject to any Instructions (as defined in
Section 5 hereof), record the issuance, transfer and redemptions of Shares in
accordance with the following provisions of this Section 2.
2.02. After being notified by the Trust's custodian (the "Custodian") or,
if applicable, the Custodian's sub-custodian (the "Sub-Custodian") that the
purchase price in respect of orders to purchase Shares has been received in the
form of Federal funds, Goldman Sachs shall compute in accordance with the
Trust's Prospectus (the term "Prospectus," as used herein, shall be deemed to
mean the Trust's then current Prospectus, all supplements thereto, the Trust's
then current Statement of Additional Information and all supplements thereto
unless the context otherwise requires) the number of Shares to be purchased at
the net asset value of such Shares applicable to such order and shall (i) credit
the account of the purchaser with the number of Shares so purchased as of the
time contemplated by the Trust's Prospectus and (ii) subject to paragraph 2.05,
mail to the purchaser a confirmation of such purchase and notice of such credit.
2.03. Upon receipt of requests for transfer in proper form, Goldman Sachs
shall make appropriate entries to reflect the transfer of Shares on the records
of the Trust maintained by it.
2.04. Goldman Sachs shall make an adequate and accurate record of the date
and time of receipt of all requests for redemption of Shares transmitted or
delivered to it, and shall process such requests in accordance with the
following provisions. If such redemption requests comply with the standards for
redemption approved by the Trust (as evidenced by the Trust's Prospectus or by
Instructions), Goldman Sachs shall compute in accordance with the Trust's
Prospectus the amount of redemption proceeds payable to each Shareholder
requesting redemption. If any such request for redemption does not comply with
the standards for redemption approved by the Trust, Goldman Sachs shall take
such actions as it reasonably deems appropriate under the circumstances and
shall effect such redemption at the price applicable to the date and time of
receipt of a redemption request (including any necessary documents) complying
with such standards. At such times as may be agreed upon by Goldman Sachs and
the Custodian so as to provide for the timely payment of redemptions in
accordance with the Trust's Prospectus, Goldman Sachs shall advise the Custodian
of aggregate redemption requests for which the Custodian is authorized to effect
payment and shall advise the Custodian of the amount required to pay any portion
of such redemptions which is payable by wire and, if redemptions by check are
instituted in the future, the amount required to pay any portion of such
redemptions which is payable by check. Goldman Sachs shall, as applicable,
instruct the Custodian to wire transfer such redemptions to the Sub-Custodian or
to the Trust's checking account established and maintained at The Northern Trust
Company ("Northern") in accordance with Section 17(f) of the 1940 Act. At such
times as may be agreed upon by Goldman Sachs and the Sub-Custodian so as to
provide for the timely payment of redemptions in accordance with the provisions
of the Trust's Prospectus, Goldman Sachs shall give wiring instructions to the
Sub-Custodian so as to effect payment for redemptions to all Shareholders,
except for Shareholders who request redemption by check if such redemptions are
instituted in the future.
In accordance with the provisions of the resolutions of the Trust's
Board of Trustees and the Trust's Prospectus and with the terms of this
Agreement and if redemptions by check are instituted, Goldman Sachs shall
prepare and mail checks for redemptions to holders of Shares ("Shareholders")
who requested that redemption proceeds be remitted by check. Goldman Sachs shall
mail to the redeeming Shareholder a confirmation of the redemption.
2.05. In lieu of mailing the confirmation and notice to purchasers as
provided in paragraph 2.02 and the confirmation of redeeming Shareholders as
provided in paragraph 2.04, Goldman Sachs may instead, if the Trust's Prospectus
so provides, provide a monthly statement to Shareholders, provided such
statement complies with the requirements of paragraph (c) of Rule 10b-10 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. Dividends and Distributions
3.01. With respect to those Shareholders which have elected reinvestment of
dividends and distributions in
<PAGE>
additional Shares, Goldman Sachs shall credit the account of such Shareholders
with the requisite number of additional Shares relative to each such dividend or
distribution. With respect to those Shareholders which have elected to receive
such dividends and distributions in cash, at such times as may be agreed upon by
Goldman Sachs and the Custodian so as to provide for the timely payment of
dividends or distributions to Shareholders in accordance with the provisions of
the Trust's Prospectus, Goldman Sachs shall advise the Custodian orally of and
confirm to it in writing, the aggregate amount of dividends or distributions
payable to Shareholders and shall advise the Custodian orally of and confirm to
it in writing, the amount required to pay any portion of any such dividend or
distribution which is payable by wire and, if dividends or distributions by
check are instituted in the future, the amount required to pay any portion of
any such dividend or distribution which is payable by check. Goldman Sachs
shall, as applicable, instruct the Custodian to wire transfer dividends or
distributions to the Sub-Custodian or to the Trust's checking account
established and maintained at Northern in accordance with Section 17(f) of the
1940 Act. At such times as may be agreed upon by Goldman Sachs and the
Sub-Custodian so as to provide for the timely payment of dividends and
distributions in accordance with the provisions of the Trust's Prospectus,
Goldman Sachs shall give wiring instructions to the Sub-Custodian so as to
effect payment for dividends and distributions to Shareholders who requested
such payment by wire. In accordance with the provisions of the resolutions of
the Trust's Board of Trustees and the Trust's Prospectus and with the terms of
this Agreement and if dividends or distributions by check are instituted,
Goldman Sachs shall prepare and mail checks for dividends or distributions to
Shareholders who requested payment thereof by check.
4. Additional Duties
-----------------
4.01. Goldman Sachs shall establish and maintain a separate account with
respect to each Shareholder. Goldman Sachs shall perform such "master" and
"subaccounting" services, if any, as are described in the Trust's Prospectus,
provided that the Trust shall not change the description of such services in the
Prospectus without obtaining the advance consent of Goldman Sachs. Goldman Sachs
shall maintain records showing for each Shareholder's account the following: (a)
name, address, tax identifying number and number of Shares held; historical
information regarding the account, including dividends and distributions paid
and date and price for all transactions; (c) any stop or restraining order
placed against the account; (d) information with respect to withholdings; (e)
any dividend or distribution reinvestment order, dividend or distribution
address and correspondence relating to the current maintenance of the account;
and (f) any information required in order for Goldman Sachs to perform the
calculations and make the determinations contemplated or required by this
Agreement. Goldman Sachs shall maintain all records relating to its activities
and obligations under this Agreement in such manner as will enable the Trust and
Goldman Sachs to meet their respective obligations under: (i) the Trust's
Prospectus; (ii) the required recordkeeping and reporting provisions of the 1934
Act, particularly Section 17A thereof, and of the 1940 Act, particularly
Sections 30 and 31 thereof, and state securities or Blue Sky laws, and the rules
and regulations thereunder; and (iii) applicable Federal and State tax laws and
regulations thereunder. All records maintained by Goldman Sachs in connection
with the performance of its duties under this Agreement will remain the property
of the Trust, shall be returned to the Trust promptly upon request and, in the
event of termination of this Agreement, will be promptly returned to or
delivered as directed by the Trust. Such records may be inspected by the Trust
at reasonable times. In the event such records are returned to or delivered as
directed by the Trust, Goldman Sachs may at its option retain copies of such
records.
4.02. Goldman Sachs shall furnish to the Trust: (a) information as to the
Shares distributed or to be distributed in each State for "Blue Sky" purposes at
such times and in such degree of detail as is necessary for the Trust to verify
the satisfaction of or to satisfy its obligations to register such Shares under
applicable "Blue Sky" laws, and copies of Shareholder lists and such other
information and statistical data as may reasonably be requested in Instructions.
4.03. Goldman Sachs shall prepare and file with the Internal Revenue
Service and with the appropriate State agencies, and, if required, mail to
Shareholders such returns for reporting (i) dividends and distributions paid,
credited or withheld as are required by the Trust's Prospectus or applicable law
or regulation to be so filed and mailed
<PAGE>
and (ii) expenses incurred by the Trust as are required by applicable Federal
law.
4.04. Goldman Sachs shall prepare and mail an individual monthly statement
for each Shareholder showing all activity in such Shareholder's account for the
month. Upon request from a Shareholder, Goldman Sachs shall prepare and mail a
year-to-date statement showing all activity in such Shareholder's account on a
year-to-date basis.
4.05. Goldman Sachs shall mail such Shareholder reports and such proxy
material, proxy cards and other material supplied to it by the Trust in
connection with Shareholder meetings of the Trust and shall receive, examine and
tabulate returned proxies and certify the vote to the Trust, all as and to the
extent requested by the Trust.
4.06. Goldman Sachs shall cooperate with the Trust and the Trust's
independent public accountants in connection with: (a) the preparation of
reports to Shareholders, to the Securities and Exchange Commission (including
all required periodic and other reports), to State securities commissioners, and
to others, annual and other audits of the books and records of the Trust, and
(c) other matters of a like nature.
4.07. Goldman Sachs shall maintain adequate procedures and systems to
safeguard from loss or damage attributable to fire, theft, misuse or any other
cause the Trust's records and other data and Goldman Sachs' records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder.
4.08. Goldman Sachs shall comply with the provisions of Investment Company
Act Release No. 6863 dated December 8, 1971 entitled "Guidelines Relating to
Checking Accounts Established Pursuant to Section 17(f) of The Investment
Company Act of 1940, as Amended, by Investment Companies Having Bank Custodians"
(the "Release") with regard to the establishment and maintenance of any checking
account for the Fund. Goldman Sachs shall establish and maintain procedures
reasonably designed to assure the safekeeping of checks delivered to Goldman
Sachs for signature by employees of Goldman Sachs and the security and integrity
of the signing of such checks. Goldman Sachs employees are not permitted to
sign any such checks which are made payable to "Cash" or to the order of the
Fund or to any named petty cashier of the Fund or which are not made payable to
the order of designated payee.
4.09. Goldman Sachs shall maintain expedited redemption and dividend
instructions from Shareholders in the form of such records as are necessary to
honor telephone, telegraph or other redemption requests from Shareholders
without signature guarantee and to effect the payment of dividends and
distributions in accordance with the provisions of the Trust's Prospectus.
Goldman Sachs shall apply such instructions as necessary to effect dividends,
distributions, redemptions and other transactions in accordance with the
provisions of the Trust's Prospectus. Goldman Sachs shall establish and maintain
procedures reasonably designed to assure the accuracy, safekeeping and proper
application of records of expedited redemption and dividend instructions.
4.10. Goldman Sachs, in the performance of its duties hereunder:
(a) shall use the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims;
(b) shall act in conformity with the Trust's Declaration of Trust
dated ___________, 1977 (such Declaration of Trust, as presently in effect and
as amended from time to time, is herein called the "Trust Agreement"), the
Trust's By-Laws (such By-laws, as presently in effect and as amended from time
to time, are herein called the "By-laws"), the Trust's Prospectus and any
Instruction, and will, subject to the standard set forth in paragraph 4.10(a)
above, comply with and conform to the requirements of the 1940 Act, the 1934
Act, particularly Section 17A thereof, and all other applicable federal and
state laws, regulations and rulings; and
<PAGE>
(c) shall not be liable for any damages, including those resulting
from its failure to perform its obligations under the terms of this Agreement,
provided such damages or failure are due to an act of God, equipment or
transmission failure, strike or other cause reasonably beyond its control.
5. Instructions
------------
5.01. Goldman Sachs shall be deemed to have received Instructions (as that
term is used herein) upon receipt of written instructions (including receipt by
telecopier, telegram, cable or Telex), which may be continuing instructions,
signed by a majority of the Board of Trustees of the Trust or by a person that
the Trustees shall have from time to time authorized to give the particular
class of Instructions in question. Different persons may be authorized to give
Instructions for different purposes, and Instructions may be general or specific
in terms. A certified copy of a By-law, resolution or action of the Board of
Trustees of the Trust may be received and accepted by Goldman Sachs as
conclusive evidence of the authority of any such persons to act and may be
considered to be in full force and effect until receipt by Goldman Sachs of
written notice to the contrary.
5.02. The Trust may also authorize one or more designated persons to issue
oral (such term as used herein including, without limitation, telephoned)
instructions, specifying the type or types of instructions that may be so
issued, in which case the Trust shall deliver to Goldman Sachs resolutions of
the Board of Trustees to such effect. One or more of the persons designated by
the Board of Trustees to give oral instructions shall promptly confirm such oral
instructions in writing to Goldman Sachs. Such instructions when given in
accordance with the provisions hereof and with such resolutions shall be deemed
Instructions hereunder. In case of conflict between oral Instructions given by a
person designated in the resolution of the Board of Trustees referred to in the
first sentence of this paragraph 5.02 and any written Instructions given by a
person designated in the resolution of the Board of Trustees referred to in the
first sentence of this paragraph 5.01 and any written Instructions, the
Instructions most recently received by Goldman Sachs shall prevail, and in case
of conflict between oral Instructions given by a person designated in such
resolution and any written confirmation or purported confirmation of oral
Instructions, such written confirmation shall prevail; provided that any
transaction initiated by Goldman Sachs pursuant to such oral Instructions may,
but need not, be completed by Goldman Sachs notwithstanding Goldman Sachs'
receipt of conflicting written Instructions hereunder or written confirmation or
purported confirmation of oral Instructions hereunder subsequent to Goldman
Sachs' initiation of such transaction.
5.03. At any time Goldman Sachs may apply to any Trustee or officer of the
Trust or any person authorized to give instructions, and may consult with legal
counsel to the Trust with respect to any matter arising in connection with the
services to be performed by Goldman Sachs under this Agreement, and Goldman
Sachs and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust for any action taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel.
6. Compensation
------------
6.01. For the services provided and the expenses assumed by Goldman Sachs
pursuant to this Agreement, the Trust will pay to Goldman Sachs as full
compensation therefor the compensation set forth in the schedule of even date
herewith delivered by Goldman Sachs to the Trust until a different compensation
schedule shall be agreed upon in writing between the parties which schedule
shall be preceded by approval of a majority of the Trustees, including the
Trustees who are not interested persons of the Trust or Goldman Sachs.
6.02. Goldman Sachs shall be responsible for the cost of any and all forms
(excluding the cost of developing the format of such forms) prepared for use in
connection with its actions hereunder, as well as the cost of
<PAGE>
postage, telephone and telegraph used in communicating with Shareholders of the
Trust to the extent such communications are required under the terms of this
Agreement. Goldman Sachs shall be entitled to all property rights to the format
of all forms it has prepared for use in connection with its actions hereunder.
Goldman Sachs hereby grants the Trust a perpetual, nonexclusive, royalty-free,
assignable license to use forms of identical or similar format to such forms.
Goldman Sachs shall be responsible for all microfiche, microfilm and other
mediums for the permanent storage of the Trust's records consumed by Goldman
Sachs in the performance of its obligations hereunder. Except as provided in
this paragraph 6.02, Goldman Sachs will pay all expenses incurred by it in
connection with the performance of its duties under this Agreement.
7. Indemnification
---------------
7.01. The Trust hereby agrees to indemnify and hold harmless Goldman Sachs,
its officers, partners and employees and each person, if any, who controls
Goldman Sachs (collectively, the "Indemnified Parties") against any and all
losses, claims, damages or liabilities, joint or several, to which any such
Indemnified Party may become subject under the 1934 Act, the 1940 Act or other
Federal or State statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon Goldman Sachs' actions hereunder. The
Trust will reimburse each Indemnified Party for any legal or other expenses
incurred by such Indemnified Party in connection with investigating or defending
any such loss, claim, damages, liability or action.
7.02. It is understood, however, that nothing in this Section 7 shall
protect any Indemnified Party, or entitle any Indemnified Party to
indemnification against any liability to the Trust or its shareholders to which
such party would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence, in the performance of his duties, or by reason of
his reckless disregard of his obligations and duties under this Agreement.
8. Term of Agreement
-----------------
8.01. This Agreement shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto, which agreement shall be preceded by approval
of the Trustees, including the Trustees who are not interested persons of the
Trust or Goldman Sachs, and may be terminated (except as to the second and third
sentences of paragraph 6.02 and as to paragraphs 7.01 and 7.02) by either party
by an instrument in writing delivered or mailed, postage prepaid, to the other
party, such termination to take effect no sooner than 120 days after the date of
such delivery or mailing.
8.02. Goldman Sachs and the Trust may agree from time to time, by written
instrument signed by both parties, on such provisions interpretative of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding sentence shall be deemed
to be an amendment of this Agreement.
9. Miscellaneous
-------------
9.01. Without limiting the other provisions hereof, notice and other
writings delivered or mailed postage prepaid to the Trust in care of Goldman
Sachs Trust - Financial Square Funds, One New York Plaza, New York, NY 10004,
Attention: Michael Richman, or to Goldman Sachs at 4900 Sears Tower Chicago,
Illinois 60606, Attention: Nancy L. Mucker or to such other address as the Trust
or Goldman Sachs may hereafter specify by written notice to be the most recent
address specified by the party to whom such notice is addressed, shall be deemed
to have been properly delivered or given hereunder to the respective addressee.
<PAGE>
9.02. This Agreement shall be binding on and shall inure to the benefit of
the Trust and Goldman Sachs and their respective successors, shall be construed
according to the laws of Illinois (except as to paragraph 9.03 hereof which
shall be construed in accordance with the laws of Delaware) and may be executed
in two or more counterparts, each of which shall be deemed an original. This
Agreement may not be assigned by Goldman Sachs nor may Goldman Sachs' duties
hereunder be performed by any other person without the prior written consent of
the Trust authorized and approved by a resolution of the Board of Trustees. The
term "assigned" shall be construed consistently with the term "assignment" as
defined in Section 2(a)(4) of the 1940 Act and Rule 2a-6 thereunder as if such
Rule applied to transfer and dividend disbursing agents. The headings in this
Agreement have been inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. Any
provision in this Agreement requiring compliance with any statute or regulation
shall mean such statute or regulation as amended and in effect from time to
time.
9.03. This Agreement is executed by or on behalf of the Trust and the
obligations hereunder are not binding upon any of the Trustees, officers or
Shareholders of the Trust individually but are binding only upon the Trust and
its assets and property. The Trust's Trust Agreement, as amended, is on file
with the Secretary of the State of Delaware.
Goldman Sachs Trust
(Financial Square Funds)
Attest: /s/ Michael Richman By: /s/ Douglas C. Grip
--------------------- ---------------------
Michael Richman Douglas C. Grip
Secretary President of the Trust
GOLDMAN, SACHS & CO.
Attest: /s/ Michael Richman By: /s/ David B. Ford
--------------------- ---------------------
Michael Richman David B. Ford
Counsel to the Funds Group General Partner
<PAGE>
Exhibit (h)(10)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of the 6th day of April, 1990 by and between GS
CAPITAL GROWTH FUND, INC., (the "Fund"), a Maryland corporation, and GOLDMAN,
SACHS & CO. ("Goldman Sachs"), a New York limited partnership.
W I T N E S S E T H:
-------------------
WHEREAS, the Fund is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Fund is empowered to issue shares of capital stock
("Shares") in separate series with each such series representing the interests
in a separate portfolio of securities and other assets;
WHEREAS, the Fund presently offers Shares in one portfolio, known as
the Capital Growth Portfolio (such portfolio together with all other portfolios
subsequently established by the Fund being collectively referred to as the
"Portfolios");
WHEREAS, the Fund desires to appoint Goldman Sachs as Transfer Agent
and Dividend Disbursing Agent and to perform the other services contemplated
hereby with respect to the Fund and each Portfolio; and
WHEREAS, Goldman Sachs is a registered transfer agent and is authorized
to enter into this agreement and desires to accept appointment as Transfer Agent
and Dividend Disbursing Agent; and
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. APPOINTMENT
1.01 Subject to the terms set forth in this Agreement, the Fund
hereby appoints Goldman Sachs as Transfer Agent and Dividend
Disbursing Agent and to perform the other services contemplated
hereby with respect to the Fund and each Portfolio thereof.
1.02 Goldman Sachs hereby accepts such appointment and agrees that
it will act as Transfer Agent and Dividend Disbursing Agent and
perform the other services described herein with respect to the
Fund and each Portfolio thereof.
1.03 Goldman Sachs agrees to provide the necessary facilities,
equipment and executive, administrative and clerical personnel
to perform its duties and obligations hereunder in accordance
with the terms hereof.
1.04 Goldman Sachs may engage third parties to act as agents for the
purpose of providing the Transfer Agency services described
below all as shall be set forth in a written contract between
Goldman Sachs and the Agent; provided, however, that the
appointment of any agent shall not relieve Goldman Sachs of its
responsibilities or liabilities hereunder.
<PAGE>
2. TRANSFER AGENT
2.01 Goldman Sachs shall, subject to any Instructions (as defined in
Section 5 hereof), record the issuance, transfer and
redemptions of Shares in accordance with the following
provisions of this Section 2.
2.02 Upon receipt of orders to purchase shares in proper form,
Goldman Sachs shall compute in accordance with the Fund's
Prospectus (the term "Prospectus," as used herein, shall be
deemed to mean the Fund's then current Prospectus, all
supplements thereto, the Fund's then current Statement of
Additional Information and all supplements thereto unless the
context otherwise requires) the number of Shares to be
purchased at the net asset value of such Shares applicable to
such order and shall (i) credit the account of the purchaser
with the number of Shares so purchased as of the time
contemplated by the Fund's Prospectus and (ii) upon the
settlement date, mail to the purchaser a confirmation of such
purchase and notice of such credit.
2.03 Upon receipt of requests for transfer in proper form, Goldman
Sachs shall make appropriate entries to reflect the transfer of
Shares on the records of the Fund maintained by it.
2.04 Goldman Sachs shall make an adequate and accurate record of the
date and time of receipt of all requests for redemption of
Shares transmitted or delivered to it, and shall process such
requests in accordance with the following provisions. If such
redemption requests comply with the standards for redemption
approved by the Fund (as evidenced by the Fund's Prospectus or
by Instructions), Goldman Sachs shall compute in accordance
with the Fund's Prospectus the amount of redemption proceeds
payable to each Shareholder requesting redemption. If any such
request for redemption does not comply with the standards for
redemption approved by the Fund, Goldman Sachs shall take such
actions as it reasonably deems appropriate under the
circumstances and shall effect such redemption at the price
applicable to the date and time of receipt of a redemption
request (including any necessary documents) complying with such
standards. At such times as may be agreed upon by Goldman Sachs
and the Custodian so as to provide for the timely payment of
redemptions in accordance with the Fund's Prospectus, Goldman
Sachs shall advise the Custodian of aggregate redemption
requests for which the Custodian is authorized to effect
payment and shall advise the Custodian of the amount required
to pay any portion of such redemptions which is payable by wire
and the amount required to pay any portion of such redemptions
which is payable by check. In accordance with the provisions of
the resolutions of the Fund's Board of Directors and the Fund's
Prospectus and with the terms of this Agreement, Goldman Sachs
shall prepare and mail checks for redemptions to holders of
Shares ("Shareholders") who requested that redemption proceeds
be remitted by check. Goldman Sachs shall mail to the redeeming
Shareholder a confirmation of the redemption.
-2-
<PAGE>
2.05 In addition to mailing the confirmation and notice to
purchasers as provided in paragraph 2.02 and the confirmation
of redeeming Shareholders as provided in paragraph 2.04,
Goldman Sachs will also provide a quarterly statement to
Shareholders.
3. DIVIDENDS AND DISTRIBUTIONS
3.01 With respect to those Shareholders which have elected
reinvestment of dividends and distributions in additional
Shares, Goldman Sachs shall credit the account of such
Shareholders with the requisite number of additional Shares
relative to each such dividend or distribution. With respect to
those Shareholders which have elected to receive such dividends
and distributions in cash, at such times as may be agreed upon
by Goldman Sachs and the Custodian so as to provide for the
timely payment of dividends or distributions to Shareholders in
accordance with the provisions of the Fund's Prospectus,
Goldman Sachs shall advise the Custodian orally of and confirm
to it in writing, the aggregate amount of dividends or
distributions payable to Shareholders and shall advise the
Custodian orally of and confirm to it in writing, the amount
required to pay any portion of any such dividend or
distribution which is payable by wire and the amount required
to pay any portion of any such dividend or distribution which
is payable by check. In accordance with the provisions of the
resolutions of the Fund's Board of Directors and the Fund's
Prospectus and with the terms of this Agreement, Goldman Sachs
shall prepare and mail checks for dividends or distributions to
Shareholders who requested payment thereof by check.
4. ADDITIONAL DUTIES
4.01 Goldman Sachs shall establish and maintain a separate account
with respect to each Shareholder. Goldman Sachs shall perform
such "master" and "subaccounting" services, if any, as
described in the Fund's Prospectus, provided that the Fund
shall not change the description of such services in the
Prospectus without obtaining the advance consent of Goldman
Sachs. Goldman Sachs shall maintain records for each
Shareholder's account the following: (a) name, address, tax
identifying number and number of Shares held; (b) historical
information regarding the account including dividends and
distributions paid and date and price for all transactions; (c)
any stop or restraining order placed against the account; (d)
information with respect to withholdings; (e) any dividend or
distribution reinvestment order, dividend or distribution
address and correspondence relating to the current maintenance
of the account; and (f) any information required in order for
Goldman Sachs to perform the calculations and make the
determinations contemplated or required by Agreement. Goldman
Sachs shall maintain all records relating to its activities and
obligations under this Agreement in such manner as will enable
the Fund and Goldman Sachs to meet their respective obligations
under: (i) the Fund's Prospectus; (ii) the required
recordkeeping and reporting
-3-
<PAGE>
provisions of the 1934 Act, particularly Section 17A thereof,
and of the 1940 Act, particularly Sections 30 and 31 and state
securities or Blue Sky laws, and the rules and regulations
thereunder; and (iii) applicable Federal and State tax laws and
regulations thereunder. All records maintained by Goldman Sachs
in connection with the performance of its duties under this
Agreement will remain the property of the Fund, shall be
returned to the Fund promptly upon request and, in the event of
termination of this Agreement, will be promptly returned to or
delivered as directed by the Fund. Such records may be
inspected by the Fund at reasonable times. In the event such
records are returned to or delivered as directed by the Fund,
Goldman Sachs may at its option retain copies of such records.
4.02 Goldman Sachs shall furnish to the Fund: (a) information as to
the Shares distributed or to be distributed in each State for
"Blue Sky" purposes at such times and in such degree of detail
as is necessary for the Fund to verify the satisfaction of or
to satisfy its obligations to register such Shares under
applicable "Blue Sky" laws, and (b) copies of Shareholder lists
and such other information and statistical data as may
reasonably be requested in Instructions.
4.03 Goldman Sachs shall prepare and file with the Internal Revenue
Service and with the appropriate State agencies, and, if
required, mail to Shareholders such returns for reporting:
(i) dividends and distributions paid, credited or withheld as
are required by the Fund's Prospectus or applicable law
or regulation to be so filed and mailed and
(ii) expenses incurred by the Fund as are required by
applicable Federal law.
4.04 Goldman Sachs will provide each shareholder with a printed
confirmation for each transaction and an individual quarterly
statement. Upon request from a Shareholder, Goldman Sachs shall
prepare and mail a year-to-date statement showing all activity
in such Shareholder's account on a year-to-date basis.
4.05 Goldman Sachs shall mail such Shareholder reports and such
proxy material, proxy cards and other material supplied to it
by the Fund in connection with Shareholder meetings of the Fund
and shall receive, examine and tabulate returned proxies and
certify the vote to the Fund, all as and to the extent
requested by the Fund.
4.06 Goldman Sachs shall cooperate with the Fund and the Fund's
independent public accountants in connection with: (a) the
preparation of reports to Shareholders, to the Securities and
Exchange Commission (including all required periodic and other
reports), to State securities commissioners, and to others, (b)
annual and other audits of the books and records of the Fund,
and (c) other matters of a like nature.
-4-
<PAGE>
4.07 Goldman Sachs shall maintain adequate procedures and systems to
safeguard from loss or damage attributable to fire, theft,
misuse or any other cause the Fund's records and other data and
Goldman Sachs' records, data, equipment, facilities and other
property used in the performance of its obligations hereunder.
4.08 Goldman Sachs shall comply with the provisions of Investment
Company Act Release No. 6863 dated December 8, 1971 entitled
"Guidelines Relating to Checking Accounts Established Pursuant
to Section 17(f) of the Investment Company Act of 1940, as
Amended, by Investment Companies Having Bank Custodians" (the
"Release") with regard to the establishment and maintenance of
any checking account for the Fund. At the end of each calendar
month, Goldman Sachs shall represent in writing to the Board of
Directors of the Fund that it has complied with the terms of
the Release during the month. Goldman Sachs shall establish and
maintain procedures reasonably designed to assure the
safekeeping of checks delivered to Goldman Sachs for signature
by employees of Goldman Sachs and the security and integrity of
the signing of such checks. Goldman Sachs' employees are not
permitted to sign any such checks which are made payable to
"Cash" or to the order of the Fund or to any named petty
cashier of the Fund or which are not made payable to the order
of a designated payee.
4.09 Goldman Sachs shall maintain expedited redemption and dividend
instructions from Shareholders in the form of such records as
are necessary to honor telephone, telegraph or other redemption
requests from Shareholders without signature guarantee and to
effect the payment of dividends and distributions in accordance
with the provisions of the Fund's Prospectus. Goldman Sachs
shall apply such instructions as necessary to effect dividends,
distributions, redemptions and other transactions in accordance
with the provisions of the Fund's Prospectus. Goldman Sachs
shall establish and maintain procedures reasonably designed to
assure the accuracy, safekeeping and proper application of
records of expedited redemption and dividend instructions.
4.10 Goldman Sachs, in the performance of its duties hereunder:
(a) shall use the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like
character and with like aims; and
(b) shall act in conformity with the Fund's Articles of
Incorporation dated as of September 26, 1989 (such
Articles of Incorporation, as presently in effect and as
amended from time to time, are herein called the
"Articles"), the Fund's By-Laws (such By-laws, as
presently in effect and as amended from time to time, are
herein called the "By-laws"), the Fund's Prospectus and
any Instruction,
-5-
<PAGE>
and will, subject to the standard set forth in paragraph
4.10(a) above, comply with and conform to the
requirements of the 1940 Act, the 1934 Act, particularly
Section 17A thereof, and all other applicable federal and
state laws, regulations and rulings; and
(c) shall not be liable for any damages, including those
resulting from its failure to perform its obligations
under the terms of this Agreement, provided such damages
or failure are due to an act of God, equipment or
transmission failure, strike or other cause reasonably
beyond its control.
5. INSTRUCTIONS
5.01 Goldman Sachs shall be deemed to have received Instructions (as
that term is used herein) upon receipt of written instructions
(including receipt by telecopier, telegram, cable or Telex),
which may be continuing instructions, signed by a majority of
the Board of Directors of the Fund or by a person that the
Directors shall have from time to time authorized to give the
particular class of Instructions in question. Different persons
may be authorized to give Instructions for different purposes,
and Instructions may be general or specific in terms. A
certified copy of a By-law, resolution or action of the Board
of Directors of the Fund may be received and accepted by
Goldman Sachs as conclusive evidence of the authority of any
such persons to act and may be considered to be in full force
and effect until receipt by Goldman Sachs of written notice to
the contrary.
5.02 The Fund may also authorize one or more designated persons to
issue oral (such term as used herein including, without
limitation, telephoned) instructions, specifying the type or
types of instructions that may be so issued, in which case the
Fund shall deliver to Goldman Sachs resolutions of the Board of
Directors to such effect. One or more of the persons designated
by the Board of Directors to give oral instructions shall
promptly confirm such oral instructions in writing to Goldman
Sachs. Such instructions when given in accordance with the
provisions hereof and with such resolutions shall be deemed
Instructions hereunder. In case of conflict between oral
Instructions given by a person designated in the resolution of
the Board of Directors referred to in the referred to in the
first sentence of this paragraph 5.02 and any written
Instructions given by a person designated in the resolution of
the Board of Directors referred to in the first sentence of
this paragraph 5.01 and any written Instructions, the
Instructions most recently received by Goldman Sachs shall
prevail, and in case of conflict between oral Instructions
given by a person designated In such resolution and any written
confirmation or purported confirmation of oral Instructions,
such written confirmation shall prevail; provided that any
transaction initiated by Goldman Sachs pursuant to such oral
Instructions may, but need not, be completed by Goldman Sachs
notwithstanding Goldman Sachs' receipt of conflicting written
Instructions
-6-
<PAGE>
hereunder or written confirmation or purported confirmation of
oral Instructions hereunder subsequent to Goldman Sachs'
initiation of such transaction.
5.03 At any time Goldman Sachs may apply to any Director or officer
of the Fund or any person authorized to give instructions, and
may consult with legal counsel to the Fund with respect to any
matter arising in connection with the services to be performed
by Goldman Sachs under this Agreement, and Goldman Sachs and
its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it
in reliance upon such instructions or upon the opinion of such
counsel.
6. COMPENSATION
6.01 For the services provided and the expenses assumed by Goldman
Sachs pursuant to this Agreement, the Fund will pay to Goldman
Sachs as full compensation therefor the compensation set forth
in the schedule of even date herewith delivered by Goldman
Sachs to the Fund until a different compensation schedule shall
be agreed upon in writing between the parties which schedule
shall be preceded by approval of a majority of the Directors,
including the Directors who are not interested persons of the
Fund or Goldman Sachs.
6.02 The Fund shall reimburse Goldman Sachs for the cost of any and
all forms (excluding the cost of developing the format of such
forms) prepared for use in connection with its actions
hereunder, as well as the cost of postage, telephone and
telegraph used in communicating with Shareholders of the Fund
to the extent such communications are required under the terms
of this Agreement. The Fund shall reimburse Goldman Sachs for
the cost of any terminals and communications facilities
required to conduct business. Goldman Sachs shall be entitled
to all property rights to the format of all forms it has
prepared for use in connection with its actions hereunder. The
Fund shall also reimburse Goldman Sachs for all microfiche,
microfilm and other mediums for the permanent storage of the
Fund's records consumed by Goldman Sachs in the performance of
its obligations hereunder. Except as provided in this paragraph
6.02, Goldman Sachs will pay all expenses incurred by it in
connection with the performance of its duties under this
Agreement.
7. INDEMNIFICATION
7.01 The Fund hereby agrees to indemnity and hold harmless Goldman
Sachs, its officers, partners and employees and each person, if
any, who controls Goldman Sachs (collectively, the "Indemnified
Parties") against any and all losses, claims, damages or
liabilities, joint or several, to which any such Indemnified
Party may become subject under the 1934 Act, the 1940 Act or
other Federal or State statutory law or regulation, at common
law or
-7-
<PAGE>
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon Goldman Sachs' actions hereunder. The Fund will
reimburse each Indemnified Party for any legal or other
expenses incurred by such Indemnified Party in connection with
investigating or defending any such loss, claim, damages,
liability or action.
7.02 It is understood, however, that nothing in this Section 7 shall
protect any Indemnified Party, or entitle any Indemnified Party
to indemnification against any liability to the Fund or its
shareholders to which such party would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence,
in the performance of his duties, or by reason of his reckless
disregard of his obligations and duties under this Agreement.
8. TERM OF AGREEMENT
8.01 This Agreement shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time
by mutual agreement of the parties hereto, which agreement
shall be preceded by approval of the Directors, including the
Directors who are not interested persons of the Fund or Goldman
Sachs, and may be terminated (except as to the second and third
sentences of paragraph 6.02 and as to paragraphs 7.01 and 7.02)
by either party by an instrument in writing delivered or
mailed, postage prepaid, to the other party, such termination
to take effect no sooner than 120 days after the date of such
delivery or mailing.
8.02 Goldman Sachs and the Fund may agree from time to time, by
written instrument signed by both parties, on such provisions
interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the
general tenor of this Agreement. No interpretative or
additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
9. MISCELLANEOUS
9.01 Without limiting the other provisions hereof, notice and other
writings delivered or mailed postage prepaid to the Fund in
care of Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606, Attention: Shareholder Services, or to such
other address as the Fund or Goldman Sachs may hereafter
specify by written notice to the most recent address specified
by the party to whom such notice is addressed, shall be deemed
to have been property delivered or given hereunder to the
respective addressee.
9.02 This Agreement shall be binding on and shall inure to the
benefit of the Fund and Goldman Sachs and their respective
successors, shall be construed according to the laws of
Illinois and may be executed in two or more counterparts, each
of which shall be deemed an original. This Agreement may
-8-
<PAGE>
not be assigned by Goldman Sachs nor may Goldman Sachs' duties
hereunder be performed by any other person without the prior
written consent of the Fund authorized and approved by a
resolution of the Board of Directors. The term "assigned" shall
be construed consistently with the term "assignment" as defined
in Section 2(a)(4) of the 1940 Act and Rule 2a-6 thereunder as
if such Rule applied to transfer and dividend disbursing
agents. The headings in this Agreement have been inserted for
convenience of reference only and shall not affect the meaning
or interpretation of this Agreement. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Any provision in this Agreement
requiring compliance with any statute or regulation shall mean
such statute or regulation as amended and in effect from time
to time. The Fund's Articles, as amended, are on file with the
Secretary of the State of Maryland.
GS CAPITAL GROWTH FUND, INC.
Attest:
/s/ Michelle S. Lenzmeier By: /s/ Stephen Brent Wells
- ---------------------------------- --------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary to the Fund President of the Fund
GOLDMAN, SACHS & CO.
Attest:
/s/ Michelle S. Lenzmeier By: /s/ Leon G. Cooperman
- ---------------------------------- --------------------------------
Michelle S. Lenzmeier Leon G. Cooperman
Counsel to the Fund Group Partner
-9-
<PAGE>
Exhibit (h)(11)
GOLDMAN SACHS TRUST
(ILA ADMINISTRATION CLASS)
ADMINISTRATION PLAN
April 22, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open-
end management investment company and is registered as such under the Investment
Company Act of 1940, as amended;
WHEREAS, the Trust has separate series or Portfolios, each of which is a
separate pool of assets with its own investment policies (the "Portfolios") and
each Portfolio investing in money market instruments may be divided into
multiple separate classes including, in the case of certain Portfolios: the ILA
Class, the ILA Administration Class and the ILA Service Class;
WHEREAS, the Trust, on behalf of the ILA Administration Class of each
Portfolio that offers such shares, desires to adopt an Administration Plan and
the Board of Trustees of the Trust has determined that there is a reasonable
likelihood that adoption of this Administration Plan will benefit the Trust and
its unitholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) (the "Service
Organizations") may act directly or indirectly as nominees and recordholders of
units of the ILA Administration Class for their respective customers who are or
may become beneficial owners of such units (the "Customers"), provide services
to other Service Organizations intended to facilitate or improve a Service
Organization's services to its Customers with respect to the Portfolios and/or
perform certain account administration services with respect to the Customers
pursuant to Agreements between the Trust, on behalf of the ILA Administration
Class of each Portfolio, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the ILA Administration Class of
each Portfolio, hereby adopts this Administration Plan (the "Plan") on the
following terms and conditions:
1. (a) The Trust, on behalf of the ILA Administration Class of each
Portfolio, is authorized to pay each Service Organization the monthly or
quarterly administration fee specified in the Agreement with such Service
Organization, which shall be equal on an annual basis to not more than .15 of 1%
of the average daily net asset value of the units of the ILA Administration
Class of such Portfolio which are owned beneficially by the Customers of such
Service Organization during such period.
(b) The types of administration services and expenses for which a
Service Organization may be compensated or reimbursed under this Plan include,
without limitation: (i) acting or arranging for another party to act, as
recordholder and nominee of all units of the ILA Administration Class
beneficially owned by Customers; (ii) establishing and maintaining individual
accounts and records with respect to units of the ILA Administration Class owned
by each Customer; (iii) processing and issuing confirmations concerning Customer
orders to purchase, redeem and exchange units; (iv) receiving and transmitting
funds representing the purchase price or redemption proceeds of such units; (v)
providing services to Customers intended to facilitate or improve their
understanding of the benefits and risks of, a Portfolio to Customers, including
asset allocation and other industry services; (vi) facilitating the
<PAGE>
inclusion of a Portfolio in investment, retirement, asset allocation, cash
management or sweep accounts or similar products or services offered to
Customers by or through Service Organizations; (vii) facilitating electronic or
computer trading and/or processing in a Portfolio or providing electronic,
computer or other database information regarding a Portfolio to Customers; and
(viii) performing any other services which do not constitute "personal and
account maintenance services" within the meaning of the National Association of
Securities Dealers, Inc.'s Conduct Rules. No Portfolio may compensate a Service
Organization for services provided with respect to another Portfolio.
2. This Plan shall not take effect as to any Portfolio until the Plan,
together with any related agreements, has been approved for such Portfolio by
votes of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall continue
in effect thereafter so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 2.
4. The President, Vice President, Treasurer or any Assistant Treasurer of
the Trust shall provide the Board of Trustees of the Trust and the Board shall
review, at least quarterly, a written report of services performed by and fees
paid to each Service Organization under the Agreements and this Plan.
5. This Plan may be terminated as to the ILA Administration Class of any
Portfolio at any time by vote of a majority of the non-interested Trustees or by
vote of a majority of the outstanding voting securities of the ILA
Administration Class of such Portfolio.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof, and other material
amendments to the Plan shall be made, unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Portfolio that offers more than one class of Units,
this Plan only relates to the Administration Units of such Portfolio and the Fee
determined in accordance with paragraph 1 shall be based upon the average daily
net assets of the Portfolio attributable to Administration Units. The
obligations of the Trust and the Portfolios hereunder are not personally binding
upon, nor shall resort be had to the private property of any of the Trustees,
shareholders, officers, employees or agents of the Trust, but only the Trust's
property allocable to Administration Units shall be bound. No series of the
Trust shall be responsible for the obligations of any other series of the Trust.
<PAGE>
IN WITNESS WHEREOF, the Trust, on behalf of the ILA Administration Class of
each Portfolio, has executed this Administration Plan as of the day and year
first written above.
GOLDMAN SACHS TRUST
(on behalf of the ILA Administration
Class of each Portfolio)
By
--------------------------------------
Michael J. Richman
Secretary of the Trust
<PAGE>
Exhibit (h)(12)
GOLDMAN SACHS TRUST
(FST ADMINISTRATION CLASS)
ADMINISTRATION PLAN
April 22, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has separate series or Funds, each of which is a
separate pool of assets with its own investment policies (the "Funds") and each
Fund investing in money market instruments may be divided into multiple separate
classes including, in the case of certain Funds: the FST Class, the FST
Administration Class, the FST Service Class and the FST Preferred Class;
WHEREAS, the Trust, on behalf of the FST Administration Class of
each Fund that offers such shares, desires to adopt an Administration Plan and
the Board of Trustees of the Trust has determined that there is a reasonable
likelihood that adoption of this Administration Plan will benefit the Trust and
its shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) (the "Service
Organizations") may act directly or indirectly as nominees and recordholders of
shares of the FST Administration Class for their respective customers who are or
may become beneficial owners of such shares (the "Customers"), provide services
to other Service Organizations intended to facilitate or improve a Service
Organization's services to its Customers with respect to the Funds and/or
perform certain account administration services with respect to the Customers
pursuant to Agreements between the Trust, on behalf of the FST Administration
Class of each Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the FST Administration Class
of each Fund, hereby adopts this Administration Plan (the "Plan") on the
following terms and conditions:
1. (a) The Trust, on behalf of the FST Administration Class of each
Fund, is authorized to pay each Service Organization the monthly or quarterly
administration fee specified in the Agreement with such Service Organization,
which shall be equal on an annual basis to not more than .25 of 1% of the
average daily net asset value of the shares of the FST Administration Class of
such Fund which are owned beneficially by the Customers of such Service
Organization during such period.
(b) The types of administration services and expenses for which a
Service Organization may be compensated or reimbursed under this Plan include,
without limitation: (i) acting or arranging for another party to act, as
recordholder and nominee of all shares of the FST Administration Class
beneficially owned by Customers; (ii) establishing and maintaining individual
accounts and records with respect to shares of the FST Administration Class
owned by each Customer; (iii) processing and issuing confirmations concerning
Customer orders to purchase, redeem and exchange shares; (iv) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such
1
<PAGE>
shares; (v) providing services to Customers intended to facilitate or improve
their understanding of the benefits and risks of, a Fund to Customers, including
asset allocation and other industry services; (vi) facilitating the inclusion of
a Fund in investment, retirement, asset allocation, cash management or sweep
accounts or similar products or services offered to Customers by or through
Service Organizations; (vii) facilitating electronic or computer trading and/or
processing in a Fund or providing electronic, computer or other database
information regarding a Fund to Customers; and (viii) performing any other
services which do not constitute "personal and account maintenance services"
within the meaning of the National Association of Securities Dealers, Inc.'s
Conduct Rules. No Fund may compensate a Service Organization for services
provided with respect to another Fund.
2. This Plan shall not take effect as to any Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The President, Vice President, Treasurer or any Assistant
Treasurer of the Trust shall provide the Board of Trustees of the Trust and the
Board shall review, at least quarterly, a written report of services performed
by and fees paid to each Service Organization under the Agreements and this
Plan.
5. This Plan may be terminated as to the FST Administration Class of
any Fund at any time by vote of a majority of the non-interested Trustees or by
vote of a majority of the outstanding voting securities of the FST
Administration Class of such Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof, and other material
amendments to the Plan shall be made, unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
non-interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Fund that offers more than one class of Shares,
this Plan only relates to the Administration Class of Such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the average daily
net assets of the Fund attributable to Administration Shares. The obligations of
the Trust and the Funds hereunder are not personally binding upon, nor shall
resort be had to the private property of any of the Trustees, shareholders,
officers, employees or agents of the
2
<PAGE>
Trust, but only the Trust's property allocable to Administration Shares shall be
bound. No series of the Trust shall be responsible for the obligations of any
other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the FST Administration
Class of each Fund, has executed this Administration Plan as of the day and year
first written above.
Goldman Sachs Trust
(on behalf of the FST Administration Class of each
Fund)
---------------------------------------------
By
Michael J. Richman
Secretary of the Trust
3
<PAGE>
Exhibit (h)(13)
GOLDMAN SACHS TRUST
(ILA SERVICE CLASS)
SERVICE PLAN
April 22, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended;
WHEREAS, the Trust has separate series or Portfolios, each of which
is a separate pool of assets with its own investment policies (the "Portfolios")
and each Portfolio investing in money market instruments may be divided into
multiple separate classes including, in the case of certain Portfolios: the ILA
Class, the ILA Administration Class and the ILA Service Class;
WHEREAS, the Trust, on behalf of the ILA Service Class of each
Portfolio that offers such shares, desires to adopt a Service Plan and the Board
of Trustees of the Trust has determined that there is a reasonable likelihood
that adoption of this Service Plan will benefit the Trust and its unitholders;
and
WHEREAS, institutions (including Goldman, Sachs & Co.) ("Service
Organizations") may act directly or indirectly as nominees and recordholders of
units of the ILA Service Class for their respective customers who are or may
become beneficial owners of such units (the "Customers"), provide service to
other Service Organizations intended to facilitate or improve a Service
Organization's services to its Customers with respect to the Portfolios and/or
perform certain account administration and unitholder liaison services with
respect to the Customers pursuant to Agreements between the Trust, on behalf of
the ILA Service Class of each Portfolio, and such Service Organizations (the
"Agreements").
NOW, THEREFORE, the Trust, on behalf of the ILA Service Class of
each Portfolio, hereby adopts this Service Plan (the "Plan") on the following
terms and conditions:
1. (a) The Trust, on behalf of the ILA Service Class of each
Portfolio, is authorized to pay each Service Organization the monthly or
quarterly fee specified in the Agreement with such Service Organization, for (1)
administration services and (2) personal and account maintenance services
performed and expenses incurred by the Service Organization in connection with
such Portfolio's ILA Service Class. The fee paid for such services during any
one year shall not exceed .40% of the average daily net asset value of the units
of the ILA Service Class of such Portfolio which are owned beneficially by the
Customers of such Service Organization during such period; provided, however,
that the fee paid for personal and account maintenance services and expenses
shall not exceed .25% of the average daily net asset value of the units of the
ILA Service Class of such Portfolio which are owned beneficially by the
Customers of such Service Organization during such period.
(b) Administration services and expenses for which a Service
Organization may be compensated or reimbursed under this Plan include, without
limitation: (i) acting or arranging for another party to act, as recordholder
and nominee of all units of the ILA Service Class beneficially owned by
Customers; (ii) establishing and maintaining individual accounts and records
with respect to
<PAGE>
units of the ILA Service Class owned by each Customer; (iii) processing and
issuing confirmations concerning Customer orders to purchase, redeem and
exchange units of the ILA Service Class; (iv) receiving and transmitting funds
representing the purchase price or redemption proceeds of such units of the ILA
Service Class; (v) providing services to Customers intended to facilitate or
improve their understanding of the benefits and risks of, a Portfolio to
Customers, including asset allocation and other industry services; (vi)
facilitating the inclusion of a Portfolio in investment, retirement, asset
allocation, cash management or sweep accounts or similar products or services
offered to Customers by or through Service Organizations; (vii) facilitating
electronic or computer trading and/or processing in a Portfolio or providing
electronic, computer or other database information regarding a Portfolio to
Customers; and (viii) performing any other services which do not constitute
"personal and account maintenance services" within the meaning of the National
Association of Securities Dealers, Inc.'s Conduct Rules.
(c) Personal and account maintenance services and expenses for
which a Service Organization may be compensated under this Plan include, without
limitation, (i) providing facilities to answer inquiries and respond to
correspondence with Customers and other investors about the status of their
accounts or about other aspects of the Trust or the applicable Portfolio; (ii)
acting as liaison between Customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and
resolving problems; (iii) providing such statistical and other information as
may be reasonably requested by the Trust or necessary for the Trust to comply
with applicable federal or state law; (iv) responding to investor requests for
prospectuses; (v) displaying and making prospectuses available on the Service
Organization's premises; (vi) assisting Customers in completing application
forms, selecting dividend and other account options and opening custody accounts
with the Service Organization;
(d) Appropriate adjustments to payments made pursuant to clause
(a) of this paragraph 1 shall be made whenever necessary to ensure that no
payment is made by the Trust on behalf of a Portfolio in excess of the
applicable maximum cap imposed on asset based, front-end and deferred sales
charges by the National Association of Securities Dealers, Inc.'s Conduct Rules.
No Portfolio may compensate a Service Organization for services provided with
respect to another Portfolio.
2. This Plan shall not take effect as to any Portfolio until the
Plan, together with any related agreements, has been approved for such Portfolio
by votes of a majority of both (a) the Board of Trustees of the Trust and (b)
those Trustees of the Trust who are not "interested persons" of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or any agreements related to it (the "non-interested Trustees") cast in person
at a meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The President, Vice President, Treasurer or any Assistant
Treasurer of the Trust shall provide the Board of Trustees of the Trust and the
Board shall review, at least quarterly, a written report of services performed
by and fees paid to each Service Organization under the Agreements and this
Plan.
5. This Plan may be terminated as to the ILA Service Class of any
Portfolio at any time by vote of a majority of the non-interested Trustees or by
vote of a majority of the outstanding voting securities of the ILA Service Class
of such Portfolio.
<PAGE>
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved by vote of at least a majority (as defined in the Act) of the
outstanding voting securities of the ILA Service Class of such Portfolios except
to the extent that the approval of another class of such Portfolio is required
in accordance with Rule 18f-3 under the Act, in which case the approval of a
majority (as defined in the Act) of the outstanding voting securities of such
class shall also be required. No material amendment to the Plan shall be made
unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
non-interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Portfolio that offers more than one class of
Units, this Plan only relates to the Service Units of such Portfolio and the fee
determined in accordance with paragraph 1 shall be based upon the average daily
net assets of the Portfolio attributable to Service Units. The obligations of
the Trust and the Portfolios hereunder are not personally binding upon, nor
shall resort be had to the private property of any of the Trustees,
shareholders, officers, employees or agents of the Trust, but only the Trust's
property allocable to Service Units shall be bound. No series of the Trust shall
be responsible for the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the ILA Service Class
of each Portfolio, has executed this Service Plan as of the day and
year first written above.
GOLDMAN SACHS TRUST
(on behalf of the ILA Service Class of each Portfolio)
By
-----------------------------------
Michael J. Richman
Secretary of the Trust
<PAGE>
Exhibit (h)(14)
GOLDMAN SACHS TRUST
(FST SERVICE CLASS)
SERVICE PLAN
April 22,1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has separate series or Funds, each of which is a
separate pool of assets with its own investment policies (the "Funds") and each
Fund investing in money market instruments may be divided into multiple separate
classes including, in the case of certain Funds: the FST Class, the FST
Administration Class, the FST Service Class and the FST Preferred Class;
WHEREAS, the Trust, on behalf of the FST Service Class of each Fund
that offers such shares, desires to adopt a Service Plan and the Board of
Trustees of the Trust has determined that there is a reasonable likelihood that
adoption of this Service Plan will benefit the Trust and its shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) ("Service
Organizations") may act directly or indirectly as nominees and recordholders of
shares of the FST Service Class for their respective customers who are or may
become beneficial owners of such shares (the "Customers"), provide service to
other service organizations intended to facilitate or improve a service
organization's services to its Customers with respect to the Funds and/or
perform certain account administration and shareholder liaison services with
respect to the Customers pursuant to Agreements between the Trust, on behalf of
the FST Service Class of each Fund, and such Service Organizations (the
"Agreements").
NOW, THEREFORE, the Trust, on behalf of the FST Service Class of
each Fund, hereby adopts this Service Plan (the "Plan") on the following terms
and conditions:
1. (a) The Trust, on behalf of the FST Service Class of each Fund,
is authorized to pay each Service Organization the monthly or quarterly service
fee specified in the Agreement with such Service Organization for (1)
administration services and (2) personal and account maintenance services
performed and expenses incurred by the Service Organization in connection with
such Fund's FST Service Class. The fee paid for such services during any one
year shall not exceed .50% of the average daily net asset value of the shares of
the FST Service Class of such Fund which are owned beneficially by the Customers
of such Service Organization during such period; provided, however, that the fee
paid for personal and account maintenance services and expenses shall not exceed
..25% of the average daily net asset value of the shares of the FST Service Class
of such Fund which are owned beneficially by the Customers of such Service
Organization during such period.
(b) Administration services and expenses for which a Service
Organization may be compensated or reimbursed under this Plan include, without
limitation, (i) acting or arranging for
<PAGE>
another party to act, as recordholder and nominee of all shares of the FST
Service Class beneficially owned by Customers; (ii) establishing and maintaining
individual accounts and records with respect to shares of the FST Service Class
owned by each Customer; (iii) processing and issuing confirmations concerning
Customer orders to purchase, redeem and exchange shares of the FST Service
Class; (iv) receiving and transmitting funds representing the purchase price or
redemption proceeds of such shares of the FST Service Class; (v) providing
services to Customers intended to facilitate, or improve their understanding of
the benefits and risks of, a Fund to Customers, including asset allocation and
other advisory services; (vi) facilitating the inclusion of a Fund in
investment, retirement, asset allocation, cash management or sweep accounts or
similar products or services offered to Customers by or through Service
Organizations; (vii) facilitating electronic or computer trading and/or
processing in a Fund or providing electronic, computer or other database
information regarding a Fund to Customers; and (viii) performing any other
services which do not constitute "personal and account maintenance services"
within the meaning of the National Association of Securities Dealers, Inc.'s
Conduct Rules.
(c) Personal and account maintenance services and expenses
for which a Service Organization may be compensated under this Plan include,
without limitation, (i) providing facilities to answer inquiries and respond to
correspondence with Customers and other investors about the status of their
accounts or about other aspects of the Trust or the applicable Fund; (ii) acting
as liaison between Customers and the Trust, including obtaining information from
the Trust and assisting the Trust in correcting errors and resolving problems;
(iii) providing such statistical and other information as may be reasonably
requested by the Trust or necessary for the Trust to comply with applicable
federal or state law; (iv) responding to investor requests for prospectuses; (v)
displaying and making prospectuses available on the Service Organization's
premises; (vi) assisting Customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization.
(d) Appropriate adjustments to payments made pursuant to
clause (a) of this paragraph 1 shall be made whenever necessary to ensure that
no payment is made by the Trust on behalf of a Fund in excess of the applicable
maximum cap imposed on asset based, front-end and deferred sales charges the
National Association of Securities Dealers, Inc.'s Conduct Rules. No Fund may
compensate a Service Organization for services provided with respect to another
Fund.
2. This Plan shall not take effect as to any Fund until the
Plan, together with any related agreements, has been approved for such Fund by
votes of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The President, Vice President, Treasurer or any Assistant
Treasurer of the Trust shall provide the Board of Trustees of the Trust and the
Board shall review, at least quarterly, a written report of services performed
by and fees paid to each Service Organization under the Agreements and this
Plan.
2
<PAGE>
5. This Plan may be terminated as to the FST Service Class of
any Fund at any time by vote of a majority of the non-interested Trustees or by
vote of a majority of the outstanding voting securities of the FST Service Class
of such Fund.
6. This Plan may not be amended to increase materially the
amount of compensation payable pursuant to paragraph 1 hereof unless such
amendment is approved by a vote of at least a majority (as defined in the Act)
of the outstanding voting securities of the FST Service Class of such Funds
except to the extent that the approval of another class of such Fund is required
in accordance with Rule 18f-3 under the Act, in which case the approval of a
majority (as defined in the Act) of the outstanding voting securities of such
class shall also be required. No material amendment to the Plan shall be made
unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of
the non-interested Trustees of the Trust shall be committed to the discretion of
the non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Fund that offers more than one class of
Shares, this Plan only relates to the Service Class of such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the average daily
net assets of the Fund attributable to Service Shares. The obligations of the
Trust and the Funds hereunder are not personally binding upon, nor shall resort
be had to the private property of any of the Trustees, shareholders, officers,
employees or agents of the Trust, but only the Trust's property allocable to
Service Shares shall be bound. No series of the Trust shall be responsible for
the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the FST Service Class of
each Fund, has executed this Service Plan as of the day and year first written
above.
GOLDMAN SACHS TRUST
(on behalf of the FST Service Class of each Fund)
By
---------------------------------------
Michael J. Richman
Secretary of the Trust
3
<PAGE>
Exhibit (h)(15)
GOLDMAN SACHS TRUST
(FST PREFERRED CLASS)
PREFERRED ADMINISTRATION PLAN
April 22, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open-
end management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has separate series or Funds, each of which is a
separate pool of assets with its own investment policies (the "Funds") and each
Fund investing in money market instruments may be divided into multiple separate
classes including, in the case of certain Funds: the FST Class, the FST
Administration Class, the FST Service Class and the FST Preferred Class;
WHEREAS, the Trust, on behalf of the FST Preferred Class of each Fund that
offers such shares, desires to adopt a Preferred Administration Plan and the
Board of Trustees of the Trust has determined that there is a reasonable
likelihood that adoption of this Preferred Administration Plan will benefit the
Trust and its shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) ( the "Service
Organizations") may act directly or indirectly as nominees and recordholders of
shares of the FST Preferred Class for their respective customers who are or may
become beneficial owners of such shares (the "Customers"), provide services to
other Service Organizations intended to facilitate or improve a Service
Organization's services to its Customers with respect to the Funds and/or
perform certain account administration services with respect to the Customers
pursuant to Agreements between the Trust, on behalf of the FST Preferred Class
of each Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the FST Preferred Class of each
Fund, hereby adopts this Preferred Administration Plan (the "Plan") on the
following terms and conditions:
1. (a) The Trust, on behalf of the FST Preferred Class of each Fund,
is authorized to pay each Service Organization the monthly or quarterly
administration fee specified in the Agreement with such Service Organization,
which shall be equal on an annual basis to not more than .10 of 1% of the
average daily net asset value of the shares of the FST Preferred Class of each
Fund which are owned beneficially by the Customers of such Service Organization
during such period.
(b) The types of administration services and expenses for which a
Service Organization may be compensated or reimbursed under this Plan include,
without limitation: (i) acting or arranging for another party to act, as
recordholder and nominee of all shares of the FST Preferred Class beneficially
owned by Customers; (ii) establishing and maintaining individual accounts and
records with respect to shares of the FST Preferred Class owned by each
Customer; (iii) processing and issuing confirmations concerning Customer orders
to purchase, redeem and exchange shares; (iv) receiving and transmitting funds
representing the purchase price or redemption proceeds of such shares; (v)
providing services to Customers intended to facilitate or improve their
understanding of the benefits
<PAGE>
and risks of, a Fund to Customers, including asset allocation and other industry
services; (vi) facilitating the inclusion of a Fund in investment, retirement,
asset allocation, cash management or sweep accounts or similar products or
services offered to Customers by or through Service Organizations; (vii)
facilitating electronic or computer trading and/or processing in a Fund or
providing electronic, computer or other database information regarding a Fund to
Customers; and (viii) performing any other services which does not constitute
"personal and account maintenance services" within the meaning of the National
Association of Securities Dealers, Inc.'s Conduct Rules. No Fund may compensate
a Service Organization for services provided with respect to another Fund.
2. This Plan shall not take effect as to any Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall continue
in effect thereafter so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 2.
4. The President, Vice President, Treasurer or any Assistant Treasurer of
the Trust shall provide the Board of Trustees of the Trust and the Board shall
review, at least quarterly, a written report of services performed by and fees
paid to each Service Organization under the Agreements and this Plan.
5. This Plan may be terminated as to the FST Preferred Class of any Fund
at any time by vote of a majority of the non-interested Trustees or by vote of a
majority of the outstanding voting securities of the FST Preferred Class of such
Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof, and other material
amendments to the Plan shall be made, unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Fund that offers more than one class of Shares, this
Plan only relates to the Preferred Shares of such Fund and the fee determined in
accordance with paragraph 1 shall be based upon the average daily net assets of
the Fund attributable to Preferred Shares. The obligations of the Trust and the
Funds hereunder are not personally binding upon, nor shall resort be had to the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Trust, but only the Trust's property allocable to Preferred Shares
shall be bound. No series of the Trust shall be responsible for the obligations
of any other series of the Trust.
2
<PAGE>
IN WITNESS WHEREOF, the Trust, on behalf of the FST Preferred Class of each
Fund, has executed this Preferred Administration Plan as of the day and year
first written above.
Goldman Sachs Trust
(on behalf of the FST Preferred Class of each Fund)
By
------------------------------------------------
Michael J. Richman
Secretary of the Trust
3
<PAGE>
Exhibit (h)(16)
GOLDMAN SACHS TRUST
(ADMINISTRATION CLASS)
ADMINISTRATION PLAN
April 23, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") has separate series or Funds,
each of which is a separate pool of assets with its own investment policies (the
"Funds") and the shares of beneficial interest of each Fund may be divided into
multiple separate classes including, in the case of certain Funds: Class A,
Class B, the Institutional Class, the Administration Class and the Service
Class;
WHEREAS, the Trust, on behalf of the Administration Class of each Fund that
offers such shares, desires to adopt an Administration Plan and the Board of
Trustees of the Trust has determined that there is a reasonable likelihood that
adoption of this Administration Plan will benefit each Fund and its
shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) (the "Service
Organizations") may act directly or indirectly as nominees and recordholders of
shares of the Administration Class ("Administration Shares") for their
respective customers who are or may become beneficial owners of such
Administration Shares (the "Customers"), provide services to other Service
Organizations intended to facilitate or improve a Service Organization's
services to its Customers with respect to the Funds and/or perform certain
account administration services with respect to the Customers pursuant to
Agreements between the Trust, on behalf of the Administration Class of each
Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Administration Class of each
Fund, hereby adopts this Administration Plan (the "Plan") on the following terms
and conditions:
1. (a) The Trust, on behalf of the Administration Class of each Fund, is
authorized to pay each Service Organization the monthly or quarterly
administration fee specified in the Agreement with such Service Organization,
which shall be equal on an annual basis to not more than .25 of 1% of the
average daily net asset value of the Administration Shares of such Fund which
are owned beneficially by the Customers of such Service Organization during such
period.
(b) The types of administration services and expenses for which a
Service Organization may be compensated or reimbursed under this Plan include,
without limitation: (i) acting, or arranging for another party to act, as
recordholder and nominee of all Administration Shares beneficially owned by
Customers; (ii) establishing and maintaining individual accounts and records
with respect to the Administration Shares owned by each Customer; (iii)
processing and issuing confirmations concerning Customer orders to purchase,
redeem and exchange Administration Shares; (iv) receiving and transmitting funds
representing the purchase price or redemption proceeds of such Administration
Shares; (v) providing services to Customers intended to facilitate or improve
their understanding of the benefits and risks of, a Fund to Customers, including
asset allocation and other industry services; (vi) facilitating the inclusion of
a Fund in investment, retirement, asset allocation, cash management or sweep
accounts or similar products or services offered to Customers by or through
Service Organizations; (vii) facilitating electronic or computer trading and/or
processing in a Fund or providing electronic, computer or other database
information regarding a Fund to Customers; and (viii) performing any other
services which do not constitute "personal and account maintenance services"
<PAGE>
within the meaning of the National Association of Securities Dealers, Inc.'s
Conduct Rules. No Fund may compensate a Service Organization for services
provided with respect to another Fund.
2. This Plan shall not take effect as to any Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall continue
in effect thereafter so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 2.
4. The President, Vice President, Treasurer or any Assistant Treasurer of
the Trust shall provide the Board of Trustees of the Trust and the Board shall
review, at least quarterly, a written report of services performed by and fees
paid to each Service Organization under the Agreements and this Plan.
5. This Plan may be terminated as to the Administration Class of any Fund
at any time by vote of a majority of the non-interested Trustees or by vote of a
majority of the outstanding voting securities of the Administration Class of
such Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof, and other material
amendments to the Plan shall be made, unless approved in the manner provided in
paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Fund that offers more than one class of Shares, this
Plan only relates to the Administration Shares of such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the average daily
net assets of the Fund attributable to Administration Shares. The obligations of
the Trust and the Funds hereunder are not personally binding upon, nor shall
resort be had to the private property of any of the Trustees, shareholders,
officers, employees or agents of the Trust, but only the Trust's property
allocable to Administration Shares shall be bound. No series of the Trust shall
be responsible for the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the Administration Class of
each Fund, has executed this Administration Plan as of the day and year first
written above.
<PAGE>
GOLDMAN SACHS TRUST
[on behalf of the Administration Class of each Fund]
By
-------------------------------------------------
Michael J. Richman
Secretary of the Trust
<PAGE>
Exhibit (h)(17)
GOLDMAN SACHS TRUST
(SERVICE CLASS)
SERVICE PLAN
April 22, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended;
WHEREAS, the Trust has separate series or Funds, each of which is a
separate pool of assets with its own investment policies (the "Funds") and each
Fund may be divided into multiple separate classes including, in the case of
certain Funds: Class A, Class B, the Institutional Class, the Administration
Class and the Service Class;
WHEREAS, the Trust, on behalf of the Service Class of each Fund that
offers such shares, desires to adopt a Service Plan and the Board of Trustees of
the Trust has determined that there is a reasonable likelihood that adoption of
this Service Plan will benefit each Fund and its shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) ("Service
Organizations") may act directly or indirectly as nominees and record holders of
shares of beneficial interest of the Service Class ("Service Shares") for their
respective customers who are or may become beneficial owners of such Service
Shares (the "Customers"), provide services to other Service Organizations
intended to facilitate or improve a Service Organization's services to its
Customers with respect to the Funds and/or perform certain account
administration and shareholder liaison services with respect to the Customers
pursuant to Agreements between the Trust, on behalf of the Service Class of each
Fund, and such Service Organizations (the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Service Class of each
Fund, hereby adopts this Service Plan (the "Plan") on the following terms and
conditions:
1. (a) The Trust, on behalf of each Service Class of each Fund, is
authorized to pay each Service Organization the monthly or quarterly service fee
specified in the Agreement with such Service Organization for (1) administration
services and (2) personal and account maintenance services performed and
expenses incurred by the Service Organization in connection with such Fund's
Service Shares. The fee paid for such services during any one year shall not
exceed .50% of the average daily net asset value of the Service Shares of such
Fund which are owned beneficially by the Customers of such Service Organization
during the period; provided, however, that the fee paid for personal and account
maintenance services and expenses shall not exceed .25% of the average daily net
asset value of the Service Shares of such Fund which are owned beneficially by
the Customers of such Service Organization during such period.
(b) Administration services and expenses for which a
Service Organization may be compensated and reimbursed under this Plan
include, without limitation, (i) acting or arranging for another party to act,
as recordholder and nominee of all Service Shares beneficially owned by
Customers; (ii) establishing and maintaining individual accounts and records
with respect to Service Shares owned by each Customer; (iii) processing and
issuing confirmations concerning Customer
<PAGE>
orders to purchase, redeem and exchange Service Shares; (iv) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such Service Shares; (v) providing services to Customers intended to facilitate
or improve their understanding of the benefits and risks of, a Fund to
Customers, including asset allocation and other industry services; (vi)
facilitating the inclusion of a Fund in investment, retirement, asset
allocation, cash management or sweep accounts or similar products or services
offered to Customer by or through Service Organizations; (vii) facilitating
electronic or computer trading and/or processing in a Fund or providing
electronic, computer or other database information regarding a Fund to
Customers; and (viii) performing any other services which do not constitute
"personal and account maintenance services" within the meaning of the National
Association of Securities Dealer's Inc.'s Conduct Rules.
(c) Personal and account maintenance services and expenses
for which a Service Organization may be compensated under this
Plan include, without limitation, (i) providing facilities to answer inquiries
and respond to correspondence with Customers and other investors about the
status of their accounts or about other aspects of the Trust or the applicable
Fund; (ii) acting as liaison between Customers and the Trust, including
obtaining information from the Trust and assisting the Trust in correcting
errors and resolving problems; (iii) providing such statistical and other
information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable federal or state law; (iv) responding to
investor requests for prospectuses; (v) displaying and making prospectuses
available on the Service Organization's premises and (vi) assisting Customers in
completing application forms, selecting dividend and other account options and
opening custody accounts with the Service Organization;
(d) Appropriate adjustments to payments made pursuant
to clause (a) of this paragraph 1 shall be made whenever necessary
to ensure that no payment is made by the Trust on behalf of a Fund in excess of
the applicable maximum cap imposed on asset based, front-end and deferred sales
charges by the National Association of Securities Dealers, Inc.'s Conduct Rules.
No Fund may compensate a Service Organization for services provided with respect
to another Fund.
2. This Plan shall not take effect as to any Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until May 1, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The President, Vice President, Treasurer or any Assistant
Treasurer of the Trust shall provide the Board of Trustees of the Trust and the
Board shall review, at least quarterly, a written report of services performed
by and fees paid to each Service Organization under the Agreements and this
Plan.
5. This Plan may be terminated as to the Service Class of any Fund
at any time by vote of a majority of the non-interested Trustees or by vote of a
majority of the outstanding voting securities of the Service Class of such Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved by vote of at least a
<PAGE>
majority (as defined in the Act) of the outstanding voting securities of the
Service Class of such Funds except to the extent that the approval of another
class of such Fund is required in accordance with Rule 18f-3 under the Act, in
which case the approval of a majority (as defined in the Act) of the outstanding
voting securities of such class shall also be required. No material amendment to
the Plan shall be made unless approved in the manner provided in paragraph 2
hereof.
7. While this Plan is in effect, the selection and nomination of the
non-interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Fund that offers more than one class of Shares,
this Plan only relates to the Service Shares of such Fund and the fee determined
in accordance with paragraph 1 shall be based upon the average daily net assets
of the Fund attributable to Service Shares. The obligations of the Trust and the
Funds hereunder are not personally binding upon, nor shall resort be had to the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Trust, but only the Trust's property allocable to Service Shares
shall be bound. No series of the Trust shall be responsible for the obligations
of any other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the Service Class of
each Fund, has executed this Service Plan as of the day and year first written
above.
GOLDMAN SACHS TRUST
(on behalf of the Service Class of each Fund)
By:
-----------------------------------------
Douglas C. Grip
President of the Trust
<PAGE>
Exhibit (h)(18)
GOLDMAN SACHS TRUST
(Cash Management Shares)
SERVICE PLAN
May 1, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an open-
end management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has separate series or Portfolios, each of which is a
separate pool of assets with its own investment policies (the "Portfolios"), and
each Portfolio investing in money market instruments may be divided into
multiple separate classes including, in the case of certain Portfolios, the ILA
Class, the ILA Administration Class, the ILA Service Class, the ILA Class B, the
ILA Class C and the Cash Management Class;
WHEREAS, the Trust, on behalf of shares of the Cash Management Class of
each Portfolio that offers such shares, desires to adopt a Service Plan and the
Board of Trustees of the Trust has determined that there is a reasonable
likelihood that adoption of this Service Plan will benefit the Trust and its
shareholders; and
WHEREAS, institutions (including Goldman, Sachs & Co.) ("Service
Organizations") may act directly or indirectly as nominees and recordholders of
shares of the Cash Management Shares for their respective customers who are or
may become beneficial owners of such shares (the "Customers"), provide services
to other Service Organizations intended to facilitate or improve a Service
Organization's services to its Customers with respect to the Portfolios and/or
perform certain account administration and shareholder liaison services with
respect to the Customers pursuant to Agreements between the Trust, on behalf of
the Cash Management Shares of each Portfolio, and such Service Organizations
(the "Agreements").
NOW, THEREFORE, the Trust, on behalf of the Cash Management Shares of each
Portfolio, hereby adopts this Service Plan (the "Plan") on the following terms
and conditions:
1. (a) The Trust, on behalf of the Cash Management Shares of each
Portfolio, is authorized to pay each Service Organization the monthly or
quarterly fee specified in the Agreement with such Service Organization, for (1)
administration services and (2)
<PAGE>
personal and account maintenance services performed and expenses incurred by the
Service Organization in connection with such Portfolio's Cash Management Shares.
The fee paid for such services during any one year shall not exceed .50% of the
average daily net asset value of the shares of the Cash Management Class of such
Portfolio which are owned beneficially by the Customers of such Service
Organization during such period; provided, however, that the fee paid for
personal and account maintenance services and expenses shall not exceed .25% of
the average daily net asset value of the shares of the Cash Management Class of
such Portfolio which are owned beneficially by the Customers of such Service
Organization during such period.
(b) Administration services and expenses for which a Service
Organization may be compensated or reimbursed under this Plan include, without
limitation: (i) acting, or arranging for another party to act, as recordholder
and nominee of all shares of the Cash Management Class beneficially owned by
Customers; (ii) establishing and maintaining individual accounts and records
with respect to shares of the Cash Management Class owned by Customers; (iii)
processing and issuing confirmations concerning Customer orders to purchase,
redeem and exchange shares of the Cash Management Class; (iv) receiving and
transmitting funds representing the purchase price or redemption proceeds of
such shares of the Cash Management Class; (v) providing services to Customers
intended to facilitate or improve their understanding of the benefits and risks
of a Portfolio; (vi) facilitating the inclusion of a Portfolio in investment,
retirement, asset allocation, cash management or sweep accounts or similar
products or services offered to Customers by or through Service Organizations;
(vii) facilitating electronic or computer trading and/or processing in a
Portfolio or providing electronic, computer or other database information
regarding a Portfolio to Customers; (viii) developing, maintaining and
supporting systems necessary to support accounts for Cash Management Shares; and
(ix) performing any other services which do not constitute "personal and account
maintenance services" within the meaning of the National Association of
Securities Dealers, Inc.'s Conduct Rules.
(c) Personal and account maintenance services and expenses for which
a Service Organization may be compensated under this Plan include, without
limitation, (i) providing facilities to answer inquiries and respond to
correspondence with Customers and other investors about the status of their
accounts or about other aspects of the Trust or the applicable Portfolio; (ii)
acting as liaison between Customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and
resolving problems; (iii) providing such statistical and other information as
may be reasonably requested by the Trust or necessary for the Trust to comply
with applicable federal or state law; (iv) responding to investor requests for
prospectuses; (v) displaying and making prospectuses available on the Service
<PAGE>
Organization's premises; and (vi) assisting Customers in completing application
forms, selecting dividend and other account options and opening custody accounts
with the Service Organization.
(d) Appropriate adjustments to payments made pursuant to clause (a)
of this paragraph 1 shall be made whenever necessary to ensure that no payment
is made by the Trust on behalf of a Portfolio in excess of the applicable
maximum cap imposed on asset based, front-end and deferred sales charges by the
National Association of Securities Dealers, Inc.'s Conduct Rules. No Portfolio
may compensate a Service Organization for services provided with respect to
another Portfolio.
2. This Plan shall not take effect as to any Portfolio until the Plan,
together with any related agreements, has been approved for such Portfolio by
votes of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
3. This Plan shall remain in effect until April 30, 1999 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The President, Vice President, Treasurer or any Assistant Treasurer of
the Trust shall provide the Board of Trustees of the Trust and the Board shall
review, at least quarterly, a written report of services performed by and fees
paid to each Service Organization under the Agreements and this Plan.
5. This Plan may be terminated as to the Cash Management Class of any
Portfolio at any time by vote of a majority of the non-interested Trustees or by
vote of a majority of the outstanding voting securities of the Cash Management
Class of such Portfolio.
6. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof with respect to a Portfolio
unless such amendment is approved by a vote of at least a majority (as defined
in the 1940 Act) of the outstanding voting securities of the Cash Management
Class of such Portfolio, except to the extent that the approval of another class
of such Portfolio is required in accordance with Rule 18f-3 under the 1940 Act,
in which case the approval of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such class shall also be required. No material
amendment to this Plan shall be made unless approved in the manner provided in
paragraph
<PAGE>
2 hereof.
7. While this Plan is in effect, the selection and nomination of the non-
interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
9. In the case of a Portfolio that offers more than one class of Shares,
this Plan only relates to the Cash Management Shares of such Portfolio and the
fee determined in accordance with paragraph 1 shall be based upon the average
daily net assets of the Portfolio attributable to Class Management Shares. The
obligations of the Trust and the Portfolio hereunder are not personally binding
upon, nor shall resort be had to the private property of any of the Trustees,
shareholders, officers, employees or agents of the Trust, but only the Trust's
property allocable to Class Management Shares shall be bound. No series of the
Trust shall be responsible for the obligations of any other series of the Trust.
IN WITNESS WHEREOF, the Trust, on behalf of the Cash Management Class of
each Portfolio, has executed this Service Plan as of the day and year first
written above.
GOLDMAN SACHS TRUST
(on behalf of the Cash Management
Class of each Portfolio)
By
----------------------------
Douglas C. Grip
President of the Trust
<PAGE>
Exhibit (h)(19)
Goldman Sachs Trust Retail Service Agreement
- --------------------------------------------------------------------------------
Date
Service Organization
Address
RE: Goldman Sachs Trust (the "Trust") Retail Service Agreement
Ladies and Gentlemen:
The undersigned, Goldman, Sachs & Co. ("Goldman Sachs"), 85 Broad Street, New
York, New York 10004, is the principal distributor of the shares of beneficial
interest of each Fund. Goldman Sachs Asset Management, a separate operating
division of Goldman Sachs, or an affiliate thereof, acts as an investment
adviser to the Trust, which is an open-end management investment company that
includes the Goldman Sachs Asset Allocation Portfolios, Goldman Sachs Fixed
Income Funds, Goldman Sachs Domestic Equity Funds and Goldman Sachs
International Equity Funds (such Funds now or hereafter offered by the Trust are
individually referred to herein as a "Fund" and, collectively, as the "Funds").
Shares or units of beneficial interest (the "Shares") of each Fund are divided
into separate classes. This Agreement relates to Class A Shares of the Funds.
You are a financial institution or other service provider (the "Service
Organization") acting on behalf of your customers who purchase, hold, exchange
and redeem Shares of the Funds (the "Customers"). You are willing to perform,
and Goldman Sachs wishes to compensate you for performing, certain support
services with respect to the Customers (the "Services"). Accordingly, the
Service Organization and Goldman Sachs agree as follows:
1. Agreement to Provide Services. Goldman Sachs hereby engages the
Service Organization, and the Service Organization hereby agrees, to perform the
following Services: (a) establish and maintain (or assist in establishing and
maintaining) individual accounts and records with respect to those Shares of the
Funds which the Service Organization directly or through an agent holds as
nominee for the benefit of Customers; (b) process Customer orders to purchase,
redeem and exchange Shares promptly and in accordance with the effective
prospectus relating to such Shares; (c) assist in receiving and transmitting
funds representing the purchase price or redemption proceeds of such Shares; (d)
provide periodic statements to each Customer showing account balances and
transactions during the relevant period; (e) disburse dividends and
distributions declared on Shares of the Funds held in the name of the Service
Organization by mailing checks or crediting Customer accounts in accordance with
the election made by each Customer and issue related statements to Customers;
(f) promptly mail to Customers reports and proxy statements issued by the Trust;
(g) handle all tax withholding and remittances required by federal income tax
laws with respect to Customer accounts, prepare and file with the Internal
Revenue Service all required returns and statements and prepare and mail to each
Customer all statements and reports concerning dividends and distributions to
shareholders that are required by the Investment Company Act of 1940 (the "1940
Act") or federal income tax laws; and (h) provide such statistical and other
information as may be reasonably requested by Goldman Sachs or necessary for
Goldman Sachs or the Funds to comply with applicable federal or state laws,
including reports of sales of the Classes of the Funds in each state or other
jurisdiction for purposes of complying with state securities or "Blue Sky" laws.
2. Expenses of the Service Organization. The Service Organization shall
furnish such office space, equipment, facilities and personnel as may be
necessary to perform its duties hereunder. The Service Organization shall bear
all costs incurred by it in performing such duties.
3. Service Fees Payable to the Service Organization. For the Services
provided and the expenses incurred by the Service Organization hereunder,
Goldman Sachs will pay to the Service Organization a quarterly service fee
<PAGE>
equal on an annual basis to 0.25% of the average daily net asset value of the
Shares of each Fund which are owned beneficially by Customers through the
Service Organization during such period.
4. Performance of Duties. In performing its duties hereunder, the Service
Organization will act in conformity with Goldman Sachs' instructions, the terms
of its Customer agreements, the then effective prospectuses and statements of
additional information for the Shares of each Fund, the Investment Company Act
of 1940, as amended (the "1940 Act") and all other applicable federal and state
laws, regulations and rulings and the constitution, by-laws and rules of any
applicable self-regulatory organization. The Service Organization will assume
sole responsibility for its compliance with applicable federal and state laws
and regulations, and shall rely exclusively upon its own determination, or that
of its legal advisers, that the performance of its duties hereunder complies
with such laws and regulations. Under no circumstances shall the Trust, any
Fund, Goldman Sachs or any of their affiliates be held responsible or liable in
any respect for any statements or representations made by them or their legal
advisers to the Service Organization or any Customer of the Service Organization
concerning the applicability of any federal or state laws or regulations to the
activities described herein. The Service Organization will perform its duties
hereunder in a manner consistent with the customs and practices of other
institutions that provide similar services.
5. Representations and Warranties. The Service Organization hereby
represents, warrants and covenants to Goldman Sachs:
A. i. That it is an investment adviser as defined under Section
202(a)(11) of the Investment Advisers Act of 1940 (the "Advisers
Act"); it is registered and in good standing, and will during the
term of this Agreement remain in good standing, as an investment
adviser with the United States Securities and Exchange Commission
(the "Commission") or with the securities commission of any
state, territory or possession of the United States and is in
full compliance with the rules, regulations and policies of the
aforesaid commissions, particularly those rules, regulations and
policies governing capital requirements, financial reporting,
bonding, fiduciary standards and supervisory concerns; and its
entering into and performing its obligations under this Agreement
does not and will not violate any laws, rules or regulations
(including Rule 206(4)-2 under the Advisers Act and rules or
regulations of any self-regulatory organization); or
ii. That it is a broker or dealer as defined in Section 3(a)(4) or
3(a)(5) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); that it is registered and in good standing, and
will during the term of this Agreement remain in good standing
(a) as a broker-dealer with the Commission pursuant to Section 15
of the Exchange Act and with the securities commission of any
state, territory or possession of the United States and (b) as a
member of the National Association of Securities Dealers, Inc.
(the "NASD") and/or any stock exchange or other self-regulatory
organization in which the Service Organization's membership is
necessary for the conduct of its business under this Agreement,
and is in full compliance with the rules, regulations and
policies of the aforesaid commissions and organizations,
particularly those rules, regulations and policies governing
capital requirements, financial reporting, bonding, fiduciary
standards and supervisory concerns; and its entering into and
performing its obligations under this Agreement does not and will
not violate any laws, rules or regulations (including the net
capital and customer protection rules of the Commission and the
rules or regulations of the NASD or any self-regulatory
organization or any so-called "restriction" letter with the
NASD); or
iii. That it is a depository institution (a) organized, chartered or
holding an authorization certificate under the laws of a state or
of the United States, which authorizes the Service Organization
to receive deposits, including a savings, share, certificate or
deposit account, and which is regulated, supervised and examined
for the protection of depositors by an official or agency of a
<PAGE>
state or the United States and is insured by the Federal Deposit
Insurance Corporation, the Federal Savings and Loan Insurance
Corporation or the National Credit Union Share Insurance Fund, or
(b) is a trust company or other institution that is authorized by
federal or state law to exercise fiduciary powers of a type a
national bank is permitted to exercise under the authority of the
United States Office of the Comptroller of the Currency, and is
regulated, supervised and examined by an official or agency of a
state or the United States; and its entering into and performing
its obligations under this Agreement does not and will not
violate any laws, rules or regulations.
B. That it is a corporation, association or partnership duly organized,
validly existing, and in good standing under the laws of the state of
its organization;
C. That entering into and performing its obligations under this Agreement
does not and will not violate (i) its charter or by-laws; or (ii) any
agreements to which it is a party;
D. If the Service Organization is a depository institution or broker or
dealer, in processing Customer orders to purchase, redeem and exchange
Shares, (i) it shall act solely as agent upon the order, and for the
account, of its Customer; (ii) the Customer will have full beneficial
ownership of any Shares purchased upon its authorization order; and
(iii) under no circumstances will any transactions be for the account
of the Service Organization. Under no circumstances will the Service
Organization make any oral or written representations to the contrary;
E. With respect to the purchase, redemption or exchange of Fund Shares
for Customer accounts with respect to which the Service Organization
is a fiduciary under state or federal trust or comparable fiduciary
requirements, or, in the case of any such accounts which are subject
to the Employee Retirement Income Security Act of 1974, as amended,
the Service Organization is a fiduciary or party in interest, the
Service Organization represents that the purchase, redemption or
exchange of such Shares, and the Service Organization's receipt of the
relevant fee described in Section 3 hereof, is permissible under all
such applicable requirements and complies with any restrictions,
limitations or procedures under such requirements;
F. It will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and Goldman,
Sachs & Co., which requirement shall survive the term of this
Agreement; and
G. It will not, without written consent of the Trust in each instance,
use in advertising, publicity or otherwise the name of the Trust,
Goldman, Sachs & Co., or any of their affiliates nor any trade name,
trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof of the Trust, Goldman, Sachs & Co.
or their affiliates.
6. Responsibilities of the Service Organization. The Service Organization
agrees that neither Goldman Sachs nor any Fund nor any of its agents shall have
any responsibility or liability to review any purchase, exchange or redemption
request which is presented by the Service Organization (i) to determine whether
such request is genuine or authorized by the Customer of the Service
Organization; or (ii) to determine the suitability of the selected Class or Fund
for such Customer. Goldman Sachs, each Fund and their agents shall be entitled
to rely conclusively on any purchase or redemption request communicated to any
of them by the Service Organization, and shall have no liability whatsoever for
any losses, claims or damages to or against the Service Organization or any
Customer resulting from a failure of the Service Organization to transmit any
such request, or from any errors contained in any request. Any such failure or
error shall be the responsibility of the Service Organization. Goldman Sachs and
the Service Organization agree that the procedures for the purchase, exchange
and redemption of Shares, including all relevant time and notification
<PAGE>
requirements, specified in their then-effective prospectuses, shall govern the
purchase, exchange and redemption of Shares for the accounts of the Service
Organization's Customers.
7. Amendment; Termination. This Agreement may be amended by a written
instrument executed by both parties and may be terminated by Goldman Sachs or
the Service Organization at any time on 60 days' written notice mailed or
delivered to the other party at its address set forth above.
8. Indemnification. Goldman Sachs agrees to indemnify the Service
Organization and each person who controls (as defined in Section 2(a)(9) of the
1940 Act) the Service Organization from and against any losses, claims, damages,
expenses (including reasonable fees and expenses of counsel) or liabilities
("Damages") to which the Service Organization or such person may become subject
in so far as such Damages arise out of the failure of Goldman Sachs or its
employees or agents to comply with Goldman Sachs' obligations under this
Agreement or any other agreement between Goldman Sachs and the Service
Organization relating to the performance of Services hereunder (a "Covered
Agreement"). The Service Organization agrees to indemnify Goldman Sachs, the
Funds, their agents and each person who controls (as defined in Section 2(a)(9)
of the 1940 Act) any of them from and against any Damages to which any of them
may become subject in so far as such Damages arise out of the purchase,
redemption, transfer or registration of Shares by the Service Organization's
Customers, any request related thereto by the Service Organization or its
employees or agents, or the failure of the Service Organization or its
employees, agents or Customers to comply with the Service Organization's
obligations under a Covered Agreement. Notwithstanding the foregoing, neither
Goldman Sachs nor the Service Organization shall be entitled to be indemnified
for Damages arising out of its or its agent's or employee's gross negligence.
The foregoing indemnity agreements shall be in addition to any liability Goldman
Sachs or the Service Organization may otherwise have, and shall survive the
termination of this Agreement.
9. No Association or Agency. The Service Organization shall be deemed an
independent contractor and not an agent of Goldman Sachs or any Fund for all
purposes hereunder and shall have no authority to act for or represent Goldman
Sachs or any Fund. In addition, no officer or employee of the Service
Organization shall be deemed to be an employee or agent of the Funds or Goldman
Sachs or be subject, in any respect, to the supervision of Goldman Sachs or any
affiliate thereof.
10. Applicable Law. If any provision of this Agreement shall be held or
made invalid by a decision in a judicial or administrative proceeding, statute,
rule or otherwise, the enforceability of the remainder of this Agreement will
not be impaired thereby. This Agreement shall be governed by the laws of the
State of New York and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors.
Very truly yours,
GOLDMAN, SACHS & CO.
By:
---------------------------------------------
[Authorized Officer]
Accepted and agreed to as of the date first above written:
SERVICE ORGANIZATION
By:
---------------------------------
[Authorized Officer]
<PAGE>
Exhibit (h)(20)
Goldman Sachs Trust Service Agreement
- --------------------------------------------------------------------------------
Date
Service Organization
Address
RE: Goldman Sachs Trust (the "Trust")
Ladies and Gentlemen:
This Agreement is entered into by the financial institution or service provider
executing this Agreement (the "Service Organization") and Goldman Sachs Trust
(the "Trust"), 4900 Sears Tower, Chicago, Illinois 60606. The Trust is an
open-end management investment company that includes the Goldman Sachs Financial
Square Funds, Goldman Sachs--Institutional Liquid Assets Portfolios, Goldman
Sachs Fixed Income Funds, Goldman Sachs Domestic Equity Funds, Goldman Sachs
International Equity Funds and Goldman Sachs Asset Allocation Portfolios (such
Funds and Portfolios now or hereafter offered by the Trust are individually
referred to herein as a "Fund" and, collectively, as the "Funds"). Shares or
units of beneficial interest (the "Shares") of each Fund may be divided into
separate classes, including the Preferred Class, the Administration Class, the
Service Class and the Cash Management Class (individually referred to herein as
a "Class" and, collectively, the "Classes"). The Classes currently offered by
the Funds are listed on Schedule A hereto.
You are willing to perform, and the Trust wishes to compensate you for
performing, certain support services with respect to your customers investing in
the Classes of the Funds that you have selected on Schedule A attached hereto
(the "Services"). Accordingly, the Service Organization and the Trust agree as
follows:
1. Agreement to Provide Services. The Service Organization shall act
directly or through an agent as nominee and record holder of Shares of one or
more of the Classes for its customers, who are or may become the beneficial
owners of such Shares (the "Customers").
With respect to Customers holding Shares of the Preferred Class, the Trust
hereby engages the Service Organization, and the Service Organization hereby
agrees, to perform the following Services: (a) act directly or through an agent
as record holder and nominee of Shares of such Class beneficially owned by the
Customers; (b) establish and maintain, or assist in establishing and
maintaining, individual accounts and records with respect to Shares of such
Class owned by each Customer; and (c) receive and transmit, or assist in
receiving and transmitting, funds representing the purchase price or redemption
proceeds of such Shares.
With respect to Customers holding Shares of the Administration Class, the
Trust hereby engages the Service Organization, and the Service Organization
hereby agrees, to perform the Services outlined in clauses (a) through (c)
above, in addition to the following Services: (d) provide facilities to answer
inquiries and respond to correspondence with Customers and other investors about
the status of their accounts or about other aspects of the Trust or the Funds;
and (e) process and issue, or assist in processing and issuing, confirmations
concerning Customer orders to purchase, redeem and exchange Shares promptly and
in accordance with the then effective prospectus for Shares of such Class.
With respect to Customers holding Shares of the Service Class and Cash
Management Class, the Trust hereby engages the Service Organization, and the
Service Organization hereby agrees, to perform the Services outlined in clauses
(a) through (e) above, in addition to the following Services: (f) respond to
investor requests for prospectuses and statements of additional information; (g)
display and make prospectuses available on the Service Organization's
<PAGE>
premises; (h) assist Customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization; (i) act as liaison between Customers and the Trust, including
obtaining information from the Trust, assisting the Trust in correcting errors
and resolving problems; and (j) provide such statistical and other information
as may be reasonably requested by the Trust or necessary for the Trust to comply
with applicable federal or state laws.
2. Expenses of the Service Organization. The Service Organization shall
furnish such office space, equipment, facilities and personnel as is necessary
to perform its duties hereunder. The Service Organization shall bear all costs
incurred by it in performing such duties.
3. Service Fees Payable to the Service Organization. For the Services
provided and the expenses incurred by the Service Organization hereunder, the
Trust on behalf of the Fund(s) will pay to the Service Organization a monthly
fee equal on an annual basis to the percentage specified on Schedule A of the
average daily net asset value of the Shares of the Preferred Class, the
Administration Class, the Service Class and the Cash Management Class, of such
Funds of the Trust which are owned beneficially by Customers through the Service
Organization during such period. However, with respect to the ILA Portfolios and
the Financial Square Funds, if the total fees to be accrued by any Fund on any
day with respect to such Shares of the Fund exceed the net income, exclusive of
such fees, to be accrued by the Fund on such Shares, the fee payable by the Fund
to the Service Organization on such day will be reduced by an amount equal to
the Service Organization's proportionate share of such excess with respect to
such Class, in order to avoid adversely affecting the net asset value per Share
of that Class.
4. Representations and Warranties. The Service Organization hereby
represents, warrants and covenants to the Trust:
A. i. That it is an investment adviser as defined under Section
202(a)(11) of the Investment Advisers Act of 1940, as amended
(the "Advisers Act"); it is registered and in good standing, and
will during the term of this Agreement remain in good standing,
as an investment adviser with the United States Securities and
Exchange Commission (the "Commission") or with the securities
commission of any state, territory or possession of the United
States, and is in full compliance with the rules, regulations and
policies of the aforesaid commissions, particularly those rules,
regulations and policies governing capital requirements,
financial reporting, bonding, fiduciary standards and supervisory
concerns; and its entering into and performing its obligations
under this Agreement does not and will not violate any laws,
rules or regulations (including Rule 206(4)-2 under the Advisers
Act and rules or regulations of any self-regulatory
organization); or
ii. That it is a broker or dealer as defined in Section 3(a)(4) or
3(a)(5) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); that it is registered and in good standing, and
will during the term of this Agreement remain in good standing
(a) as a broker-dealer with the Commission pursuant to Section 15
of the Exchange Act and with the securities commission of any
state, territory or possession of the United States and (b) as a
member of the National Association of Securities Dealers, Inc.
(the "NASD") and/or any stock exchange or other self-regulatory
organization in which the Service Organization's membership is
necessary for the conduct of its business under this Agreement,
and is in full compliance with the rules, regulations and
policies of the aforesaid commissions and organizations,
particularly those rules, regulations and policies governing
capital requirements, financial reporting, bonding, fiduciary
standards and supervisory concerns; and its entering into and
performing its obligations under this Agreement does not and will
not violate any laws, rules or regulations (including the net
capital and customer protection rules of the Commission and the
rules or regulations of the NASD or any self-regulatory
organization or any so-called "restriction" letter with the
NASD); or
2
<PAGE>
iii. That it is a depository institution (a) organized, chartered or
holding an authorization certificate under the laws of a state or
of the United States, which authorizes the Service Organization
to receive deposits, including a savings, share, certificate or
deposit account, and which is regulated, supervised and examined
for the protection of depositors by an official or agency of a
state or the United States and is insured by the Federal Deposit
Insurance Corporation, the Federal Savings and Loan Insurance
Corporation or the National Credit Union Share Insurance Fund, or
(b) is a trust company or other institution that is authorized by
federal or state law to exercise fiduciary powers of a type a
national bank is permitted to exercise under the authority of the
United States Office of the Comptroller of the Currency, and is
regulated, supervised and examined by an official or agency of a
state or the United States; and its entering into and performing
its obligations under this Agreement does not and will not
violate any laws, rules or regulations.
B. That it is a corporation, association or partnership duly organized,
validly existing, and in good standing under the laws of the state of
its organization;
C. That entering into and performing its obligations under this Agreement
does not and will not violate (i) its charter or by-laws; or (ii) any
agreements to which it is a party;
D. If the Service Organization is a depository institution or a broker or
dealer, in processing Customer orders to purchase, redeem and exchange
Shares, (i) it shall act solely as agent upon the order, and for the
account, of its Customer; (ii) the Customer will have full beneficial
ownership of any Shares purchased upon its authorization and order;
and (iii) under no circumstances will any transactions be for the
account of the Service Organization. Under no circumstances will the
Service Organization make any oral or written representations to the
contrary;
E. With respect to the purchase, redemption or exchange of Fund Shares
for Customer accounts with respect to which the Service Organization
is a fiduciary under state or federal trust or comparable fiduciary
requirements, or, in the case of any such accounts which are subject
to the Employee Retirement Income Security Act of 1974, as amended,
the Service Organization is a fiduciary or party in interest, the
Service Organization represents that the purchase, redemption or
exchange of such Shares, and the Service Organization's receipt of the
relevant fee described in Section 4 hereof, is permissible under all
such applicable requirements and complies with any restrictions,
limitations or procedures under such requirements;
F. It will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and Goldman,
Sachs & Co., which requirement shall survive the term of this
Agreement; and
G. It will not, without written consent of the Trust in each instance,
use in advertising, publicity or otherwise the name of the Trust,
Goldman, Sachs & Co., or any of their affiliates nor any trade name,
trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof of the Trust, Goldman, Sachs & Co.
or their affiliates.
5. Performance of Duties. In performing its duties hereunder, the Service
Organization will act in conformity with the Trust's instructions, the terms of
its Customer agreement, the then effective prospectuses and statements of
additional information for the relevant Classes of Funds selected on Schedule A,
the Investment Company Act of 1940, as amended (the "1940 Act") and all other
applicable federal and state laws, regulations and rulings and the constitution,
by-laws and rules of any applicable self-regulatory organization. The Service
Organization will assume sole responsibility for its compliance with applicable
federal and state laws and regulations, and shall rely exclusively upon its own
determination, or that of its legal advisers, that the performance of its duties
hereunder complies with such
3
<PAGE>
laws and regulations. Under no circumstances shall the Trust, Goldman, Sachs &
Co. or any of their affiliates be held responsible or liable in any respect for
any statements or representations made by them or their legal advisers to the
Service Organization or any Customer of the Service Organization concerning the
applicability of any federal or state laws or regulations to the activities
described herein. The Service Organization will perform its duties hereunder in
a manner consistent with the customs and practices of other institutions that
provide similar services.
6. Responsibilities of the Service Organization. The Service
Organization agrees that neither the Trust nor its agents shall have any
responsibility or liability to review any purchase, exchange or redemption
request which is presented by the Service Organization (i) to determine whether
such request is genuine or authorized by the Customer of the Service
Organization; or (ii) to determine the suitability of the selected Class or Fund
for such Customer. The Trust and its agents shall be entitled to rely
conclusively on any purchase, exchange or redemption request communicated to it
by the Service Organization, and shall have no liability whatsoever for any
losses, claims or damages to or against the Service Organization or any Customer
resulting from a failure of the Service Organization to transmit any such
request, or from any errors contained in any request. Any such failure or error
shall be the responsibility of the Service Organization. In addition, the
Service Organization shall have exclusive responsibility for the operation of
any cash sweep or other investment or cash management program established by it
for its Customers, including the provision of all electronic data processing
facilities as are necessary for any such program and the proper transmission of
appropriate instructions and funds to the Trust in connection therewith. The
Trust and the Service Organization agree that the procedures for the purchase,
exchange and redemption of Shares, including all relevant time and notification
requirements, specified in the then-effective prospectuses of the relevant
Class, shall govern the purchase, exchange and redemption of Shares for the
accounts of the Service Organization's Customers under the Agreement, including
the purchase, exchange and redemption of Shares pursuant to any such program.
7. Termination. This Agreement shall continue in effect until June
30 of the year following the date first set forth above, and shall continue in
effect from year to year thereafter only if it is approved annually by a vote of
a majority of the Trustees of the Trust, including a majority of those Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the relevant Preferred Administration
Plan, Administration Plan, Service Plan and/or Distribution Plan, this Agreement
or any related agreements (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Agreement. This Agreement may
be terminated at any time, on not less than 60 days' notice to the Service
Organization and without the payment of any penalty, by vote of a majority of
the Independent Trustees or, with respect to any Class of any Fund, by vote of a
majority of the outstanding voting securities of that Class of the Fund. This
Agreement may also be terminated by the Service Organization at any time on 60
days' notice to the Trust and will terminate automatically in the event of its
assignment. All material amendments to this Agreement must be in writing and
must be approved by the Independent Trustees in the manner described above for
continuing this Agreement. The terms "majority of the outstanding voting
securities" and "assignment" shall have the meanings given to them in the 1940
Act. Any notice furnished hereunder shall be in writing and shall be mailed or
delivered to the other party at its address set forth above.
8. Indemnification. The Trust agrees to indemnify the Service
Organization and each person who controls (as defined in Section 2(a)(9) of the
1940 Act) the Service Organization from and against any losses, claims, damages,
expenses (including reasonable fees and expenses of counsel) or liabilities
("Damages") to which the Service Organization or such person may become subject
in so far as such Damages arise out of the failure of the Trust or its employees
or agents to comply with the Trust's obligations under this Agreement or any
other agreement between the Trust and the Service Organization relating to the
performance of Services hereunder (a "Covered Agreement"). The Service
Organization agrees to indemnify the Trust, the Funds, their agents and each
person who controls (as defined in Section 2(a)(9) of the 1940 Act) any of them
from and against any Damages to which any of them may become subject in so far
as such Damages arise out of the purchase, redemption, transfer or registration
of Shares by the Service Organization's Customers, any request related thereto
communicated by the Service Organization or its employees or agents, or the
failure of the Service Organization or its employees, agents or Customers to
comply with the Service Organization's obligations under a Covered Agreement.
Notwithstanding the foregoing, neither the Trust nor the Service Organization
shall be entitled to be indemnified for Damages arising out of its or its
agent's or employee's gross
4
<PAGE>
negligence. The foregoing indemnity agreements shall be in addition to any
liability the Trust or the Service Organization may otherwise have, and shall
survive the termination of this Agreement.
9. No Association or Agency. The Service Organization shall be deemed to be
an independent contractor and not an agent of the Trust for all purposes
hereunder and shall have no authority to act for or represent the Trust. In
addition, no officer or employee of the Service Organization shall be deemed to
be an employee or agent of the Trust or Goldman Sachs Asset Management ("GSAM"),
nor will be subject, in any respect, to the supervision of GSAM or any affiliate
thereof.
10. Obligations Not Binding on Trustees. The obligations of the Trust under
this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually but are binding only upon the Trust and
its assets. No Class or Fund of the Trust shall be liable for the obligations of
any other Class or Fund hereunder.
11. Applicable Law. If any provision of this Agreement shall be held or
made invalid by a decision in a judicial or administrative proceeding, statute,
rule or otherwise, the enforceability of the remainder of this Agreement will
not be impaired thereby. This Agreement shall be governed by the laws of the
State of New York (except with respect to Section 10, which will be governed by
the laws of the State of Delaware) and shall be binding upon and inure to the
benefit of the parties hereto and their respective successors.
Very truly yours,
GOLDMAN SACHS TRUST
By:
----------------------------------
[Authorized Officer]
Accepted and agreed to as of the date first above written.
[SERVICE ORGANIZATION]
By:
---------------------------------
[Authorized Officer]
5
<PAGE>
SCHEDULE A
GOLDMAN SACHS TRUST FUNDS
-------------------------
Please indicate (X) the appropriate Classes of Funds for which this Agreement
applies:
ILA Portfolios:
- ---------------
[_] Administration Class: 0.15%
[_] Service Class: 0.40%
[_] Cash Management Class 0.50%
Financial Square Funds:
- -----------------------
[_] Preferred Class: 0.10%
[_] Administration Class: 0.25%
[_] Service Class: 0.50%
Fixed Income Funds:
- -------------------
[_] Administration Class: 0.25%1
[_] Service Class: 0.50%
Domestic and International Equity Funds:
- ----------------------------------------
[_] Service Class: 0.50%
Asset Allocation Portfolios:
- ----------------------------
[_] Service Class: 0.50%
- ----------------------------------
1 Not offered by all Fixed Income Funds.
<PAGE>
Exhibit (h)(21)
ILA Supplemental Service Agreement
- --------------------------------------------------------------------------------
Date
Service Organization
Address
RE: Shareholder Service Agreement for the ILA Portfolios
of Goldman Sachs Trust (the "Trust")
Ladies and Gentlemen:
The undersigned, Goldman Sachs Asset Management ("GSAM"), One New York Plaza,
New York, New York 10004, is a separate operating division of Goldman, Sachs &
Co., a registered investment adviser. GSAM acts as investment adviser to the
Trust, which is an open-end management investment company that includes the
Goldman Sachs--Institutional Liquid Assets Portfolios (such portfolios now
existing or hereafter offered are individually referred to herein as a "Fund"
and, collectively, the "Funds"). Shares or units of beneficial interest
("Shares") of each Fund may be divided into separate classes, including the
Administration Class, the Service Class and the Cash Management Class
(individually referred to herein as a "Class" and, collectively, the "Classes").
You are a financial institution or service provider (the "Service Organization")
acting directly or through an agent as nominee and record holder of Shares for
your customers, who are or may become the beneficial owners of such Shares (the
"Customers"). You are willing to perform, and GSAM wishes to compensate you for
performing, certain services with respect to the Customers investing in the
Classes that you have selected on Schedule A attached hereto (the "Services").
Accordingly, the Service Organization and GSAM agree as follows:
1. Agreement to Provide Services. GSAM hereby engages the Service
Organization, and the Service Organization hereby agrees, to perform the
following Services: (a) provide, or assist GSAM in providing, periodic
statements to each Customer showing account balances and transactions during the
relevant period; (b) mail, or assist GSAM in promptly mailing, to Customers
reports and proxy statements issued by the Trust; and (c) provide, or assist
GSAM in providing, such statistical and other information as may be reasonably
requested by GSAM, including reports of sales of such Administration, Service
Class and Cash Management Class Shares in each state or other jurisdiction for
purposes of complying with state securities or "Blue Sky" laws. In addition,
with respect to the Cash Management Class, the Service Organization agrees to:
(a) facilitate the inclusion of the Cash Management Class in investment,
retirement, asset allocation and cash management or sweep accounts or similar
programs or services of its Customers; (b) facilitate electronic or computer
trading and/or processing in the Cash Management Class for its Customers; (c)
provide ongoing services, technology and systems support with respect to the
implementation and maintenance of the foregoing programs; and (d) provide
assistance, as reasonably requested, in connection with the distribution and
marketing of the Cash Management Class to Customers.
2. Expenses of the Service Organization. The Service Organization
shall furnish such office space, equipment, facilities and personnel as is
necessary to perform its duties hereunder. The Service Organization shall bear
all costs incurred by it in performing such duties.
3. Service Fees Payable to the Service Organization. For the
Services provided and the expenses incurred by the Service Organization
hereunder, GSAM will pay to the Service Organization a monthly fee equal on an
annual basis to the percentage specified on Schedule A based on the average
daily net asset value
<PAGE>
of the Shares of each Fund which are owned beneficially by Customers through the
Service Organization during such period.
4. Performance of Duties. In performing its duties hereunder, the
Service Organization will act in conformity with GSAM's instructions, the terms
of its Customer agreements, the then effective prospectuses and statements of
additional information for the Administration Class, the Service Class and the
Cash Management Class, the Investment Company Act of 1940, as amended (the "1940
Act") and all other applicable federal and state laws, regulations and rulings
and the constitution, by-laws and rules of any applicable self-regulatory
organization. The Service Organization will assume sole responsibility for its
compliance with applicable federal and state laws and regulations, and shall
rely exclusively upon its own determination, or that of its legal advisers, that
the performance of its duties hereunder complies with such laws and regulations.
Under no circumstances shall the Trust, Goldman, Sachs & Co., GSAM or any of
their affiliates be held responsible or liable in any respect for any statements
or representations made by them or their legal advisers to the Service
Organization or any Customer of the Service Organization concerning the
applicability of any federal or state laws or regulations to the activities
described herein. The Service Organization will perform its duties hereunder in
a manner consistent with the customs and practices of other institutions that
provide similar services.
5. Representations and Warranties. The Service Organization hereby
represents, warrants and covenants to GSAM:
A. i. That it is an investment adviser as defined under Section
202(a)(11) of the Investment Advisers Act of 1940 (the
"Advisers Act"); it is registered and in good standing,
and will during the term of this Agreement remain in good
standing, as an investment adviser with the United States
Securities and Exchange Commission (the "Commission") or
with the securities commission of any state, territory or
possession of the United States and is in full compliance
with the rules, regulations and policies of the aforesaid
commissions, particularly those rules, regulations and
policies governing capital requirements, financial
reporting, bonding, fiduciary standards and supervisory
concerns; and its entering into and performing its
obligations under this Agreement does not and will not
violate any laws, rules or regulations (including Rule
206(4)-2 under the Advisers Act and rules or regulations
of any self-regulatory organization); or
ii. That it is a broker or dealer as defined in Section
3(a)(4) or 3(a)(5) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); that it is registered and
in good standing, and will during the term of this
Agreement remain in good standing (a) as a broker-dealer
with the Commission pursuant to Section 15 of the Exchange
Act and with the securities commission of any state,
territory or possession of the United States and (b) as a
member of the National Association of Securities Dealers,
Inc. (the "NASD") and/or any stock exchange or other self-
regulatory organization in which the Service
Organization's membership is necessary for the conduct of
its business under this Agreement, and is in full
compliance with the rules, regulations and policies of the
aforesaid commissions and organizations, particularly
those rules, regulations and policies governing capital
requirements, financial reporting, bonding, fiduciary
standards and supervisory concerns; and its entering into
and performing its obligations under this Agreement does
not and will not violate any laws, rules or regulations
(including the net capital and customer protection rules
of the Commission and the rules or regulations of the NASD
or any self-regulatory organization or any so-called
"restriction" letter with the NASD); or
iii. That it is a depository institution (a) organized,
chartered or holding an authorization certificate under
the laws of a state or of the United States, which
authorizes the Service Organization to receive deposits,
including a savings, share, certificate or deposit
account, and which is regulated, supervised and examined
for the protection of
<PAGE>
depositors by an official or agency of a state or the
United States and is insured by the Federal Deposit
Insurance Corporation, the Federal Savings and Loan
Insurance Corporation or the National Credit Union Share
Insurance Fund, or (b) is a trust company or other
institution that is authorized by federal or state law to
exercise fiduciary powers of a type a national bank is
permitted to exercise under the authority of the United
States Office of the Comptroller of the Currency, and is
regulated, supervised and examined by an official or
agency of a state or the United States; and its entering
into and performing its obligations under this Agreement
does not and will not violate any laws, rules or
regulations.
B. That it is a corporation, association or partnership duly
organized, validly existing, and in good standing under the
laws of the state of its organization;
C. That entering into and performing its obligations under this
Agreement does not and will not violate (i) its charter or by-
laws; or (ii) any agreements to which it is a party;
D. If the Service Organization is a depository institution or
broker or dealer, in processing Customer orders to purchase,
redeem and exchange Shares, (i) it shall act solely as agent
upon the order, and for the account, of its Customer; (ii) the
Customer will have full beneficial ownership of any Shares
purchased upon its authorization order; and (iii) under no
circumstances will any transactions be for the account of the
Service Organization. Under no circumstances will the Service
Organization make any oral or written representations to the
contrary;
E. With respect to the purchase, redemption or exchange of Fund
Shares for Customer accounts with respect to which the Service
Organization is a fiduciary under state or federal trust or
comparable fiduciary requirements, or, in the case of any such
accounts which are subject to the Employee Retirement Income
Security Act of 1974, as amended, the Service Organization is a
fiduciary or party in interest, the Service Organization
represents that the purchase, redemption or exchange of such
Shares, and the Service Organization's receipt of the relevant
fee described in Section 3 hereof, is permissible under all
such applicable requirements and complies with any
restrictions, limitations or procedures under such
requirements;
F. It will keep confidential any information acquired as a result
of this Agreement regarding the business and affairs of the
Trust and Goldman, Sachs & Co., which requirement shall survive
the term of this Agreement; and
G. It will not, without written consent of the Trust in each
instance, use in advertising, publicity or otherwise the name
of the Trust, Goldman, Sachs & Co., or any of their affiliates
nor any trade name, trademark, trade device, service mark,
symbol or any abbreviation, contraction or simulation thereof
of the Trust, Goldman, Sachs & Co. or their affiliates.
6. Responsibilities of the Service Organization. The Service
Organization agrees that neither GSAM nor any Fund nor any of their agents shall
have any responsibility or liability to review any purchase, exchange or
redemption request which is presented by the Service Organization (i) to
determine whether such request is genuine or authorized by the Customer of the
Service Organization; or (ii) to determine the suitability of the selected Class
or Fund for such Customer. GSAM, each Fund and their agents shall be entitled to
rely conclusively on any purchase, exchange or redemption request communicated
to any of them by the Service Organization, and shall have no liability
whatsoever for any losses, claims or damages to or against the Service
Organization or any Customer resulting from a failure of the Service
Organization to transmit any such request, or from any errors contained in any
request. Any such failure or error shall be the responsibility of the Service
Organization. In addition, the Service Organization shall have exclusive
responsibility for the operation of any cash sweep or other investment or cash
management program established by it for its Customers, including the provision
of all electronic data processing facilities as are
<PAGE>
necessary for any such program and the proper transmission of appropriate
instructions and funds to the Trust in connection therewith. GSAM and the
Service Organization agree that the procedures for the purchase, exchange and
redemption of Shares, including all relevant time and notification requirements,
specified in the then-effective prospectuses of the relevant Class, shall govern
the purchase, exchange and redemption of Shares for the accounts of the Service
Organization's Customers, including the purchase, exchange and redemption of
Shares pursuant to any such program.
7. Amendments; Termination. This Agreement may be amended by a
written instrument executed by both parties and may be terminated by GSAM or the
Service Organization at any time on 60 days' written notice mailed or delivered
to the other party at its address set forth above.
8. No Association or Agency. The Service Organization shall be
deemed to be an independent contractor and not an agent of GSAM or the Trust for
all purposes hereunder and shall have no authority to act for or represent GSAM
or the Trust. In addition, no officer or employee of the Service Organization
shall be deemed to be an employee or agent of the Trust or GSAM, nor will be
subject, in any respect, to the supervision of GSAM or any affiliate thereof.
9. Indemnification. GSAM agrees to indemnify the Service
Organization and each person who controls (as defined in Section 2(a)(9) of the
1940 Act) the Service Organization from and against any losses, claims, damages,
expenses (including reasonable fees and expenses of counsel) or liabilities
("Damages") to which the Service Organization or such person may become subject
in so far as such Damages arise out of failure of GSAM or its employees or
agents to comply with GSAM's obligations under this Agreement or any other
agreement between GSAM and the Service Organization relating to the performance
of Services hereunder (a "Covered Agreement"). The Service Organization agrees
to indemnify GSAM, the Funds, their agents and each person who controls (as
defined in Section 2(a)(9) of the 1940 Act) any of them from and against any
Damages to which any of them may become subject in so far as such Damages arise
out of the purchase, redemption, transfer or registration of Shares by the
Service Organization's Customers, any request related thereto communicated by
the Service Organization or its employees or agents, or the failure of the
Service Organization or its employees, agents or Customers to comply with the
Service Organization's obligations under a Covered Agreement. Notwithstanding
the foregoing, neither GSAM nor the Service Organization shall be entitled to be
indemnified for Damages arising out of its or its agent's or employee's gross
negligence. The foregoing indemnity agreements shall be in addition to any
liability GSAM or the Service Organization may otherwise have, and shall survive
the termination of this Agreement.
10. Applicable Law. If any provision of this Agreement shall be
held or made invalid by a decision in a judicial or administrative proceeding,
statute, rule or otherwise, the enforceability of the remainder of this
Agreement will not be impaired thereby. This Agreement shall be governed by the
laws of the State of New York and shall be binding upon and inure to the benefit
of the parties hereto and their respective successors.
Very truly yours,
GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of Goldman, Sachs & Co.
By:
-----------------------------------------
[Authorized Officer]
Accepted and agreed to as of the date first above written:
SERVICE ORGANIZATION
By:
------------------------------------------------
[Authorized Officer]
<PAGE>
SCHEDULE A
----------
Please indicate (X) the appropriate Class(es) for which this Agreement applies:
[_] GOLDMAN SACHS-ILA ADMINISTRATION CLASS: 0.10%
-----
[_] GOLDMAN SACHS-ILA SERVICE CLASS: 0.10%
-----
[_] GOLDMAN SACHS-ILA CASH MANAGEMENT CLASS:
For total investments in the Cash Management Class, the applicable fee
shall be paid on the entire Cash Management Class balance once a fee
threshold has been reached:
(i)
(a) during 1998:
$ 0 - $5 million 0.10%
-----
$ 5 - $10 million 0.25%
-----
Over $50 million 0.30%
-----
or;
(b) 1999 and thereafter:
$ 25 - $100 million 0.10%
-----
$ 100 - $250 million 0.25%
-----
Over $250 million 0.30%
-----
or;
(ii) If aggregate investment in all Classes of the Funds (excluding
the Cash Management Class) exceeds $1 billion, the fee on the
entire balance in the Cash Management Class will be:
0.30%
-----
<PAGE>
Exhibit (h)(22)
Financial Square Funds Supplemental Service Agreement
- -------------------------------------------------------------------------------
Date
Service Organization
Address
RE: Shareholder Service Agreement for the Financial Square Funds
of Goldman Sachs Trust (the "Trust")
Ladies and Gentlemen:
The undersigned, Goldman Sachs Asset Management ("GSAM"), One New York Plaza,
New York, New York, 10004, is a separate operating division of Goldman, Sachs &
Co., a registered investment adviser. GSAM acts as investment adviser to the
Trust, which is an open-end management investment company that includes the
Goldman Sachs Financial Square Funds (such funds now existing or hereafter
offered are individually referred to herein as a "Fund" and, collectively, the
"Funds"). Shares or units of beneficial interest ("Shares") of each Fund may be
divided into separate classes, including the FST Shares, the FST Preferred
Shares, the FST Administration Shares and the FST Service Shares (individually
referred to herein as a "Class" and, collectively, the "Classes").
You are a financial institution or service provider (the "Service Organization")
acting directly or through an agent as nominee and record holder of Shares for
your customers, who are or may become the beneficial owners of such Shares (the
"Customers"). You are willing to perform, and GSAM wishes to compensate you for
performing, certain services with respect to the Customers investing in the
Classes that you have selected on Schedule A attached hereto (the "Services").
Accordingly, the Service Organization and GSAM agree as follows:
1. Agreement to Provide Services. GSAM hereby engages the Service
Organization, and the Service Organization hereby agrees, to perform the
following Services (which will be in addition to any other services performed
pursuant to an agreement with the Funds): (a) disburse dividends and
distributions declared on the Shares of the Classes held in the name of the
Service Organization by mailing checks or crediting Customer accounts in
accordance with the election made by each Customer and issue related Customer
accounts; (b) provide, or assist GSAM in providing, periodic statements to each
Customer showing account balances and transactions during the relevant period;
(c) promptly mail, or assist GSAM in promptly mailing, to Customers reports and
proxy statements issued by the Trust; (d) handle all tax withholding and
remittances required by federal income tax laws with respect to Customer
accounts, prepare and file with the Internal Revenue Service all required
returns and statements and prepare and mail to each Customer all statements and
reports concerning dividends and distributions to shareholders that are required
by the Investment Company Act of 1940, as amended (the "1940 Act") or federal
income tax laws; (e) provide such statistical and other information as may be
reasonably requested by GSAM, including reports of sales of the Classes in each
state or other jurisdiction for purposes of complying with state securities or
"Blue Sky" laws; (f) develop and monitor appropriate program procedures to
facilitate investments of Customers in the Funds; and (g) provide consultative
services concerning appropriate and effective means of making Funds available to
Customers.
<PAGE>
2. Expenses of the Service Organization. The Service Organization
shall furnish such office space, equipment, facilities and personnel as is
necessary to perform its duties hereunder. The Service Organization shall bear
all costs incurred by it in performing such duties.
3. Service Fees Payable to the Service Organization. For the
Services provided and the expenses incurred by the Service Organization
hereunder, GSAM will pay to the Service Organization a service fee, computed
daily and payable quarterly, at the annual rate of 0.05% of the average daily
net asset value of the Shares of the relevant Class of each Fund which are owned
beneficially by Customers through the Service Organization during such period.
4. Performance of Duties. In performing its duties hereunder, the
Service Organization will act in conformity with GSAM's instructions, the terms
of its Customer agreements, the then effective prospectuses and statements of
additional information for the relevant Classes selected on Schedule A, the
Investment Company Act of 1940, as amended (the "1940 Act") and all other
applicable federal and state laws, regulations and rulings and the constitution,
by-laws and rules of any applicable self-regulatory organization. The Service
Organization will assume sole responsibility for its compliance with applicable
federal and state laws and regulations, and shall rely exclusively upon its own
determination, or that of its legal advisers, that the performance of its duties
hereunder complies with such laws and regulations. Under no circumstances shall
the Trust, Goldman, Sachs & Co., GSAM or any of their affiliates be held
responsible or liable in any respect for any statements or representations made
by them or their legal advisers to the Service Organization or any Customer of
the Service Organization concerning the applicability of any federal or state
laws or regulations to the activities described herein. The Service Organization
will perform its duties hereunder in a manner consistent with the customs and
practices of other institutions that provide similar services.
5. Representations and Warranties. The Service Organization hereby
represents, warrants and covenants to GSAM:
A. i. That it is an investment adviser as defined under Section
202(a)(11) of the Investment Advisers Act of 1940 (the
"Advisers Act"); it is registered and in good standing,
and will during the term of this Agreement remain in good
standing, as an investment adviser with the United States
Securities and Exchange Commission (the "Commission") or
with the securities commission of any state, territory or
possession of the United States and is in full compliance
with the rules, regulations and policies of the aforesaid
commissions, particularly those rules, regulations and
policies governing capital requirements, financial
reporting, bonding, fiduciary standards and supervisory
concerns; and its entering into and performing its
obligations under this Agreement does not and will not
violate any laws, rules or regulations (including Rule
206(4)-2 under the Advisers Act and rules or regulations
of any self-regulatory organization); or
ii. That it is a broker or dealer as defined in Section
3(a)(4) or 3(a)(5) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); that it is registered and
in good standing, and will during the term of this
Agreement remain in good standing (a) as a broker-dealer
with the Commission pursuant to Section 15 of the Exchange
Act and with the securities commission of any state,
territory or possession of the United States and (b) as a
member of the National Association of Securities Dealers,
Inc. (the "NASD") and/or any stock exchange or other self-
regulatory organization in which the Service
Organization's membership is necessary for the conduct of
its business under this Agreement, and is in full
compliance with the rules, regulations and policies of the
<PAGE>
aforesaid commissions and organizations, particularly
those rules, regulations and policies governing capital
requirements, financial reporting, bonding, fiduciary
standards and supervisory concerns; and its entering into
and performing its obligations under this Agreement does
not and will not violate any laws, rules or regulations
(including the net capital and customer protection rules
of the Commission and the rules or regulations of the NASD
or any self-regulatory organization or any so-called
"restriction" letter with the NASD); or
iii. That it is a depository institution (a) organized,
chartered or holding an authorization certificate under
the laws of a state or of the United States, which
authorizes the Service Organization to receive deposits,
including a savings, share, certificate or deposit
account, and which is regulated, supervised and examined
for the protection of depositors by an official or agency
of a state or the United States and is insured by the
Federal Deposit Insurance Corporation, the Federal Savings
and Loan Insurance Corporation or the National Credit
Union Share Insurance Fund, or (b) is a trust company or
other institution that is authorized by federal or state
law to exercise fiduciary powers of a type a national bank
is permitted to exercise under the authority of the United
States Office of the Comptroller of the Currency, and is
regulated, supervised and examined by an official or
agency of a state or the United States; and its entering
into and performing its obligations under this Agreement
does not and will not violate any laws, rules or
regulations.
B. That it is a corporation, association or partnership duly
organized, validly existing, and in good standing under the
laws of the state of its organization;
C. That entering into and performing its obligations under this
Agreement does not and will not violate (i) its charter or by-
laws; or (ii) any agreements to which it is a party;
D. If the Service Organization is a depository institution or
broker or dealer, in processing Customer orders to purchase,
redeem and exchange Shares, (i) it shall act solely as agent
upon the order, and for the account, of its Customer; (ii) the
Customer will have full beneficial ownership of any Shares
purchased upon its authorization order; and (iii) under no
circumstances will any transactions be for the account of the
Service Organization. Under no circumstances will the Service
Organization make any oral or written representations to the
contrary;
E. With respect to the purchase, redemption or exchange of Fund
Shares for Customer accounts with respect to which the Service
Organization is a fiduciary under state or federal trust or
comparable fiduciary requirements, or, in the case of any such
accounts which are subject to the Employee Retirement Income
Security Act of 1974, as amended, the Service Organization is a
fiduciary or party in interest, the Service Organization
represents that the purchase, redemption or exchange of such
Shares, and the Service Organization's receipt of the relevant
fee described in Section 3 hereof, is permissible under all
such applicable requirements and complies with any
restrictions, limitations or procedures under such
requirements;
F. It will keep confidential any information acquired as a result
of this Agreement regarding the business and affairs of the
Trust and Goldman, Sachs & Co., which requirement shall survive
the term of this Agreement; and
G. It will not, without written consent of the Trust in each
instance, use in advertising, publicity or otherwise the name
of the Trust, Goldman, Sachs & Co., or any of their affiliates
nor any trade name, trademark, trade device, service mark,
symbol or any abbreviation, contraction or simulation thereof
of the Trust, Goldman, Sachs & Co. or their affiliates.
<PAGE>
6. Responsibilities of the Service Organization. The Service Organization
agrees that neither GSAM nor any Fund nor any of their agents shall have any
responsibility or liability to review any purchase, exchange or redemption
request which is presented by the Service Organization (i) to determine whether
such request is genuine or authorized by the Customer of the Service
Organization; or (ii) to determine the suitability of the selected Class or Fund
for such Customer. GSAM, each Fund and their agents shall be entitled to rely
conclusively on any purchase, exchange or redemption request communicated to any
of them by the Service Organization, and shall have no liability whatsoever for
any losses, claims or damages to or against the Service Organization or any
Customer resulting from a failure of the Service Organization to transmit any
such request, or from any errors contained in any request. Any such failure or
error shall be the responsibility of the Service Organization. In addition, the
Service Organization shall have exclusive responsibility for the operation of
any cash sweep or other investment or cash management program established by it
for its Customers, including the provision of all electronic data processing
facilities as are necessary for any such program and the proper transmission of
appropriate instructions and funds to the Trust in connection therewith. GSAM
and the Service Organization agree that the procedures for the purchase,
exchange and redemption of Shares, including all relevant time and notification
requirements, specified in the then-effective prospectuses of the relevant
Class, shall govern the purchase, exchange and redemption of Shares for the
accounts of the Service Organization's customers, including the purchase,
exchange and redemption of Shares pursuant to any such program.
7. Amendments; Termination. This Agreement may be amended by a written
instrument executed by both parties and may be terminated by GSAM or the Service
Organization at any time on 60 days' written notice mailed or delivered to the
other party at its address set forth above.
8. No Association or Agency. The Service Organization shall be deemed to
be an independent contractor and not an agent of GSAM or the Trust for all
purposes hereunder and shall have no authority to act for or represent GSAM or
the Trust. In addition, no officer or employee of the Service Organization shall
be deemed to be an employee or agent of the Trust or GSAM, nor will be subject,
in any respect, to the supervision of GSAM or any affiliate thereof.
9. Indemnification. GSAM agrees to indemnify the Service Organization and
each person who controls (as defined in Section 2(a)(9) of the 1940 Act) the
Service Organization from and against any losses, claims, damages, expenses
(including reasonable fees and expenses of counsel) or liabilities ("Damages")
to which the Service Organization or such person may become subject in so far as
such Damages arise out of the failure of GSAM or its employees or agents to
comply with GSAM's obligations under this Agreement or any other agreement
between GSAM and the Service Organization relating to the performance of
Services hereunder (a "Covered Agreement"). The Service Organization agrees to
indemnify GSAM, the Funds, their agents and each person who controls (as defined
in Section 2(a)(9) of the 1940 Act) any of them from and against any Damages to
which any of them may become subject in so far as such Damages arise out of the
purchase, redemption, transfer or registration of Shares by the Service
Organization's Customers, any request related thereto communicated by the
Service Organization or its employees or agents, or the failure of the Service
Organization or its employees, agents or Customers to comply with the Service
Organization's obligations under a Covered Agreement. Notwithstanding the
foregoing, neither GSAM nor the Service Organization shall be entitled to be
indemnified for Damages arising out of its or its agent's or employee's gross
negligence. The foregoing indemnity agreements shall be in addition to any
liability GSAM or the Service Organization may otherwise have, and shall survive
the termination of this Agreement.
10. Applicable Law. If any provision of this Agreement shall be held or
made invalid by a decision in a judicial or administrative proceeding, statute,
rule or otherwise, the enforceability of the remainder of this Agreement will
not be impaired thereby. This Agreement shall be governed by the laws of the
State of New York and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors.
<PAGE>
Very truly yours,
GOLDMAN SACHS ASSET MANAGEMENT, a separate
operating division of Goldman, Sachs & Co.
By:
-----------------------------------------
[Authorized Officer]
Accepted and agreed to as of the date first above written:
SERVICE ORGANIZATION
By:
------------------------------------------------
[Authorized Officer]
<PAGE>
SCHEDULE A
----------
Please indicate (X) the appropriate Class(es) for which this Agreement applies:
[_] FST SHARES
[_] FST PREFERRED SHARES
[_] FST ADMINISTRATION SHARES
[_] FST SERVICE SHARES
<PAGE>
Exhibit (h)(23)
GOLDMAN, SACHS & CO.
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
GOLDMAN SACHS TRUST
On behalf of
Goldman Sachs - Institutional Liquid Assets Portfolios
For the services provided and the expenses assumed by Goldman, Sachs &
Co. pursuant to the Transfer Agency Agreement with respect to the Goldman Sachs
- -- Institutional Liquid Assets Portfolios (the "Funds"), Goldman Sachs Trust
shall pay to Goldman, Sachs & Co. as full compensation therefor a fee payable
monthly at the annual rate of .04% of the average daily net asset value of each
Portfolio's ILA Institutional, ILA Service, ILA Administration, ILA Cash
Management (where applicable), ILA Class B (where applicable) and ILA Class C
(where applicable) Units.
Goldman, Sachs & Co. shall bear all expenses incurred by it in
connection with the performance of its duties under the Transfer Agency
Agreement, including the expenses referred to in paragraph 6.02 thereof.
Goldman, Sachs & Co. Goldman Sachs Trust
By: By:
----------------------------- ---------------------------
(Authorized Officer) (Authorized Officer)
Date: July 31, 1998 Date: July 31, 1998
--------------------------- -------------------------
<PAGE>
EXHIBIT (i)(5)
Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
TELEX: 834684
FAX: (215) 988-2757
October 1, 1998
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606
Re: European Equity Fund of Goldman Sachs Trust
-------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Goldman Sachs Trust, a Delaware business trust
(the "Trust"), in connection with the registration under the Securities Act of
1933 of shares representing interests in a series, or fund, of the Trust. The
series is represented by five classes of shares. The series is the European
Equity Fund. The five classes are Class A Shares, Class B Shares, Class C
Shares, Institutional Shares and Service Shares. The Trust is authorized to
issue an unlimited number of shares of each series and class. These classes and
series are hereinafter referred to as the "Shares."
We have reviewed the Trust's Declaration of Trust, its by-laws,
resolutions adopted by its Board of Trustees and holders of its shares, and such
other legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares, when issued
against payment therefor as described in the Trust's prospectuses relating
thereto, will be legally issued, fully paid and non-assessable by the Trust, and
that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of the
Trust).
<PAGE>
Goldman Sachs Trust
October 1, 1998
Page 2
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of a Post-Effective Amendment to the Registration
Statement of the Trust.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT (I)(6)
Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
TELEX: 834684
FAX: (215) 988-2757
December 15, 1998
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606
Re: CORE Large Cap Value Fund of Goldman Sachs Trust
------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Goldman Sachs Trust, a Delaware business trust
(the "Trust"), in connection with the registration under the Securities Act of
1933 of shares representing interests in a series, or fund, of the Trust. The
series is represented by five classes of shares. The series is the CORE Large
Cap Value Fund. The five classes are Class A Shares, Class B Shares, Class C
Shares, Institutional Shares and Service Shares. The Trust is authorized to
issue an unlimited number of shares of each series and class. These classes and
series are hereinafter referred to as the "Shares."
We have reviewed the Trust's Declaration of Trust, its by-laws, resolutions
adopted by its Board of Trustees and holders of its shares, and such other legal
and factual matters as we have deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares, when issued
against payment therefor as described in the Trust's prospectuses relating
thereto, will be legally issued, fully paid and non-assessable by the Trust, and
that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of the
Trust).
<PAGE>
Goldman Sachs Trust
December 15, 1998
Page 2
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of a Post-Effective Amendment to the Registration
Statement of the Trust.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
<PAGE>
Exhibit J
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust on behalf of the Fixed Income Funds dated December 11,
1998 (and all references to our firm) included in or made a part of
Post-Effective Amendment No. 50 and Amendment No. 52 to Registration Statement
File Nos. 33-17619 and 811-5349, respectively.
Boston, Massachusetts
December 23, 1998
<PAGE>
Exhibit (m)(4)
GOLDMAN SACHS TRUST
On behalf of each of its series that has designated a class of its shares
as the "Cash Management Shares" thereof
Cash Management Shares Plan of Distribution
Pursuant to Rule 12b-1
May 1, 1998
WHEREAS, Goldman Sachs Trust (the "Trust") engages in business as an
open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act");
WHEREAS, the Trust's Board of Trustees has divided the Trust's shares into
series and classes and may create additional series and classes from time to
time;
WHEREAS, the Trust has established a class of shares of beneficial interest
designated as Cash Management Shares (the "Cash Management Shares") with respect
to certain series of the Trust;
WHEREAS, the Trust, on behalf of each series that offers Cash Management
Shares (a "Portfolio"), desires to adopt a Plan of Distribution pursuant to Rule
12b-1 under the Act, and the Board of Trustees of the Trust has determined that
there is a reasonable likelihood that adoption of this Plan of Distribution will
benefit each Portfolio and its shareholders; and
WHEREAS, the Trust, on behalf of each Portfolio, employs Goldman, Sachs &
Co. (the "Distributor") as distributor of its Cash Management Shares pursuant to
a Distribution Agreement dated April 30, 1997, as amended April 23, 1998.
NOW, THEREFORE, the Trust, on behalf of the Portfolios, hereby adopts, and
the Distributor hereby agrees to the terms of, this Plan of Distribution (the
"Plan") in accordance with Rule 12b-1 under the Act on the following terms and
conditions:
1. (a) The Trust, on behalf of each Portfolio, is authorized to
compensate the Distributor for distribution services performed and
expenses incurred by the Distributor in connection with each
Portfolio's Cash Management Shares. The amount of such
compensation paid during any one year shall not exceed .50% of the
average daily net assets of a Portfolio attributable to such
<PAGE>
Cash Management Shares. Such compensation shall be calculated and
accrued daily and paid monthly or at such other intervals as the
Board of Trustees may determine. No compensation paid under this
Plan shall be for "personal and account maintenance services and
expenses" as defined in the Service Plan adopted by the Trust's
Board of Trustees in connection with Cash Management Shares.
(b) Distribution services and expenses for which the Distributor may
be compensated pursuant to this Plan include, without limitation:
compensation to and expenses of brokers and dealers who are
members of the National Association of Securities Dealers, Inc.
("NASD"), other financial services firms that have entered into
an agreement with the Distributor or their respective officers,
sales representatives and employees; compensation to and expenses
of the Distributor and any of its officers, sales representatives
and employees, including allocable overhead, travel and telephone
expenses, who engage in or support distribution of a Portfolio's
Cash Management Shares; printing of reports and prospectuses for
other than existing shareholders; and preparation, printing and
distribution of sales literature and advertising materials.
(c) Appropriate adjustments to payments made pursuant to clause (a)
of this paragraph 1 shall be made whenever necessary to ensure
that no payment is made by the Trust on behalf of a Portfolio in
excess of the applicable maximum cap imposed on asset based,
front-end and deferred sales charges by subsection (d) of Section
2830 of the Conduct Rules of the NASD.
2. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the
Trust who are not "interested persons" of the Trust (as defined by the
Act) and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreement.
3. This Plan shall remain in effect until April 30, 1999 and shall
continue in effect thereafter so long as such
<PAGE>
continuance is specifically approved at least annually in the manner
provided for approval of this Plan in paragraph 2.
4. The Distributor shall provide to the Board of Trustees of the Trust
and the Board shall review, at least quarterly, a written report of
distribution services and expenses and the purposes for which such
services were performed and expenses were incurred.
5. This Plan may be terminated with respect to a Portfolio at any time by
a vote of a majority of the Rule 12b-1 Trustees or by vote of a
majority of the outstanding Cash Management Shares of such Portfolio.
6. This Plan may not be amended with respect to any Portfolio to increase
materially the amount of compensation payable pursuant to paragraph 1
hereof unless such amendment is approved by a vote of at least a
majority (as defined in the Act) of the outstanding Cash Management
Shares of such Portfolio, except to the extent that the approval of
another class of such Portfolio is required in accordance with Rule
18f-3 under the Act, in which case the approval of a majority (as
defined in the Act) of the outstanding voting securities of such class
shall also be required. No material amendment to the Plan shall be
made unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the
Trust shall be committed to the discretion of the Trustees who are not
such interested persons.
8. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, any such
agreement or any such report, as the case may be, the first two years
in an easily accessible place.
<PAGE>
9. This Plan only relates to the Cash Management Shares of a Portfolio
and the fee determined in accordance with paragraph 1 shall be based
upon the average daily net assets of the Portfolio attributable to
Cash Management Shares. The obligations of the Trust and the
Portfolios hereunder are not personally binding upon, nor shall resort
be had to the private property of any of the Trustees, shareholders,
officers, employees or agents of the Trust, but only the Trust's
property allocable to Cash Management Shares shall be bound. No series
of the Trust shall be responsible for the obligations of any other
series of the Trust.
IN WITNESS WHEREOF, the Trust (on behalf of each Portfolio that has
designated a class of its shares as the "Cash Management Shares" thereof) and
the Distributor have executed this Plan of Distribution as of the day and year
first above written.
GOLDMAN SACHS TRUST
By:
----------------------------
Douglas C. Grip
President of the Trust
GOLDMAN, SACHS & CO.
By:
----------------------------
David B. Ford
Managing Director
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> Goldman Sachs Short Duration Gov't Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 5,726,272
<SHARES-COMMON-PRIOR> 960,218
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,420,203)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,985,961
<NUMBER-OF-SHARES-REDEEMED> (12,340,018)
<SHARES-REINVESTED> 120,111
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 24,645,354
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> Goldman Sachs Short Duration Gov't Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 508,361
<SHARES-COMMON-PRIOR> 75,741
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (124,011)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 603,049
<NUMBER-OF-SHARES-REDEEMED> (177,997)
<SHARES-REINVESTED> 7,568
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 2,388,909
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 017
<NAME> Goldman Sachs Short Duration Gov't Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 458,229
<SHARES-COMMON-PRIOR> 19,318
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (88,564)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,838,549
<NUMBER-OF-SHARES-REDEEMED> (2,404,324)
<SHARES-REINVESTED> 4,686
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 1,848,668
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 1.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 015
<NAME> Goldman Sachs Short Duration Government Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 742,127
<SHARES-COMMON-PRIOR> 107,210
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (270,953)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 643,992
<NUMBER-OF-SHARES-REDEEMED> (30,888)
<SHARES-REINVESTED> 21,813
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 4,331,227
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> Goldman Sachs Short Duration Government Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 14,705,273
<SHARES-COMMON-PRIOR> 10,515,184
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,578,309)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,996,219
<NUMBER-OF-SHARES-REDEEMED> (5,282,160)
<SHARES-REINVESTED> 476,030
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 123,655,560
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 016
<NAME> Goldman Sachs Short Duration Government Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 223,655,691
<INVESTMENTS-AT-VALUE> 224,897,584
<RECEIVABLES> 8,525,952
<ASSETS-OTHER> 99,962
<OTHER-ITEMS-ASSETS> 94,277
<TOTAL-ASSETS> 233,617,775
<PAYABLE-FOR-SECURITIES> 7,158,411
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,079,811
<TOTAL-LIABILITIES> 8,238,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,352,470
<SHARES-COMMON-STOCK> 630,425
<SHARES-COMMON-PRIOR> 338,434
<ACCUMULATED-NII-CURRENT> 567,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,898,587)
<ACCUM-APPREC-OR-DEPREC> 2,358,506
<NET-ASSETS> 225,379,553
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,605,385
<OTHER-INCOME> 0
<EXPENSES-NET> 992,432
<NET-INVESTMENT-INCOME> 9,612,953
<REALIZED-GAINS-CURRENT> (360,410)
<APPREC-INCREASE-CURRENT> 1,213,423
<NET-CHANGE-FROM-OPS> 10,465,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (265,819)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 478,854
<NUMBER-OF-SHARES-REDEEMED> (213,862)
<SHARES-REINVESTED> 26,999
<NET-CHANGE-IN-ASSETS> 106,825,618
<ACCUMULATED-NII-PRIOR> 693,874
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,496,297)
<GROSS-ADVISORY-FEES> 807,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,548,260
<AVERAGE-NET-ASSETS> 4,707,936
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> Goldman Sachs Global Income Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 387,736,953
<INVESTMENTS-AT-VALUE> 404,170,628
<RECEIVABLES> 28,022,728
<ASSETS-OTHER> 149,840
<OTHER-ITEMS-ASSETS> 204,705
<TOTAL-ASSETS> 432,547,901
<PAYABLE-FOR-SECURITIES> 17,578,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791,778
<TOTAL-LIABILITIES> 23,370,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380,662,043
<SHARES-COMMON-STOCK> 13,885,248
<SHARES-COMMON-PRIOR> 11,066,854
<ACCUMULATED-NII-CURRENT> 4,880,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,205,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,429,205
<NET-ASSETS> 409,177,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,529,866
<OTHER-INCOME> 0
<EXPENSES-NET> 3,190,115
<NET-INVESTMENT-INCOME> 14,339,751
<REALIZED-GAINS-CURRENT> 3,580,157
<APPREC-INCREASE-CURRENT> 14,771,995
<NET-CHANGE-FROM-OPS> 32,691,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,773,305)
<DISTRIBUTIONS-OF-GAINS> (628,833)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,208,388
<NUMBER-OF-SHARES-REDEEMED> (4,034,417)
<SHARES-REINVESTED> 644,423
<NET-CHANGE-IN-ASSETS> 177,040,465
<ACCUMULATED-NII-PRIOR> 16,021,332
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (776,512)
<GROSS-ADVISORY-FEES> 2,613,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,434,982
<AVERAGE-NET-ASSETS> 180,265,687
<PER-SHARE-NAV-BEGIN> 15.10
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 0.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.65
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> Goldman Sachs Global Income Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 387,736,953
<INVESTMENTS-AT-VALUE> 404,170,628
<RECEIVABLES> 28,022,728
<ASSETS-OTHER> 149,840
<OTHER-ITEMS-ASSETS> 204,705
<TOTAL-ASSETS> 432,547,901
<PAYABLE-FOR-SECURITIES> 17,578,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791,778
<TOTAL-LIABILITIES> 23,370,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380,662,043
<SHARES-COMMON-STOCK> 520,616
<SHARES-COMMON-PRIOR> 229,899
<ACCUMULATED-NII-CURRENT> 4,880,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,205,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,429,205
<NET-ASSETS> 409,177,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,529,866
<OTHER-INCOME> 0
<EXPENSES-NET> 3,190,115
<NET-INVESTMENT-INCOME> 14,339,751
<REALIZED-GAINS-CURRENT> 3,580,157
<APPREC-INCREASE-CURRENT> 14,771,995
<NET-CHANGE-FROM-OPS> 32,691,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (310,470)
<DISTRIBUTIONS-OF-GAINS> (15,200)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 358,077
<NUMBER-OF-SHARES-REDEEMED> (83,968)
<SHARES-REINVESTED> 16,608
<NET-CHANGE-IN-ASSETS> 177,040,465
<ACCUMULATED-NII-PRIOR> 16,021,332
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (776,512)
<GROSS-ADVISORY-FEES> 2,613,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,434,982
<AVERAGE-NET-ASSETS> 5,479,379
<PER-SHARE-NAV-BEGIN> 15.08
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.92
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.63
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 027
<NAME> Goldman Sachs Global Income Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 387,736,953
<INVESTMENTS-AT-VALUE> 404,170,628
<RECEIVABLES> 28,022,728
<ASSETS-OTHER> 149,840
<OTHER-ITEMS-ASSETS> 204,705
<TOTAL-ASSETS> 432,547,901
<PAYABLE-FOR-SECURITIES> 17,578,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791,778
<TOTAL-LIABILITIES> 23,370,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380,662,043
<SHARES-COMMON-STOCK> 262,123
<SHARES-COMMON-PRIOR> 32,914
<ACCUMULATED-NII-CURRENT> 4,880,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,205,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,429,205
<NET-ASSETS> 409,177,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,529,866
<OTHER-INCOME> 0
<EXPENSES-NET> 3,190,115
<NET-INVESTMENT-INCOME> 14,339,751
<REALIZED-GAINS-CURRENT> 3,580,157
<APPREC-INCREASE-CURRENT> 14,771,995
<NET-CHANGE-FROM-OPS> 32,691,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116,153)
<DISTRIBUTIONS-OF-GAINS> (4,258)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 284,497
<NUMBER-OF-SHARES-REDEEMED> (61,616)
<SHARES-REINVESTED> 6,328
<NET-CHANGE-IN-ASSETS> 177,040,465
<ACCUMULATED-NII-PRIOR> 16,021,332
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (776,512)
<GROSS-ADVISORY-FEES> 2,613,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,434,982
<AVERAGE-NET-ASSETS> 2,214,054
<PER-SHARE-NAV-BEGIN> 15.06
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.60
<EXPENSE-RATIO> 1.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> Goldman Sachs Global Income Fund-Institutional
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 387,736,953
<INVESTMENTS-AT-VALUE> 404,170,628
<RECEIVABLES> 28,022,728
<ASSETS-OTHER> 149,840
<OTHER-ITEMS-ASSETS> 204,705
<TOTAL-ASSETS> 432,547,901
<PAYABLE-FOR-SECURITIES> 17,578,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791,778
<TOTAL-LIABILITIES> 23,370,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380,662,043
<SHARES-COMMON-STOCK> 11,411,638
<SHARES-COMMON-PRIOR> 4,038,267
<ACCUMULATED-NII-CURRENT> 4,880,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,205,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,429,205
<NET-ASSETS> 409,177,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,529,866
<OTHER-INCOME> 0
<EXPENSES-NET> 3,190,115
<NET-INVESTMENT-INCOME> 14,339,751
<REALIZED-GAINS-CURRENT> 3,580,157
<APPREC-INCREASE-CURRENT> 14,771,995
<NET-CHANGE-FROM-OPS> 32,691,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,720,480)
<DISTRIBUTIONS-OF-GAINS> (240,253)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,752,852
<NUMBER-OF-SHARES-REDEEMED> (2,632,348)
<SHARES-REINVESTED> 252,867
<NET-CHANGE-IN-ASSETS> 177,040,465
<ACCUMULATED-NII-PRIOR> 16,021,332
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (776,512)
<GROSS-ADVISORY-FEES> 2,613,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,434,982
<AVERAGE-NET-ASSETS> 101,933,147
<PER-SHARE-NAV-BEGIN> 15.09
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> 0.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.64
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 026
<NAME> Goldman Sachs Global Income Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 387,736,953
<INVESTMENTS-AT-VALUE> 404,170,628
<RECEIVABLES> 28,022,728
<ASSETS-OTHER> 149,840
<OTHER-ITEMS-ASSETS> 204,705
<TOTAL-ASSETS> 432,547,901
<PAYABLE-FOR-SECURITIES> 17,578,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,791,778
<TOTAL-LIABILITIES> 23,370,436
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 380,662,043
<SHARES-COMMON-STOCK> 67,640
<SHARES-COMMON-PRIOR> 9,985
<ACCUMULATED-NII-CURRENT> 4,880,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,205,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,429,205
<NET-ASSETS> 409,177,465
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,529,866
<OTHER-INCOME> 0
<EXPENSES-NET> 3,190,115
<NET-INVESTMENT-INCOME> 14,339,751
<REALIZED-GAINS-CURRENT> 3,580,157
<APPREC-INCREASE-CURRENT> 14,771,995
<NET-CHANGE-FROM-OPS> 32,691,903
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,498)
<DISTRIBUTIONS-OF-GAINS> (604)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 62,146
<NUMBER-OF-SHARES-REDEEMED> (6,198)
<SHARES-REINVESTED> 1,707
<NET-CHANGE-IN-ASSETS> 177,040,465
<ACCUMULATED-NII-PRIOR> 16,021,332
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (776,512)
<GROSS-ADVISORY-FEES> 2,613,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,434,982
<AVERAGE-NET-ASSETS> 447,683
<PER-SHARE-NAV-BEGIN> 15.09
<PER-SHARE-NII> 0.74
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.64
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> Goldman Sachs Adjustable Rate Gov't Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 502,845,894
<INVESTMENTS-AT-VALUE> 497,752,353
<RECEIVABLES> 23,545,882
<ASSETS-OTHER> 69,531
<OTHER-ITEMS-ASSETS> 4,381
<TOTAL-ASSETS> 521,372,147
<PAYABLE-FOR-SECURITIES> 10,141,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,399,853
<TOTAL-LIABILITIES> 12,540,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,695,928
<SHARES-COMMON-STOCK> 6,272,861
<SHARES-COMMON-PRIOR> 4,390,774
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,550,919)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (49,027,871)
<ACCUM-APPREC-OR-DEPREC> (4,285,927)
<NET-ASSETS> 508,831,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,500,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,748,428
<NET-INVESTMENT-INCOME> 27,751,730
<REALIZED-GAINS-CURRENT> (1,432,798)
<APPREC-INCREASE-CURRENT> (6,927,104)
<NET-CHANGE-FROM-OPS> 19,391,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,586,364)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,932,653
<NUMBER-OF-SHARES-REDEEMED> (18,654,663)
<SHARES-REINVESTED> 604,097
<NET-CHANGE-IN-ASSETS> (1,211,686)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,387,447)
<OVERDIST-NET-GAINS-PRIOR> (49,005,224)
<GROSS-ADVISORY-FEES> 1,980,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,873,363
<AVERAGE-NET-ASSETS> 45,880,472
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.69
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 035
<NAME> Goldman Sachs Adjustable Rate Gov't Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 502,845,894
<INVESTMENTS-AT-VALUE> 497,752,353
<RECEIVABLES> 23,545,882
<ASSETS-OTHER> 69,531
<OTHER-ITEMS-ASSETS> 4,381
<TOTAL-ASSETS> 521,372,147
<PAYABLE-FOR-SECURITIES> 10,141,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,399,853
<TOTAL-LIABILITIES> 12,540,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,695,928
<SHARES-COMMON-STOCK> 618,625
<SHARES-COMMON-PRIOR> 282,644
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,550,919)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (49,027,871)
<ACCUM-APPREC-OR-DEPREC> (4,285,927)
<NET-ASSETS> 508,831,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,500,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,748,428
<NET-INVESTMENT-INCOME> 27,751,730
<REALIZED-GAINS-CURRENT> (1,432,798)
<APPREC-INCREASE-CURRENT> (6,927,104)
<NET-CHANGE-FROM-OPS> 19,391,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (243,788)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 526,967
<NUMBER-OF-SHARES-REDEEMED> (207,333)
<SHARES-REINVESTED> 16,347
<NET-CHANGE-IN-ASSETS> (1,211,686)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,387,447)
<OVERDIST-NET-GAINS-PRIOR> (49,005,224)
<GROSS-ADVISORY-FEES> 1,980,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,873,363
<AVERAGE-NET-ASSETS> 4,357,739
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> Goldman Sachs Adjustable Rate Gov't Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 502,845,894
<INVESTMENTS-AT-VALUE> 497,752,353
<RECEIVABLES> 23,545,882
<ASSETS-OTHER> 69,531
<OTHER-ITEMS-ASSETS> 4,381
<TOTAL-ASSETS> 521,372,147
<PAYABLE-FOR-SECURITIES> 10,141,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,399,853
<TOTAL-LIABILITIES> 12,540,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,695,928
<SHARES-COMMON-STOCK> 45,502,280
<SHARES-COMMON-PRIOR> 46,911,214
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,550,919)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (49,027,871)
<ACCUM-APPREC-OR-DEPREC> (4,285,927)
<NET-ASSETS> 508,831,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,500,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,748,428
<NET-INVESTMENT-INCOME> 27,751,730
<REALIZED-GAINS-CURRENT> (1,432,798)
<APPREC-INCREASE-CURRENT> (6,927,104)
<NET-CHANGE-FROM-OPS> 19,391,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,994,826)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,576,509
<NUMBER-OF-SHARES-REDEEMED> (31,436,222)
<SHARES-REINVESTED> 1,450,779
<NET-CHANGE-IN-ASSETS> (1,211,686)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,387,447)
<OVERDIST-NET-GAINS-PRIOR> (49,005,224)
<GROSS-ADVISORY-FEES> 1,980,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,873,363
<AVERAGE-NET-ASSETS> 444,357,335
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.57)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 036
<NAME> Goldman Sachs Adjustable Rate Gov't Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 502,845,894
<INVESTMENTS-AT-VALUE> 497,752,353
<RECEIVABLES> 23,545,882
<ASSETS-OTHER> 69,531
<OTHER-ITEMS-ASSETS> 4,381
<TOTAL-ASSETS> 521,372,147
<PAYABLE-FOR-SECURITIES> 10,141,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,399,853
<TOTAL-LIABILITIES> 12,540,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 565,695,928
<SHARES-COMMON-STOCK> 84,772
<SHARES-COMMON-PRIOR> 35,020
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (3,550,919)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (49,027,871)
<ACCUM-APPREC-OR-DEPREC> (4,285,927)
<NET-ASSETS> 508,831,211
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,500,158
<OTHER-INCOME> 0
<EXPENSES-NET> 2,748,428
<NET-INVESTMENT-INCOME> 27,751,730
<REALIZED-GAINS-CURRENT> (1,432,798)
<APPREC-INCREASE-CURRENT> (6,927,104)
<NET-CHANGE-FROM-OPS> 19,391,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,962)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59,251
<NUMBER-OF-SHARES-REDEEMED> (12,170)
<SHARES-REINVESTED> 2,671
<NET-CHANGE-IN-ASSETS> (1,211,686)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,387,447)
<OVERDIST-NET-GAINS-PRIOR> (49,005,224)
<GROSS-ADVISORY-FEES> 1,980,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,873,363
<AVERAGE-NET-ASSETS> 540,405
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 1,951,709
<SHARES-COMMON-PRIOR> 398,986
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (420,239)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,956,094
<NUMBER-OF-SHARES-REDEEMED> (1,439,779)
<SHARES-REINVESTED> 36,408
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 11,464,871
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 042
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 95,661
<SHARES-COMMON-PRIOR> 10,529
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,424)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113,668
<NUMBER-OF-SHARES-REDEEMED> (29,252)
<SHARES-REINVESTED> 716
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 294,345
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 047
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 221,543
<SHARES-COMMON-PRIOR> 160
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,571)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 260,602
<NUMBER-OF-SHARES-REDEEMED> 42,508
<SHARES-REINVESTED> 3,289
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 1,233,897
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 045
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 51,537
<SHARES-COMMON-PRIOR> 7,675
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,873)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,558
<NUMBER-OF-SHARES-REDEEMED> 2,644
<SHARES-REINVESTED> 948
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 264,379
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 043
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 5,660,817
<SHARES-COMMON-PRIOR> 2,860,956
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,297,489)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,094,699
<NUMBER-OF-SHARES-REDEEMED> 1,399,986
<SHARES-REINVESTED> 105,149
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 32,165,606
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.41)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 046
<NAME> Goldman Sachs Short Duration Tax-Free Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 80,732,892
<INVESTMENTS-AT-VALUE> 81,376,351
<RECEIVABLES> 3,147,312
<ASSETS-OTHER> 111,416
<OTHER-ITEMS-ASSETS> 792,930
<TOTAL-ASSETS> 85,428,009
<PAYABLE-FOR-SECURITIES> 701,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 883,093
<TOTAL-LIABILITIES> 1,584,883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,792,633
<SHARES-COMMON-STOCK> 251,505
<SHARES-COMMON-PRIOR> 203,593
<ACCUMULATED-NII-CURRENT> 62,046
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,655,012)
<ACCUM-APPREC-OR-DEPREC> 643,459
<NET-ASSETS> 83,843,126
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,059,329
<OTHER-INCOME> 0
<EXPENSES-NET> 270,440
<NET-INVESTMENT-INCOME> 1,788,889
<REALIZED-GAINS-CURRENT> 269,867
<APPREC-INCREASE-CURRENT> 263,420
<NET-CHANGE-FROM-OPS> 2,322,176
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (70,477)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 373,021
<NUMBER-OF-SHARES-REDEEMED> 331,731
<SHARES-REINVESTED> 6,622
<NET-CHANGE-IN-ASSETS> 48,763,261
<ACCUMULATED-NII-PRIOR> 110,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,925,108)
<GROSS-ADVISORY-FEES> 189,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,529
<AVERAGE-NET-ASSETS> 1,988,415
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> Goldman Sachs Government Income Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 143,359,293
<INVESTMENTS-AT-VALUE> 145,463,981
<RECEIVABLES> 9,172,508
<ASSETS-OTHER> 95,140
<OTHER-ITEMS-ASSETS> 19,853
<TOTAL-ASSETS> 154,751,482
<PAYABLE-FOR-SECURITIES> 21,805,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,522,608
<TOTAL-LIABILITIES> 25,328,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,893,318
<SHARES-COMMON-STOCK> 6,777,371
<SHARES-COMMON-PRIOR> 4,717,984
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,850)
<ACCUMULATED-NET-GAINS> 2,431,368
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,301,353
<NET-ASSETS> 129,423,189
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,259,007
<OTHER-INCOME> 0
<EXPENSES-NET> 1,023,913
<NET-INVESTMENT-INCOME> 6,235,094
<REALIZED-GAINS-CURRENT> 2,722,191
<APPREC-INCREASE-CURRENT> 787,495
<NET-CHANGE-FROM-OPS> 9,744,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,788,735)
<DISTRIBUTIONS-OF-GAINS> (336,409)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,117,601
<NUMBER-OF-SHARES-REDEEMED> (8,375,782)
<SHARES-REINVESTED> 317,568
<NET-CHANGE-IN-ASSETS> 49,431,355
<ACCUMULATED-NII-PRIOR> 134,310
<ACCUMULATED-GAINS-PRIOR> 284,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,867,791
<AVERAGE-NET-ASSETS> 97,131,415
<PER-SHARE-NAV-BEGIN> 14.59
<PER-SHARE-NII> 0.81
<PER-SHARE-GAIN-APPREC> 0.45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.94)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.91
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 072
<NAME> Goldman Sachs Government Income Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 143,359,293
<INVESTMENTS-AT-VALUE> 145,463,981
<RECEIVABLES> 9,172,508
<ASSETS-OTHER> 95,140
<OTHER-ITEMS-ASSETS> 19,853
<TOTAL-ASSETS> 154,751,482
<PAYABLE-FOR-SECURITIES> 21,805,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,522,608
<TOTAL-LIABILITIES> 25,328,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,893,318
<SHARES-COMMON-STOCK> 1,080,648
<SHARES-COMMON-PRIOR> 550,353
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,850)
<ACCUMULATED-NET-GAINS> 2,431,368
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,301,353
<NET-ASSETS> 129,423,189
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,259,007
<OTHER-INCOME> 0
<EXPENSES-NET> 1,023,913
<NET-INVESTMENT-INCOME> 6,235,094
<REALIZED-GAINS-CURRENT> 2,722,191
<APPREC-INCREASE-CURRENT> 787,495
<NET-CHANGE-FROM-OPS> 9,744,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (623,729)
<DISTRIBUTIONS-OF-GAINS> (41,187)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 988,916
<NUMBER-OF-SHARES-REDEEMED> (495,310)
<SHARES-REINVESTED> 36,689
<NET-CHANGE-IN-ASSETS> 49,431,355
<ACCUMULATED-NII-PRIOR> 134,310
<ACCUMULATED-GAINS-PRIOR> 284,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,867,791
<AVERAGE-NET-ASSETS> 11,985,709
<PER-SHARE-NAV-BEGIN> 14.61
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.92
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 077
<NAME> Goldman Sachs Gov't Income Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 143,359,293
<INVESTMENTS-AT-VALUE> 145,463,981
<RECEIVABLES> 9,172,508
<ASSETS-OTHER> 95,140
<OTHER-ITEMS-ASSETS> 19,853
<TOTAL-ASSETS> 154,751,482
<PAYABLE-FOR-SECURITIES> 21,805,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,522,608
<TOTAL-LIABILITIES> 25,328,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,893,318
<SHARES-COMMON-STOCK> 646,476
<SHARES-COMMON-PRIOR> 81,888
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,850)
<ACCUMULATED-NET-GAINS> 2,431,368
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,301,353
<NET-ASSETS> 129,423,189
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,259,007
<OTHER-INCOME> 0
<EXPENSES-NET> 1,023,913
<NET-INVESTMENT-INCOME> 6,235,094
<REALIZED-GAINS-CURRENT> 2,722,191
<APPREC-INCREASE-CURRENT> 787,495
<NET-CHANGE-FROM-OPS> 9,744,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (191,825)
<DISTRIBUTIONS-OF-GAINS> (9,732)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 695,338
<NUMBER-OF-SHARES-REDEEMED> (143,057)
<SHARES-REINVESTED> 12,307
<NET-CHANGE-IN-ASSETS> 49,431,355
<ACCUMULATED-NII-PRIOR> 134,310
<ACCUMULATED-GAINS-PRIOR> 284,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,867,791
<AVERAGE-NET-ASSETS> 3,772,762
<PER-SHARE-NAV-BEGIN> 14.60
<PER-SHARE-NII> 0.74
<PER-SHARE-GAIN-APPREC> 0.40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.91
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 073
<NAME> Goldman Sachs Government Income Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 143,359,293
<INVESTMENTS-AT-VALUE> 145,463,981
<RECEIVABLES> 9,172,508
<ASSETS-OTHER> 95,140
<OTHER-ITEMS-ASSETS> 19,853
<TOTAL-ASSETS> 154,751,482
<PAYABLE-FOR-SECURITIES> 21,805,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,522,608
<TOTAL-LIABILITIES> 25,328,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,893,318
<SHARES-COMMON-STOCK> 177,318
<SHARES-COMMON-PRIOR> 129,772
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,850)
<ACCUMULATED-NET-GAINS> 2,431,368
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,301,353
<NET-ASSETS> 129,423,189
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,259,007
<OTHER-INCOME> 0
<EXPENSES-NET> 1,023,913
<NET-INVESTMENT-INCOME> 6,235,094
<REALIZED-GAINS-CURRENT> 2,722,191
<APPREC-INCREASE-CURRENT> 787,495
<NET-CHANGE-FROM-OPS> 9,744,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (133,699)
<DISTRIBUTIONS-OF-GAINS> (8,246)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,336
<NUMBER-OF-SHARES-REDEEMED> (4,930)
<SHARES-REINVESTED> 9,140
<NET-CHANGE-IN-ASSETS> 49,431,355
<ACCUMULATED-NII-PRIOR> 134,310
<ACCUMULATED-GAINS-PRIOR> 284,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,867,791
<AVERAGE-NET-ASSETS> 2,134,680
<PER-SHARE-NAV-BEGIN> 14.59
<PER-SHARE-NII> 0.87
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.98)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.90
<EXPENSE-RATIO> 0.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 076
<NAME> Goldman Sachs Government Income Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 143,359,293
<INVESTMENTS-AT-VALUE> 145,463,981
<RECEIVABLES> 9,172,508
<ASSETS-OTHER> 95,140
<OTHER-ITEMS-ASSETS> 19,853
<TOTAL-ASSETS> 154,751,482
<PAYABLE-FOR-SECURITIES> 21,805,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,522,608
<TOTAL-LIABILITIES> 25,328,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 124,893,318
<SHARES-COMMON-STOCK> 112
<SHARES-COMMON-PRIOR> 105
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (202,850)
<ACCUMULATED-NET-GAINS> 2,431,368
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,301,353
<NET-ASSETS> 129,423,189
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,259,007
<OTHER-INCOME> 0
<EXPENSES-NET> 1,023,913
<NET-INVESTMENT-INCOME> 6,235,094
<REALIZED-GAINS-CURRENT> 2,722,191
<APPREC-INCREASE-CURRENT> 787,495
<NET-CHANGE-FROM-OPS> 9,744,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (121)
<DISTRIBUTIONS-OF-GAINS> (7)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 49,431,355
<ACCUMULATED-NII-PRIOR> 134,310
<ACCUMULATED-GAINS-PRIOR> 284,661
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,867,791
<AVERAGE-NET-ASSETS> 2,097
<PER-SHARE-NAV-BEGIN> 14.59
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> 0.40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.91)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.88
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> Goldman Sachs Municipal Income Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 102,745,528
<INVESTMENTS-AT-VALUE> 107,596,166
<RECEIVABLES> 2,083,109
<ASSETS-OTHER> 122,060
<OTHER-ITEMS-ASSETS> 342,083
<TOTAL-ASSETS> 110,143,418
<PAYABLE-FOR-SECURITIES> 2,801,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,237
<TOTAL-LIABILITIES> 3,245,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,765,249
<SHARES-COMMON-STOCK> 5,891,043
<SHARES-COMMON-PRIOR> 4,305,257
<ACCUMULATED-NII-CURRENT> 138,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,875,558
<NET-ASSETS> 106,898,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,344,155
<OTHER-INCOME> 0
<EXPENSES-NET> 772,555
<NET-INVESTMENT-INCOME> 3,571,600
<REALIZED-GAINS-CURRENT> 142,526
<APPREC-INCREASE-CURRENT> 2,435,958
<NET-CHANGE-FROM-OPS> 6,150,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,301,234)
<DISTRIBUTIONS-OF-GAINS> (123,858)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,331,247
<NUMBER-OF-SHARES-REDEEMED> 890,339
<SHARES-REINVESTED> 144,878
<NET-CHANGE-IN-ASSETS> 40,111,750
<ACCUMULATED-NII-PRIOR> 69,879
<ACCUMULATED-GAINS-PRIOR> 104,706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,402,934
<AVERAGE-NET-ASSETS> 79,243,827
<PER-SHARE-NAV-BEGIN> 14.99
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.67)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.47
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 082
<NAME> Goldman Sachs Municipal Income Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 102,745,528
<INVESTMENTS-AT-VALUE> 107,596,166
<RECEIVABLES> 2,083,109
<ASSETS-OTHER> 122,060
<OTHER-ITEMS-ASSETS> 342,083
<TOTAL-ASSETS> 110,143,418
<PAYABLE-FOR-SECURITIES> 2,801,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,237
<TOTAL-LIABILITIES> 3,245,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,765,249
<SHARES-COMMON-STOCK> 434,408
<SHARES-COMMON-PRIOR> 116,684
<ACCUMULATED-NII-CURRENT> 138,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,875,558
<NET-ASSETS> 106,898,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,344,155
<OTHER-INCOME> 0
<EXPENSES-NET> 772,555
<NET-INVESTMENT-INCOME> 3,571,600
<REALIZED-GAINS-CURRENT> 142,526
<APPREC-INCREASE-CURRENT> 2,435,958
<NET-CHANGE-FROM-OPS> 6,150,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (125,487)
<DISTRIBUTIONS-OF-GAINS> (3,541)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 363,405
<NUMBER-OF-SHARES-REDEEMED> 50,499
<SHARES-REINVESTED> 4,818
<NET-CHANGE-IN-ASSETS> 40,111,750
<ACCUMULATED-NII-PRIOR> 69,879
<ACCUMULATED-GAINS-PRIOR> 104,706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,402,934
<AVERAGE-NET-ASSETS> 3,731,649
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.47
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 087
<NAME> Goldman Sachs Municipal Income Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 102,745,528
<INVESTMENTS-AT-VALUE> 107,596,166
<RECEIVABLES> 2,083,109
<ASSETS-OTHER> 122,060
<OTHER-ITEMS-ASSETS> 342,083
<TOTAL-ASSETS> 110,143,418
<PAYABLE-FOR-SECURITIES> 2,801,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,237
<TOTAL-LIABILITIES> 3,245,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,765,249
<SHARES-COMMON-STOCK> 184,954
<SHARES-COMMON-PRIOR> 8,681
<ACCUMULATED-NII-CURRENT> 138,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,875,558
<NET-ASSETS> 106,898,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,344,155
<OTHER-INCOME> 0
<EXPENSES-NET> 772,555
<NET-INVESTMENT-INCOME> 3,571,600
<REALIZED-GAINS-CURRENT> 142,526
<APPREC-INCREASE-CURRENT> 2,435,958
<NET-CHANGE-FROM-OPS> 6,150,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (41,577)
<DISTRIBUTIONS-OF-GAINS> (467)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 236,415
<NUMBER-OF-SHARES-REDEEMED> 62,563
<SHARES-REINVESTED> 2,421
<NET-CHANGE-IN-ASSETS> 40,111,750
<ACCUMULATED-NII-PRIOR> 69,879
<ACCUMULATED-GAINS-PRIOR> 104,706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,402,934
<AVERAGE-NET-ASSETS> 1,257,435
<PER-SHARE-NAV-BEGIN> 14.99
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.47
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 083
<NAME> Goldman Sachs Municipal Income Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 102,745,528
<INVESTMENTS-AT-VALUE> 107,596,166
<RECEIVABLES> 2,083,109
<ASSETS-OTHER> 122,060
<OTHER-ITEMS-ASSETS> 342,083
<TOTAL-ASSETS> 110,143,418
<PAYABLE-FOR-SECURITIES> 2,801,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,237
<TOTAL-LIABILITIES> 3,245,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,765,249
<SHARES-COMMON-STOCK> 397,731
<SHARES-COMMON-PRIOR> 23,435
<ACCUMULATED-NII-CURRENT> 138,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,875,558
<NET-ASSETS> 106,898,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,344,155
<OTHER-INCOME> 0
<EXPENSES-NET> 772,555
<NET-INVESTMENT-INCOME> 3,571,600
<REALIZED-GAINS-CURRENT> 142,526
<APPREC-INCREASE-CURRENT> 2,435,958
<NET-CHANGE-FROM-OPS> 6,150,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,610)
<DISTRIBUTIONS-OF-GAINS> (658)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 391,005
<NUMBER-OF-SHARES-REDEEMED> (17,697)
<SHARES-REINVESTED> 988
<NET-CHANGE-IN-ASSETS> 40,111,750
<ACCUMULATED-NII-PRIOR> 69,879
<ACCUMULATED-GAINS-PRIOR> 104,706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,402,934
<AVERAGE-NET-ASSETS> 779,606
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.68
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.47
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 086
<NAME> Goldman Sachs Municipal Income Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 102,745,528
<INVESTMENTS-AT-VALUE> 107,596,166
<RECEIVABLES> 2,083,109
<ASSETS-OTHER> 122,060
<OTHER-ITEMS-ASSETS> 342,083
<TOTAL-ASSETS> 110,143,418
<PAYABLE-FOR-SECURITIES> 2,801,080
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,237
<TOTAL-LIABILITIES> 3,245,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,765,249
<SHARES-COMMON-STOCK> 106
<SHARES-COMMON-PRIOR> 102
<ACCUMULATED-NII-CURRENT> 138,393
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,875,558
<NET-ASSETS> 106,898,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,344,155
<OTHER-INCOME> 0
<EXPENSES-NET> 772,555
<NET-INVESTMENT-INCOME> 3,571,600
<REALIZED-GAINS-CURRENT> 142,526
<APPREC-INCREASE-CURRENT> 2,435,958
<NET-CHANGE-FROM-OPS> 6,150,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (64)
<DISTRIBUTIONS-OF-GAINS> (3)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 40,111,750
<ACCUMULATED-NII-PRIOR> 69,879
<ACCUMULATED-GAINS-PRIOR> 104,706
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,578
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,402,934
<AVERAGE-NET-ASSETS> 1,591
<PER-SHARE-NAV-BEGIN> 14.99
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.48
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 091
<NAME> Goldman Sachs Core Fixed Income Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 5,487,732
<SHARES-COMMON-PRIOR> 927,888
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,928,601)
<DISTRIBUTIONS-OF-GAINS> (84,830)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,313,076
<NUMBER-OF-SHARES-REDEEMED> (3,945,813)
<SHARES-REINVESTED> 192,581
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 32,817,261
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.67)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 092
<NAME> Goldman Sachs Core Fixed Income Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 701,054
<SHARES-COMMON-PRIOR> 61,503
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (158,456)
<DISTRIBUTIONS-OF-GAINS> (8,016)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 762,323
<NUMBER-OF-SHARES-REDEEMED> (133,282)
<SHARES-REINVESTED> 10,510
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 3,118,727
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 097
<NAME> Goldman Sachs Core Fixed Income Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 543,267
<SHARES-COMMON-PRIOR> 27,004
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (156,326)
<DISTRIBUTIONS-OF-GAINS> (4,098)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 641,726
<NUMBER-OF-SHARES-REDEEMED> (135,503)
<SHARES-REINVESTED> 10,040
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 3,065,138
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 095
<NAME> Goldman Sachs Core Fixed Income Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 1,240,570
<SHARES-COMMON-PRIOR> 612,842
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (691,714)
<DISTRIBUTIONS-OF-GAINS> (51,390)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 779,791
<NUMBER-OF-SHARES-REDEEMED> (201,424)
<SHARES-REINVESTED> 49,361
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 133,867,973
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.66)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 093
<NAME> Goldman Sachs Core Fixed Income Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 19,045,777
<SHARES-COMMON-PRIOR> 7,858,088
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,341,916)
<DISTRIBUTIONS-OF-GAINS> (459,667)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,206,866
<NUMBER-OF-SHARES-REDEEMED> (5,578,137)
<SHARES-REINVESTED> 558,960
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 11,546,706
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 096
<NAME> Goldman Sachs Core Fixed Income Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 299,868,699
<INVESTMENTS-AT-VALUE> 303,783,462
<RECEIVABLES> 16,658,341
<ASSETS-OTHER> 161,772
<OTHER-ITEMS-ASSETS> 4,362
<TOTAL-ASSETS> 320,607,937
<PAYABLE-FOR-SECURITIES> 33,295,853
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,513,313
<TOTAL-LIABILITIES> 37,809,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,980,654
<SHARES-COMMON-STOCK> 511,939
<SHARES-COMMON-PRIOR> 185,166
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,320,392
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,497,755
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,986,716
<OTHER-INCOME> 0
<EXPENSES-NET> 1,064,340
<NET-INVESTMENT-INCOME> 10,922,376
<REALIZED-GAINS-CURRENT> 3,888,127
<APPREC-INCREASE-CURRENT> 2,127,689
<NET-CHANGE-FROM-OPS> 16,938,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (184,087)
<DISTRIBUTIONS-OF-GAINS> (10,558)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 375,085
<NUMBER-OF-SHARES-REDEEMED> (67,401)
<SHARES-REINVESTED> 19,089
<NET-CHANGE-IN-ASSETS> 185,295,920
<ACCUMULATED-NII-PRIOR> 91,922
<ACCUMULATED-GAINS-PRIOR> 475,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 750,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,620,258
<AVERAGE-NET-ASSETS> 3,220,989
<PER-SHARE-NAV-BEGIN> 10.09
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> Goldman Sachs High Yield Fund-Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 573,892,948
<INVESTMENTS-AT-VALUE> 534,542,747
<RECEIVABLES> 26,619,042
<ASSETS-OTHER> 176,925
<OTHER-ITEMS-ASSETS> 95,641
<TOTAL-ASSETS> 561,434,355
<PAYABLE-FOR-SECURITIES> 19,682,768
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,343,756
<TOTAL-LIABILITIES> 24,026,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 582,416,904
<SHARES-COMMON-STOCK> 43,833,257
<SHARES-COMMON-PRIOR> 32,686,166
<ACCUMULATED-NII-CURRENT> 2,593,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,741,879)
<ACCUM-APPREC-OR-DEPREC> (41,860,822)
<NET-ASSETS> 537,407,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,345,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,947,294
<NET-INVESTMENT-INCOME> 36,398,084
<REALIZED-GAINS-CURRENT> (6,342,487)
<APPREC-INCREASE-CURRENT> (40,457,626)
<NET-CHANGE-FROM-OPS> (10,402,029)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,778,924
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,547,277
<NUMBER-OF-SHARES-REDEEMED> (11,530,271)
<SHARES-REINVESTED> 2,130,085
<NET-CHANGE-IN-ASSETS> 199,393,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 935,823
<OVERDISTRIB-NII-PRIOR> (131,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,991,420
<AVERAGE-NET-ASSETS> 384,998,593
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> (0.85)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.78)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> Goldman Sachs High Yield Fund-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 573,892,948
<INVESTMENTS-AT-VALUE> 534,542,747
<RECEIVABLES> 26,619,042
<ASSETS-OTHER> 176,925
<OTHER-ITEMS-ASSETS> 95,641
<TOTAL-ASSETS> 561,434,355
<PAYABLE-FOR-SECURITIES> 19,682,768
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,343,756
<TOTAL-LIABILITIES> 24,026,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 582,416,904
<SHARES-COMMON-STOCK> 3,192,424
<SHARES-COMMON-PRIOR> 1,033,828
<ACCUMULATED-NII-CURRENT> 2,593,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,741,879)
<ACCUM-APPREC-OR-DEPREC> (41,860,822)
<NET-ASSETS> 537,407,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,345,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,947,294
<NET-INVESTMENT-INCOME> 36,398,084
<REALIZED-GAINS-CURRENT> (6,342,487)
<APPREC-INCREASE-CURRENT> (40,457,626)
<NET-CHANGE-FROM-OPS> (10,402,029)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,501,311)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,759,954
<NUMBER-OF-SHARES-REDEEMED> (682,765)
<SHARES-REINVESTED> 81,407
<NET-CHANGE-IN-ASSETS> 199,393,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 935,823
<OVERDISTRIB-NII-PRIOR> (131,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,991,420
<AVERAGE-NET-ASSETS> 21,601,759
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> (0.86)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 107
<NAME> Goldman Sachs High Yield Fund-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 573,892,948
<INVESTMENTS-AT-VALUE> 534,542,747
<RECEIVABLES> 26,619,042
<ASSETS-OTHER> 176,925
<OTHER-ITEMS-ASSETS> 95,641
<TOTAL-ASSETS> 561,434,355
<PAYABLE-FOR-SECURITIES> 19,682,768
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,343,756
<TOTAL-LIABILITIES> 24,026,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 582,416,904
<SHARES-COMMON-STOCK> 931,617
<SHARES-COMMON-PRIOR> 179,625
<ACCUMULATED-NII-CURRENT> 2,593,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,741,879)
<ACCUM-APPREC-OR-DEPREC> (41,860,822)
<NET-ASSETS> 537,407,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,345,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,947,294
<NET-INVESTMENT-INCOME> 36,398,084
<REALIZED-GAINS-CURRENT> (6,342,487)
<APPREC-INCREASE-CURRENT> (40,457,626)
<NET-CHANGE-FROM-OPS> (10,402,029)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (441,110)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,861,343
<NUMBER-OF-SHARES-REDEEMED> (1,138,437)
<SHARES-REINVESTED> 29,086
<NET-CHANGE-IN-ASSETS> 199,393,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 935,823
<OVERDISTRIB-NII-PRIOR> (131,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,991,420
<AVERAGE-NET-ASSETS> 6,359,722
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> (0.86)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.16
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> Goldman Sachs High Yield Fund-Institutional
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 573,892,948
<INVESTMENTS-AT-VALUE> 534,542,747
<RECEIVABLES> 26,619,042
<ASSETS-OTHER> 176,925
<OTHER-ITEMS-ASSETS> 95,641
<TOTAL-ASSETS> 561,434,355
<PAYABLE-FOR-SECURITIES> 19,682,768
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,343,756
<TOTAL-LIABILITIES> 24,026,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 582,416,904
<SHARES-COMMON-STOCK> 10,637,195
<SHARES-COMMON-PRIOR> 153
<ACCUMULATED-NII-CURRENT> 2,593,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,741,879)
<ACCUM-APPREC-OR-DEPREC> (41,860,822)
<NET-ASSETS> 537,407,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,345,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,947,294
<NET-INVESTMENT-INCOME> 36,398,084
<REALIZED-GAINS-CURRENT> (6,342,487)
<APPREC-INCREASE-CURRENT> (40,457,626)
<NET-CHANGE-FROM-OPS> (10,402,029)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,125,426)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,706,944
<NUMBER-OF-SHARES-REDEEMED> (1,145,389)
<SHARES-REINVESTED> 75,487
<NET-CHANGE-IN-ASSETS> 199,393,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 935,823
<OVERDISTRIB-NII-PRIOR> (131,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,991,420
<AVERAGE-NET-ASSETS> 26,266,814
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> (0.83)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.81)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated October 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 106
<NAME> Goldman Sachs High Yield Fund-Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 573,892,948
<INVESTMENTS-AT-VALUE> 534,542,747
<RECEIVABLES> 26,619,042
<ASSETS-OTHER> 176,925
<OTHER-ITEMS-ASSETS> 95,641
<TOTAL-ASSETS> 561,434,355
<PAYABLE-FOR-SECURITIES> 19,682,768
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,343,756
<TOTAL-LIABILITIES> 24,026,524
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 582,416,904
<SHARES-COMMON-STOCK> 48,736
<SHARES-COMMON-PRIOR> 153
<ACCUMULATED-NII-CURRENT> 2,593,628
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (5,741,879)
<ACCUM-APPREC-OR-DEPREC> (41,860,822)
<NET-ASSETS> 537,407,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,345,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,947,294
<NET-INVESTMENT-INCOME> 36,398,084
<REALIZED-GAINS-CURRENT> (6,342,487)
<APPREC-INCREASE-CURRENT> (40,457,626)
<NET-CHANGE-FROM-OPS> (10,402,029)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,368)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 51,049
<NUMBER-OF-SHARES-REDEEMED> (3,209)
<SHARES-REINVESTED> 743
<NET-CHANGE-IN-ASSETS> 199,393,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 935,823
<OVERDISTRIB-NII-PRIOR> (131,443)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,991,420
<AVERAGE-NET-ASSETS> 122,095
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.80
<PER-SHARE-GAIN-APPREC> (0.84)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.76)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.17
<EXPENSE-RATIO> 1.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
