<PAGE>
As filed with the Securities and Exchange Commission on
March 2, 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. 43 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 45 ( 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)
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
(X) On May 1, 1998 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2. Prior to March 31, 1998
Registrant intends to file a Rule 24f-2 notice on behalf of its money market
funds for their fiscal year ended December 31, 1997.
<PAGE>
GOLDMAN SACHS TRUST
GOLDMAN SACHS Institutional Liquid Assets
Cash Management Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PAGE A CAPTION
- ------ -------
Goldman Sachs Money Market Funds
- --------------------------------
Goldman Sachs Prime Obligations Portfolio, Goldman Sachs Money Market Portfolio,
Goldman Sachs Government Portfolio, Goldman Sachs Government Tax-Exempt
Diversified Portfolio, Goldman Sachs Tax-Exempt California Portfolio and Goldman
Sachs Tax-Exempt New York Portfolio
1. Cover Page Cover Page
2. Synopsis Unitholder and Portfolio Expenses
3. Condensed Financial
Information Not Applicable
4. General Description of Cover Page; An Introduction to the
Registrant Portfolios; Investment Policies Matrix;
Description of Securities and Investment
Techniques; Investment Limitations;
Organization and Units of the Portfolios
5. Management of the Fund Management
6. Capital Stock and Other Organization and Units of the
Securities Portfolios; Taxes; Additional
Services; Distributions
7. Purchase of Securities Purchase of Units; Net Asset Value;
Being Offered Additional Services
8. Redemption or Repurchase Redemption of Units; Additional
Services
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B CAPTION
- ------- -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Organization and Capitalization
History
13. Investment Objectives and Investment Policies and Practices
Policies of the Portfolios; Investment
Limitations
14. Management of the The Adviser, Distributor and
Registrant Transfer Agent
15. Control Persons and Organization and Capitalization
Principal Holders of
Securities
16. Investment Advisory and The Adviser, Distributor and
Other Services Transfer Agent
17. Brokerage Allocation and Portfolio Transactions
Other Securities
18. Capital Stock and Other Organizations and Capitalization
Securities
19. Purchase, Redemption and The Adviser, Distributor and
Pricing of Securities Transfer Agent; Net Asset Value;
Being Offered Redemptions; Service and
Distribution Plans
20. Tax Status Tax Information
21. Underwriters The Advisor, Distributor and
Transfer Agent
22. Calculation of Performance Calculation of Yield Quotations
Data
23. Financial Statements Not Applicable
PART C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
CASH MANAGEMENT SHARES
4900 Sears Tower
Chicago, Illinois 60606
Goldman Sachs Trust (the "Trust") is a no-load, open-end, management
investment company (a "mutual fund") which includes the Goldman Sachs--
Institutional Liquid Assets portfolios (the "Portfolios"). This Prospectus
relates only to the offering of Cash Management shares of beneficial interest
("Cash Management Shares") of the Portfolios. Goldman Sachs Asset Management,
a separate operating division of Goldman, Sachs & Co., serves as each
Portfolio's investment adviser. Goldman, Sachs & Co. serves as each
Portfolio's distributor and transfer agent.
The following Portfolios seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments. These
Portfolios may invest in diversified portfolios of the following types of
instruments:
Prime Obligations Portfolio. Securities of the U.S. Government, its
agencies, authorities and instrumentalities, obligations of U.S. banks,
commercial paper and other short-term obligations of U.S. companies, states,
municipalities and other entities, and repurchase agreements.
Money Market Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, U.S. dollar denominated obligations of U.S.
and foreign banks, U.S. dollar denominated commercial paper and other short-
term obligations of U.S. and foreign companies, foreign governments, states,
municipalities and other entities, and repurchase agreements.
Government Portfolio. Securities of the U.S. Government, its agencies,
authorities and instrumentalities, and repurchase agreements relating to such
securities.
The following Portfolios seek to the extent consistent with the preservation
of capital and prescribed portfolio standards, a high level of income excluded
from gross income for federal income tax purposes, and in the case of the Tax-
Exempt California Portfolio and Tax-Exempt New York Portfolio, exempt from
California state and New York state and city personal income taxes,
respectively, by investing primarily in municipal instruments. The Tax-Exempt
California and Tax-Exempt New York Portfolios concentrate their investments in
securities issued by or on behalf of California and New York municipal issuers
and therefore investment in such Portfolios may be riskier than other types of
money market funds. These Portfolios may invest in the following types of
instruments:
Tax-Exempt Diversified Portfolio. A diversified portfolio of municipal
obligations issued by or on behalf of states, territories and possessions of
the United States and their political subdivisions, agencies, authorities and
instrumentalities, and the District of Columbia.
Tax-Exempt California Portfolio. A non-diversified portfolio consisting
primarily of municipal obligations issued by or on behalf of the State of
California and its political subdivisions, agencies and instrumentalities and
other obligations that are exempt from federal and California state income
taxes.
Tax-Exempt New York Portfolio. A non-diversified portfolio consisting
primarily of municipal obligations issued by or on behalf of the State of New
York and its political subdivisions, agencies and instrumentalities and other
obligations that are exempt from federal, New York State and New York City
personal income taxes.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT A PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION............ Goldman Sachs Funds--Toll Free: 800-621-2550
This Prospectus provides you with information about the Portfolios that you
should know before investing in Cash Management Shares. It should be read and
retained for future reference. If you would like more detailed information,
the Statement of Additional Information dated May 1, 1998, as amended or
supplemented from time to time, is available upon request without charge from
Service Organizations, as defined herein, or by calling the telephone number
listed above or by writing Goldman Sachs, Attention: Shareholder Services,
Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. The Statement
of Additional Information, which is incorporated by reference into this
Prospectus, has been filed with the Securities and Exchange Commission. Not
all Portfolios are available in certain states. Please call the phone number
listed above to determine availability in your state. The SEC maintains a Web
site (http://www.sec.gov) that contains the Statement of Additional
Information and other information regarding the Trust.
- -------------------------------------------------------------------------------
CASH MANAGEMENT SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY
INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A
PORTFOLIO INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
<PAGE>
UNITHOLDER AND PORTFOLIO EXPENSES
CASH MANAGEMENT SHARES
<TABLE>
<CAPTION>
TAX- TAX- TAX-
PRIME MONEY EXEMPT EXEMPT EXEMPT
OBLIGATIONS MARKET GOVERNMENT DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
UNITHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases... None None None None None None
Sales Charge Imposed on
Reinvested
Distributions.......... None None None None None None
Deferred Sales Load
Imposed on Redemptions. None None None None None None
Exchange Fee........... None None None None None None
ANNUAL OPERATING
EXPENSES (1)
(as a percentage of
average daily net
assets)
Management Fees (after
limitations) (2)....... 0.35% 0.34% 0.35% 0.26% 0.35% 0.27%
Distribution (Rule 12b-
1) Fees (after
applicable liabilities)
(3).................... 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
Other Expenses
Service Fees.......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
expense limitation)
(4)................... 0.08% 0.06% 0.08% 0.06% 0.07% 0.06%
---- ---- ---- ---- ---- ----
TOTAL OPERATING EXPENSES
(5)..................... 1.00% 0.97% 1.00% 0.89% 0.99% 0.90%
==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a hypothetical $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Portfolio................ $10 $32 N/A N/A
Money Market Portfolio..................... $10 $31 N/A N/A
Government Portfolio....................... $10 $32 N/A N/A
Tax-Exempt Diversified Portfolio........... $9 $28 N/A N/A
Tax-Exempt California Portfolio............ $10 $32 N/A N/A
Tax-Exempt New York Portfolio.............. $9 $29 N/A N/A
</TABLE>
2
<PAGE>
- --------
(1) Based on estimated amounts for the current fiscal year.
(2) The Investment Adviser has voluntarily agreed that a portion of the
management fee would not be imposed on the Money Market, Tax-Exempt
Diversified and Tax-Exempt New York Portfolios equal to .01%, .09% and
.08%, respectively. Without such limitation, management fees for each
Portfolio would be 0.35%.
(3) Goldman Sachs has voluntarily agreed not to impose a portion of the
distribution fee for each Portfolio equal to .43%. Without such voluntary
waivers, distribution fees for each Portfolio would be .50%.
(4) The Investment Adviser has voluntarily agreed to reduce or limit certain
other expenses (excluding management fees, fees payable to Service
Organizations, as defined herein, distribution fees, taxes, interest and
brokerage and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.08% of the Prime
Obligations and Government Portfolios and 0.07% of the Tax-Exempt
California Portfolio's average daily net assets and 0.06% of each other
Portfolio's average daily net assets.
(5) Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Portfolios for the current fiscal year are
estimated to be as follows:
<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Prime Obligations Portfolio......................... 0.08% 1.43%
Money Market Portfolio.............................. 0.07% 1.42%
Government Portfolio................................ 0.08% 1.43%
Tax-Exempt Diversified Portfolio.................... 0.06% 1.41%
Tax-Exempt California Portfolio..................... 0.07% 1.42%
Tax-Exempt New York Portfolio....................... 0.08% 1.43%
</TABLE>
The information set forth in the foregoing table and hypothetical example
relates only to Cash Management Shares of the Portfolios. The Portfolios also
offer ILA Units, ILA Administration Units, ILA Service Units and ILA Class B
Units (Prime Obligations only). The other classes of the Portfolios are sub-
ject to different fees and expenses (which affect performance) and are enti-
tled to different services. Information regarding any other class of the Port-
folios may be obtained from your sales representative or from Goldman Sachs by
calling the number on the front cover of this Prospectus.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Cash Management Shares in connection with their custom-
ers' accounts. Due to the distribution and service fees, a long-term share-
holder may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers,
Inc.'s rules regarding investment companies. See "Additional Services." Such
fees, if any, may affect the return such customers realize with respect to
their investments.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Portfolio that an investor will bear di-
rectly or indirectly. The information on fees and expenses included in the ta-
ble and the hypothetical example above are based on each Portfolio's estimated
fees and expenses and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Portfo-
lio's actual performance will vary and may result in an actual return greater
or less than 5%. See "Management--Investment Adviser."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following data with respect to a unit (of the class specified) of the
Prime Obligations, Money Market, Government, Tax-Exempt Diversified, Tax-Ex-
empt California and Tax-Exempt New York Portfolios outstanding during the pe-
riods indicated have been audited by , independent auditors, as indi-
cated in their report incorporated by reference and attached to the Statement
of Additional Information from the annual report to unitholders for the fiscal
year ended December 31, 1997 (the "Annual Report"), and should be read in con-
junction with the financial statements and related notes incorporated by ref-
erence and attached to the Statement of Additional Information. During the pe-
riods shown, the Trust did not offer Cash Management Shares of any of the
Portfolios.
4
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Unit Outstanding Throughout Each Period
Prime Obligations Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE NET
NET ASSETS ASSETS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
</TABLE>
5
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Money Market Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
RATIO OF NET NET
NET ASSET NET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
--------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
</TABLE>
6
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Government Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET GAIN ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN(A) ASSETS ASSETS (IN 000'S)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
</TABLE>
7
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt Diversified Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------
NET RATIO OF NET NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET GAIN (LOSS) ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
-------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
</TABLE>
8
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt California Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------
NET RATIO OF NET NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET LOSS ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S)
-----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
-----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C>
</TABLE>
9
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt New York Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET RATIO OF NET NET
NET ASSET REALIZED TOTAL NET ASSET RATIO OF NET INVESTMENT ASSETS AT
VALUE AT NET LOSS ON INCOME FROM VALUE AT EXPENSES TO INCOME TO END OF
BEGINNING INVESTMENT INVESTMENT INVESTMENT DISTRIBUTIONS END TOTAL AVERAGE NET AVERAGE NET PERIOD
OF PERIOD INCOME TRANSACTIONS OPERATIONS TO UNITHOLDERS OF PERIOD RETURN (A) ASSETS ASSETS (IN 000'S)
----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET
RATIO OF NET INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET
ASSETS ASSETS
----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
<S> <C> <C>
</TABLE>
10
<PAGE>
AN INTRODUCTION TO THE PORTFOLIOS
THE TRUST: The Trust is a no-load, open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "Invest-
ment Company Act"). Each Portfolio is a separate pool of assets which pursues
its investment objective through separate investment policies, as described
below.
THE ADVISER: Goldman Sachs Asset Management, a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Portfolios' invest-
ment adviser (the "Adviser" or "GSAM").
THE DISTRIBUTOR: Goldman Sachs, which serves as the Portfolios' distributor
and transfer agent, is one of the largest international investment banking and
brokerage firms in the United States.
THE INVESTORS: The Portfolios are designed for investors seeking a high rate
of return, a stable net asset value and convenient liquidation privileges. The
Portfolios are particularly suitable for banks, corporations and other finan-
cial institutions that seek investment of short-term funds for their own ac-
counts or for the accounts of their customers.
THE PORTFOLIOS: Each Portfolio's securities are valued by the amortized cost
method as permitted by a rule ("Rule 2a-7") of the Securities and Exchange
Commission ("SEC"). Under such rule, each Portfolio may invest only in securi-
ties that are determined to present minimal credit risk and meet certain other
criteria.
TAXABLE PORTFOLIOS: Prime Obligations, Money Market and Government Port-
folios.
INVESTMENT OBJECTIVES AND POLICIES FOR TAXABLE PORTFOLIOS: To seek to
maximize current income to the extent consistent with the preservation of
capital and the maintenance of liquidity by investing exclusively in high
quality money market instruments. Each investor should consult his or her
tax adviser to determine whether distributions from any Portfolio that may
hold certain U.S. Treasury Obligations and U.S. Government Securities, the
interest from which is generally exempt from state taxation, are exempt
from state income taxation in the investor's own state.
TAX-EXEMPT PORTFOLIOS: Tax-Exempt Diversified, Tax-Exempt California and
Tax-Exempt New York Portfolios.
INVESTMENT OBJECTIVES AND POLICIES FOR TAX-EXEMPT PORTFOLIOS: To seek to
provide unitholders, to the extent consistent with the preservation of cap-
ital and prescribed portfolio standards, with a high level of income exempt
from federal income tax by investing primarily in Municipal Instruments, as
defined herein. In addition, the Tax-Exempt California and Tax-Exempt New
York Portfolios seek to provide unitholders with income exempt from Cali-
fornia state and New York state and city personal income taxes, respective-
ly.
NET ASSET VALUE: Each Portfolio seeks to maintain a stable net asset value
of $1.00 per unit.
MAXIMUM REMAINING MATURITY OF PORTFOLIO INVESTMENTS: Thirteen months at the
time of purchase.
DOLLAR-WEIGHTED AVERAGE PORTFOLIO MATURITY ("WAM"): Not more than ninety
days as required by Rule 2a-7.
FIRST TIER SECURITIES: Each Portfolio may purchase securities which are
rated (or that have been issued by an issuer that is rated with respect to a
class of short-term debt obligations, or any security within that class,
11
<PAGE>
comparable in priority and quality with such securities) in the highest short-
term rating category by at least two NRSROs (as defined below), or if only one
NRSRO has assigned a rating, by that NRSRO. U.S. Government Securities as de-
fined herein are considered First Tier Securities.
SECOND TIER SECURITIES: The Tax-Exempt Portfolios may purchase securities
which are not First Tier Securities but which are rated in the top two short-
term rating categories by at least two NRSROs, or if only one NRSRO has as-
signed a rating, by that NRSRO. The Taxable Portfolios will not invest in a
security which is a Second Tier Security at the time of purchase.
UNRATED SECURITIES: To the extent permitted by Rule 2a-7, unrated securities
may be purchased if they are deemed to be of comparable quality to First Tier
Securities, or to the extent that a Portfolio may purchase Second Tier Securi-
ties, comparable in quality to Second Tier Securities.
NRSROS: Nationally Recognized Statistical Rating Organizations include Stan-
dard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Lim-
ited and its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a descrip-
tion of each NRSRO's rating categories, see Appendix A to the Statement of Ad-
ditional Information.
12
<PAGE>
INVESTMENT POLICIES MATRIX
<TABLE>
<CAPTION>
SHORT-TERM
OBLIGATIONS OF ASSET-BACKED &
US US CORPORATIONS RECEIVABLES-
TREASURY GOVERNMENT BANK COMMERCIAL AND OTHER REPURCHASE BACKED
PORTFOLIO OBLIGATIONS SECURITIES OBLIGATIONS PAPER ENTITIES AGREEMENTS SECURITIES+
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Prime
Obligations [_] [_] [_] [_] [_] [_] [_]
U.S. banks Only U.S. entities only
- -------------------------------------------------------------------------------------------------------------------------
Money Market
[_] [_] [_] [_] [_] [_] [_]
Over 25% of total U.S. and U.S. and foreign
assets must be foreign (US$) (US$) entities
invested in U.S. commercial paper
and Foreign
(US$) Banks
- -------------------------------------------------------------------------------------------------------------------------
Government [_] [_] [_]
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
Diversified [_]
Tax-exempt only
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt
California [_]
Tax-exempt only
- -------------------------------------------------------------------------------------------------------------------------
Tax-Exempt New
York [_]
Tax-exempt only
<CAPTION>
FOREIGN
GOVERNMENT
OBLIGATIONS
PORTFOLIO (US$)
- -----------------------------
<S> <C>
Prime
Obligations
- -----------------------------
Money Market [_]
- -----------------------------
Government
- -----------------------------
Tax-Exempt
Diversified
- -----------------------------
Tax-Exempt
California
- -----------------------------
Tax-Exempt New
York
</TABLE>
Note: See "Description of Securities and Investment Techniques" for a de-
scription of, and certain criteria applicable to, each of these categories
of investments.
+ To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of NRSROs.
13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY
OF
TAXABLE TAX-EXEMPT CREDIT INVESTMENT UNRATED TAXATION FOR
MUNICIPALS MUNICIPALS QUALITY**** COMPANIES SECURITIES DISTRIBUTIONS* MISCELLANEOUS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[_] [_] [_]
First Up to 10% of Taxable federal
Tier total assets and state**
in other
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
First Up to 10% Taxable federal May invest in
Tier of total and state** obligations of
assets in the
other International
investment Bank for
companies Reconstruction
and Development
- ----------------------------------------------------------------------------------------------------------------------
[_]
First Up to 10% Taxable federal
Tier of total and state**
assets in
other
investment
companies
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
At least 80% of net assets First or Up to 10% Tax-exempt May (but does
in Municipal Instruments Second of total federal and not currently
(except in extraordinary Tier assets in taxable intend to)
circumstances) other state*** invest up to
investment 20% in AMT
companies securities and
may temporarily
invest in the
taxable money
market
instruments
described
herein
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
First or Up to 10% Tax-exempt May (but does
At least 80% of net assets Second of total federal and not currently
in Municipal Instruments and Tier assets in California intend to)
at least 65% of its total other State invest up to
assets must be invested in investment 20% in AMT
California Instruments companies securities and
(except in extraordinary may temporarily
circumstances) invest in the
taxable money
market
instruments
described
herein
- ----------------------------------------------------------------------------------------------------------------------
[_] [_] [_]
At least 80% of net assets First or Up to 10% Tax-exempt May invest up
in Municipal Instruments and Second of total federal, New to 20% in AMT
at least 65% of its total Tier assets in York State and securities and
assets must be invested in other New York City may temporarily
New York Instruments (except investment invest in the
in companies taxable money
extraordinary circumstances) market
instruments
described
herein
</TABLE>
* See "Taxes" below for an explanation of the tax consequences summarized in
the table above.
** Taxable in many states except for distributions from U.S. Treasury obliga-
tion interest income and certain U.S. Government securities interest in-
come.
*** Taxable except for distributions from interest on obligations of an in-
vestor's state of residence in certain states.
**** To the extent permitted by Rule 2a-7, a Portfolio holding a security fully
supported by a guarantee may substitute the credit quality of the guaran-
tee in determining the credit quality of the security.
14
<PAGE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. TREASURY OBLIGATIONS
"U.S. Treasury Obligations" are securities issued or guaranteed by the U.S.
Treasury, payments of principal and interest on which are backed by the full
faith and credit of the U.S. Government.
U.S. GOVERNMENT SECURITIES
"U.S. Government Securities" are obligations issued or guaranteed by the
U.S. Government, its agencies, authorities or instrumentalities. Unlike U.S.
Treasury Obligations, securities issued or guaranteed by U.S. Government agen-
cies, authorities or instrumentalities are supported either by (a) the full
faith and credit of the U.S. Government (such as securities of the Government
National Mortgage Association), (b) the right of the issuer to borrow from the
Treasury (such as securities of the Student Loan Marketing Association), (c)
the discretionary authority of the U.S. Government to purchase the agency's
obligations (such as securities of the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation), or (d) only the credit of the
issuer. No assurance can be given that the U.S. Government will provide finan-
cial support to U.S. Government agencies, authorities or instrumentalities in
the future. U.S. Government Securities may include zero coupon bonds. Such
bonds may be purchased when yields are attractive.
Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are deemed to include (a) secu-
rities for which the payment of principal and interest is backed by an irrevo-
cable letter of credit issued by the U.S. Government, its agencies, authori-
ties or instrumentalities and (b) participations in loans made to foreign gov-
ernments or their agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations may therefore
be regarded as illiquid.
Each Portfolio may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
CUSTODIAL RECEIPTS
Each Portfolio (other than Government Portfolio) may also acquire securities
issued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities in the form of custodial receipts
that evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities. For certain securities law purposes, custo-
dial receipts are not considered obligations of the U.S. Government.
U.S. AND FOREIGN BANK OBLIGATIONS
The Prime Obligations and Money Market Portfolios may invest in "U.S. Bank
Obligations" limited to securities issued or guaranteed by U.S. banks (includ-
ing certificates of deposit, commercial paper, unsecured bank promissory notes
and bankers' acceptances) which have more than $1 billion in total assets at
the time of purchase. Such obligations may also include debt obligations is-
sued by U.S. subsidiaries of such banks.
The Money Market Portfolio may also invest in "Foreign Bank Obligations"
limited to U.S. dollar denominated obligations issued or guaranteed (including
fixed time deposits) by foreign banks which have more than $1 billion in total
assets at the time of purchase, U.S. branches of such foreign banks (Yankee
obligations),
15
<PAGE>
foreign branches of such foreign banks and foreign branches of U.S. banks hav-
ing more than $1 billion in total assets at the time of purchase. Such bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligation or by government
regulation.
The Money Market Portfolio will invest more than 25% of its total assets in
bank obligations (whether foreign or domestic), including bank commercial pa-
per. However, if adverse economic conditions prevail in the banking industry
(such as substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits) the Portfolio may, for defensive
purposes, temporarily invest less than 25% of its total assets in bank obliga-
tions. As a result, the Portfolio may be especially affected by favorable and
adverse developments in or related to the banking industry. The activities of
U.S. banks and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes in
the past decade. The enactment of new legislation or regulations, as well as
changes in interpretation and enforcement of current laws, may affect the man-
ner of operations and profitability of domestic and foreign banks. Significant
developments in the U.S. banking industry have included deregulation of inter-
est rates, increased competition from other types of financial institutions,
increased acquisition activity, geographic expansion and, during the late
1980's, an increased number of bank failures. Banks may be particularly sus-
ceptible to certain economic factors, such as interest rate changes and ad-
verse developments in the market for real estate. Fiscal and monetary policy
and general economic cycles can affect the availability and cost of funds,
loan demand and asset quality and thereby impact the earnings and financial
conditions of banks. See "Foreign Government Obligations--Foreign Risks" be-
low.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS
The Prime Obligations and Money Market Portfolios may invest in "Commercial
Paper" (including variable amount master demand notes and asset-backed commer-
cial paper) which is payable in U.S. dollars and is issued or guaranteed by
U.S. corporations, U.S. commercial banks, foreign corporations (Money Market
Portfolio only), foreign commercial banks (Money Market Portfolio only) or
other entities. In addition, the Portfolios may invest in other short-term ob-
ligations (including short-term funding agreements) payable in U.S. dollars
and issued or guaranteed by U.S. corporations, foreign corporations (Money
Market Portfolio only) or other entities.
ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES
The Prime Obligations and Money Market Portfolios may invest in "Asset-
Backed and Receivables-Backed Securities" which represent participations in,
or are secured by and payable from, pools of assets such as motor vehicle
installment sale contracts, 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 asset pools are
securitized through the use of privately-formed trusts or special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution, or other
credit enhancements may be present. To the extent consistent with its
investment objectives and policies, each of the Prime Obligations and Money
Market Portfolios may invest in new types of mortgage-related securities and
in other asset-backed securities that may be developed in the future.
FOREIGN GOVERNMENT OBLIGATIONS
The Money Market Portfolio may invest in U.S. dollar-denominated obligations
(limited to commercial paper and other notes) issued or guaranteed by a for-
eign government or entity located or organized in a foreign
16
<PAGE>
country that maintains a short-term foreign currency rating in the highest
short-term ratings category by the requisite number of NRSROs. The Money Mar-
ket Portfolio may not invest more than 25% of its total assets in the securi-
ties of any one foreign government.
FOREIGN RISKS. Investments in foreign securities and bank obligations may
present a greater degree of risk than investments in securities of domestic
issuers because of less publicly-available financial and other information,
less securities regulation, potential imposition of foreign withholding and
other taxes, war, expropriation or other adverse governmental actions. Foreign
banks and their foreign branches are not regulated by U.S. banking authori-
ties, and generally are not bound by the accounting, auditing and financial
reporting standards applicable to U.S. banks.
MUNICIPAL OBLIGATIONS
MUNICIPAL INSTRUMENTS: Obligations issued by or on behalf of states, terri-
tories and possessions of the United States and their political subdivisions,
agencies, authorities and instrumentalities, and the District of Columbia, the
interest from which is, in the opinion of bond counsel, if any, excluded from
gross income for federal income tax purposes.
CALIFORNIA INSTRUMENTS: Obligations issued by or on behalf of the State of
California and its political subdivisions, agencies and instrumentalities and
the governments of Puerto Rico, the U.S. Virgin Islands and Guam, the interest
from which is excluded from gross income for federal income tax purposes and
is exempt from California state personal income tax.
NEW YORK INSTRUMENTS: Obligations issued by or on behalf of the State of New
York and its political subdivisions, agencies and instrumentalities and the
governments of Puerto Rico, the U.S. Virgin Islands and Guam, the interest
from which is excluded from gross income for federal income tax purposes and
is exempt from New York state and New York city personal income tax.
TYPES OF MUNICIPAL, CALIFORNIA AND NEW YORK INSTRUMENTS:
<TABLE>
<CAPTION>
TAX- TAX-
EXEMPT DIVERSIFIED EXEMPT CALIFORNIA TAX-EXEMPT NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED RATE NOTES AND In highest short- In one of the two In one of the two
SIMILAR DEBT term or one of the highest short-term highest short-term
INSTRUMENTS two highest long- or long-term rating or long-term rating
term rating categories categories
categories
- --------------------------------------------------------------------------------------
VARIABLE AND In highest short- In one of the two In one of the two
FLOATING RATE DEMAND term or one of the highest short-term highest short-term
INSTRUMENTS two highest long- or long-term rating or long-term rating
term rating categories categories
categories
- --------------------------------------------------------------------------------------
TAX-EXEMPT In highest rating In one of the two In one of the two
COMMERCIAL PAPER category highest rating highest rating
categories categories
- --------------------------------------------------------------------------------------
MUNICIPAL BONDS In one of the two In one of the two In one of the two
highest rating highest rating highest rating
categories categories categories
- --------------------------------------------------------------------------------------
UNRATED NOTES, Determined to be of Determined to be of Determined to be of
PAPER, BONDS AND comparable quality comparable quality comparable quality
OTHER INSTRUMENTS by Adviser pursuant by Adviser pursuant by Adviser pursuant
to criteria approved to criteria approved to criteria approved
by the Trustees by the Trustees by the Trustees
</TABLE>
17
<PAGE>
As a matter of fundamental policy, at least 80% of each of the Tax-Exempt
Diversified, Tax-Exempt California and Tax-Exempt New York Portfolio's net as-
sets will ordinarily be invested in Municipal Instruments, except in extraor-
dinary circumstances. In addition, as a matter of fundamental policy, at least
65% of each of the Tax-Exempt California and Tax-Exempt New York Portfolio's
total assets will be invested in California and New York Instruments, respec-
tively, except in extraordinary circumstances. Each Tax-Exempt Portfolio may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in Municipal Instruments that
are not California or New York Instruments, respectively, when acceptable Cal-
ifornia and New York Instruments are not available or when the Adviser be-
lieves that the market conditions dictate a defensive posture. Investments in
taxable money market instruments will be limited to those meeting the quality
standards of each Tax-Exempt Portfolio. The Tax-Exempt California and Tax-Ex-
empt New York Portfolios' distributions of interest from Municipal Instruments
other than California and New York Instruments, respectively, may be subject
to California and New York state and New York city personal income taxes, re-
spectively.
The Prime Obligations and Money Market Portfolios may invest in short-term
obligations issued or guaranteed by state and municipal governments when
yields on such securities are attractive compared to other taxable invest-
ments.
MUNICIPAL NOTES AND BONDS. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing munici-
pality and are considered the safest type of bonds. Revenue bonds are backed
by the revenues of a project or facility such as the tolls from a toll bridge.
Revenue bonds also include lease rental revenue bonds which are issued by a
state or local authority for capital projects and are secured by annual lease
payments from the state or locality sufficient to cover debt service on the
authority's obligations. Industrial development bonds (generally referred to
under current tax law as "private activity bonds") are a specific type of rev-
enue bond backed by the credit and security of a private user and therefore
have more potential risk. Municipal bonds may be issued in a variety of forms,
including commercial paper, tender option bonds and variable and floating rate
securities.
TENDER OPTION BONDS. A tender option bond is a Municipal Instrument (gener-
ally held pursuant to a custodial arrangement) having a relatively long matu-
rity and bearing interest at a fixed rate substantially higher than prevailing
short-term, tax-exempt rates. The bond is typically issued in conjunction with
the agreement of a third party, such as a bank, broker-dealer or other finan-
cial institution, pursuant to which such institution grants the security
holder the option, at periodic intervals, to tender its securities to the in-
stitution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the dif-
ference between the bond's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the pre-
vailing short-term, tax-exempt rate. However, an institution will not be obli-
gated to accept tendered bonds in the event of certain defaults or a signifi-
cant downgrading in the credit rating assigned to the issuer of the bond. The
tender option will be taken into account in determining the maturity of the
tender option bonds and a Portfolio's average portfolio maturity. There is a
risk that a Portfolio will not be considered the owner of a tender option bond
for federal income tax purposes and thus will not be entitled to treat such
interest as exempt from federal income tax.
18
<PAGE>
REVENUE ANTICIPATION WARRANTS. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that permits
the holder to sell the RAWs to a bank or other financial institution at a
purchase price equal to par plus accrued interest on each interest rate reset
date.
FLOATING AND VARIABLE RATE OBLIGATIONS. The value of floating and variable
rate obligations generally is more stable than that of fixed rate obligations
in response to changes in interest rate levels. Variable and floating rate ob-
ligations usually have demand features that permit the Portfolios to sell them
at par value plus accrued interest upon short notice. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend and letters of
credit, which will ordinarily be irrevocable, both of which may be issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in
the United States. When considering whether an obligation meets a Portfolio's
quality standards, the Portfolio will, to the extent permitted by Rule 2a-7,
look to the creditworthiness of the party providing unconditional demand fea-
tures or other unconditional obligations to support the credit of the issuer
of the security. A Portfolio may consider the maturity of a variable or float-
ing rate Municipal Instrument to be shorter than its ultimate stated maturity
if the Portfolio has the right to demand prepayment of its principal at speci-
fied intervals prior to the security's ultimate stated maturity, subject to
the conditions for using amortized cost valuation under the Investment Company
Act. A Portfolio may purchase such variable or floating rate obligations from
the issuers or may purchase certificates of participation, a type of floating
or variable rate obligation, which are interests in a pool of debt obligations
held by a bank or other financial institution.
INDUSTRIAL DEVELOPMENT BONDS. The Portfolios (other than the Government
Portfolio) may invest in industrial development bonds (generally referred to
under current tax law as "private activity bonds"), the interest from which
would be an item of tax preference when distributed as "exempt-interest divi-
dends" to unitholders under the federal alternative minimum tax. See "Taxes"
and "Distributions." The Tax-Exempt New York Portfolio may invest up to 20% of
its net assets in private activity bonds. The Tax-Exempt Diversified and Tax-
Exempt California Portfolios do not currently intend to invest in such bonds.
If such policy should change in the future, unitholders would be notified and
such investments would not exceed 20% of each Portfolio's net assets.
OTHER POLICIES. Ordinarily, the Tax-Exempt Portfolios expect that 100% of
their portfolio securities will be Municipal Instruments. However, the Portfo-
lios may hold cash or invest in short-term taxable securities as set forth
above. Such Portfolios may invest 25% or more of the value of their respective
total assets in Municipal Instruments which are related in such a way that an
economic, business or political development or change affecting one Municipal
Instrument would also affect the other Municipal Instruments. For example, the
Tax-Exempt Portfolios may invest all of their respective assets in (a) Munici-
pal Instruments the interest on which is paid solely from revenues from simi-
lar projects such as hospitals, electric utility systems, multi-family hous-
ing, nursing homes, commercial facilities (including hotels), steel companies
or life care facilities, (b) Municipal Instruments whose issuers are in the
same state (including, in the case of the Tax-Exempt California and Tax-Exempt
New York Portfolios, issuers in states other than California and New York, re-
spectively), or (c) industrial development obligations. Concentration of a
Portfolio's investments in these Municipal Instruments will subject the Port-
folio, to a greater extent than if such investment was more limited, to the
risks of adverse economic, business or political developments affecting any
such state, industry or other area of concentration.
19
<PAGE>
Each Portfolio (other than the Government Portfolio) may purchase Municipal
Instruments which are backed by letters of credit, which will ordinarily be
irrevocable, issued by domestic banks or foreign banks (excluding Prime Obli-
gations Portfolio) which have a branch, agency or subsidiary in the United
States. In addition, these Portfolios may acquire securities in the form of
custodial receipts which evidence ownership of future interest payments, prin-
cipal payments or both on obligations of certain state and local governments
and authorities.
In order to enhance the liquidity, stability, or quality of a Municipal In-
strument, each Portfolio (other than the Government Portfolio) may acquire the
right to sell the security to another party at a guaranteed price and date.
INVESTING IN CALIFORNIA AND NEW YORK
The Tax-Exempt California and Tax-Exempt New York Portfolios concentrate
their investments in California and New York Instruments, respectively. Conse-
quently, such Portfolios are more susceptible to factors adversely affecting
issuers of California and New York Instruments, respectively, and may be risk-
ier than comparable municipal bond funds and money market funds that do not
emphasize these issuers to this degree.
The Tax-Exempt California Portfolio's investments can be affected by politi-
cal and economic developments within the State of California (the "State'),
and by the financial condition of the State, its public authorities and polit-
ical subdivisions. After suffering a severe recession in the early 1990's
which caused the State to experience financial difficulties, California's
economy entered a sustained recovery since late 1993 and the State's budget
has returned to a positive balance. California's long-term credit rating has
been raised after being reduced during the recession. To respond to its own
revenue shortfalls during the recession, the State reduced assistance to its
public authorities and political subdivisions. Cutbacks in state aid could
further adversely affect the financial condition of cities, counties and edu-
cation districts which are subject to their own fiscal constraints. California
voters in the past have passed amendments to the California Constitution and
other measures that limit the taxing and spending authority of California gov-
ernmental entities and future voter initiatives could result in adverse conse-
quences affecting California Instruments. Also, the ultimate fiscal effect of
federally-mandated reform of welfare programs on the State and its local gov-
ernments is still to be resolved.
These factors, among others (including the outcome of related pending liti-
gation), could reduce the credit standing of certain issuers of California In-
struments. A more detailed discussion of the risks of investing in California
is included in the Statement of Additional Information.
The Tax-Exempt New York Portfolio's investments can be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and
the City face long-term economic problems that could seriously affect their
ability and that of other issuers of New York Instruments to meet their finan-
cial obligations. Certain substantial issuers of New York Instruments (includ-
ing issuers whose obligations may be acquired by the Portfolio) have experi-
enced serious financial difficulties in recent years. These difficulties have
at times jeopardized the credit standing and impaired the borrowing abilities
of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obli-
gations. In recent years, several different issues of municipal securities of
the State and its agencies and instrumentalities and of the City have been
downgraded by S&P and Moody's. On the other hand, strong demand for New York
Instruments has at times had the effect of permitting New York Instruments to
be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher,
20
<PAGE>
than comparably rated municipal obligations issued by other jurisdictions. A
recurrence of the financial difficulties previously experienced by certain is-
suers of New York Instruments could result in defaults or declines in the mar-
ket values of those issuers' existing obligations and, possibly, in the obli-
gations of other issuers of New York Instruments. Although as of April 1, 1997
no issuers of New York Instruments were in default with respect to the payment
of their municipal obligations, the occurrence of any such default could af-
fect adversely the market values and marketability of all New York Instruments
and, consequently, the net asset value of the Portfolio's holdings. A more de-
tailed discussion of the risks of investing in New York is included in the
Statement of Additional Information.
If California, New York, or any of their local governmental entities are un-
able to meet their financial obligations, the corresponding Portfolio's in-
come, net asset value, ability to preserve or realize appreciation of capital
or liquidity could be adversely affected. Also, neither of these Portfolios is
a diversified fund (except to the extent that diversification is required for
federal income tax purposes). For these tax purposes, with respect to 50% of
the value of its total assets, none of these Portfolios invests more than 5%
of the value of its total assets in securities of a single issuer (except U.S.
Government Securities or securities of other regulated investment companies),
nor, with respect to the other 50% of the value of its total assets, does it
invest more than 25% of the value of its total assets in the securities of a
single issuer (except U.S. Government Securities or securities of other regu-
lated investment companies). These Federal tax diversification requirements
apply only at taxable quarter ends and are subject to certain qualifications
and exceptions. Because they may invest a larger percentage of their assets in
the securities of fewer issuers than do diversified funds, these Portfolios
may be exposed to greater risk in that an adverse change in the condition of
one or a small number of issuers would have a greater impact on them.
REPURCHASE AGREEMENTS
Each Portfolio may only enter into repurchase agreements with primary deal-
ers in U.S. Government Securities. A repurchase agreement is an agreement un-
der which a Portfolio purchases securities and the seller agrees to repurchase
the securities within a particular time at a specified price. Such price will
exceed the original purchase price, the difference being income to the Portfo-
lio, and will be unrelated to the interest rate on the purchased security. A
Portfolio's custodian or subcustodian will maintain custody of the purchased
securities for the duration of the agreement. The value of the purchased secu-
rities, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement. In the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Portfolio
could suffer losses, including loss of interest on or principal of the secu-
rity and costs associated with delay and enforcement of the repurchase agree-
ment. In evaluating whether to enter into a repurchase agreement, the Adviser
will carefully consider the creditworthiness of the seller pursuant to proce-
dures reviewed and approved by the Trustees. Distributions of the income from
repurchase agreements entered into by a Portfolio will be taxable to its
unitholders. In addition, each Portfolio (other than the Treasury Instruments
Portfolio), together with other registered investment companies having advi-
sory agreements with the Adviser or any of its affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate bal-
ance of which will be invested in one or more repurchase agreements.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Portfolio may purchase when-issued securities and make contracts to
purchase or sell securities for a fixed price at a future date beyond custom-
ary settlement time. A Portfolio is required to hold and maintain in a segre-
gated account with the Portfolio's custodian or subcustodian until three days
prior to settlement date, cash or liquid assets in an amount sufficient to
meet the purchase price. Alternatively, a Portfolio may enter into
21
<PAGE>
offsetting contracts for the forward sale of other securities that it owns.
Securities purchased or sold on a when-issued or forward commitment basis in-
volve 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 in-
creases prior to the settlement date. Although a Portfolio would generally
purchase securities on a when-issued or forward commitment basis with the in-
tention of acquiring securities for its portfolio, the Portfolio may dispose
of a when-issued security or forward commitment prior to settlement if the Ad-
viser deems it appropriate to do so.
OTHER INVESTMENT COMPANIES
The Adviser will determine, under guidelines established by the Trustees,
whether securities issued by other money market investment companies present
minimal credit risks. The amount of each Portfolio's investments in securities
of other investment companies will be subject to the limitations on such in-
vestments prescribed by the Investment Company Act. These limits include a
prohibition on any Portfolio acquiring more than 3% of the voting shares of
any other investment company and a prohibition on investing more than 5% of a
Portfolio's total assets in securities of any one investment company or more
than 10% of its total assets in securities of all investment companies. Each
Portfolio will indirectly bear its proportionate share of any management fees
and other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions sub-
stantially similar to those of the acquiring Portfolio and will be subject to
substantially the same risks.
22
<PAGE>
INVESTMENT LIMITATIONS
TAXABLE AND TAX-EXEMPT PORTFOLIOS. Each Portfolio will comply with the con-
ditions for using amortized cost valuation set forth in Rule 2a-7 under the
Investment Company Act including, but not limited to, those conditions relat-
ing to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the State-
ment of Additional Information.
INVESTMENT RESTRICTIONS. Each Portfolio is subject to certain investment re-
strictions that are described in detail under "Investment Restrictions" in the
Statement of Additional Information. Fundamental investment restrictions and
the investment objective of a Portfolio (except the Tax-Exempt California and
Tax-Exempt New York Portfolios' objectives of providing unitholders with in-
come exempt from California state and New York state and New York city per-
sonal income tax, respectively) cannot be changed without approval of a major-
ity of the outstanding units of that Portfolio. All investment policies not
specifically designated as fundamental are non-fundamental and may be changed
without unitholder approval.
RESTRICTED AND OTHER ILLIQUID SECURITIES. Each Portfolio may purchase secu-
rities that are not registered ("restricted securities") under the Securities
Act of 1933 ("1933 Act"), but can be offered and sold to "qualified institu-
tional buyers" under Rule 144A under the 1933 Act. However, a Portfolio will
not invest more than 10% of its net assets in illiquid investments, which in-
clude fixed time deposits maturing in more than seven days and restricted se-
curities. Restricted securities (including commercial paper issued pursuant to
Section 4(2) of the 1933 Act) which the Board of Trustees has determined are
liquid, based upon a continuing review of the trading markets for the specific
restricted security, will not be deemed to be illiquid investments for pur-
poses of this restriction. The Board of Trustees may adopt guidelines and del-
egate to the Adviser the daily function of determining and monitoring the li-
quidity of restricted securities. The Board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is
not possible to predict with assurance that the market for restricted securi-
ties eligible for resale under Rule 144A will continue to be liquid, the Ad-
viser will carefully monitor each Portfolio's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that quali-
fied institutional buyers become for a time uninterested in purchasing these
restricted securities.
In addition, each Portfolio may not invest in repurchase agreements maturing
in more than seven days and securities which are not readily marketable if, as
a result thereof, more than 10% of the net assets of that Portfolio (taken at
market value) would be invested in such investments. Certain repurchase agree-
ments which mature in more than seven days can be liquidated before the nomi-
nal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
23
<PAGE>
MANAGEMENT
THE ADVISER
GSAM, One New York Plaza, New York, New York 10004, a separate operating di-
vision of Goldman, Sachs & Co., acts as investment adviser to the Portfolios.
Goldman Sachs registered as an investment adviser in 1981. As of January 26,
1998, Goldman Sachs, together with its affiliates, acted as investment advis-
er, administrator or distributor for approximately $140 billion in assets.
As of November 29, 1997, Goldman Sachs and its consolidated subsidiaries had
assets of approximately $ billion and partners' capital of $ billion and
ranked as one of the largest international investment banking and brokerage
firms in the United States. Founded in 1869, Goldman Sachs is a major invest-
ment banking and brokerage firm providing a broad range of financing and in-
vestment services both in the United States and abroad.
Pursuant to an SEC order, each Taxable Portfolio may enter into principal
transactions in certain taxable money market instruments, including repurchase
agreements, with Goldman Sachs.
Under the Investment Advisory Agreements, GSAM continually manages each
Portfolio, including the purchase, retention and disposition of its securities
and other assets. In addition, GSAM administers each Portfolio's business af-
fairs and performs various unitholder servicing functions to the extent not
provided by other organizations. The management of each Portfolio is subject
to the supervision of the Trustees and each Portfolio's investment policies.
For these services, the Trust, on behalf of each Portfolio, pays GSAM a
monthly fee at an annual rate of each Portfolio's average daily net assets as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
CONTRACTUAL RATE DECEMBER 31, 1997
---------------- -----------------
<S> <C> <C>
Prime Obligations Portfolio .35% .35%
Money Market Portfolio .35% .31%
Government Portfolio .35% .35%
Tax-Exempt Diversified Portfolio .35% .26%
Tax-Exempt California Portfolio .35% .35%
Tax-Exempt New York Portfolio .35% .27%
</TABLE>
The difference, if any, between the stated advisory fee and the actual fee
paid by the Portfolios reflects the fact that GSAM did not charge the full
amount of the advisory fees to which it would have been entitled.
GSAM has agreed to reduce or otherwise limit the daily expenses of each
Portfolio (excluding fees payable to Service Organizations, as defined herein,
taxes, interest, brokerage and litigation, indemnification and other extraor-
dinary expenses) on an annualized basis to .43% of the average daily net as-
sets of the Portfolio less the effect of fee reductions, if any. Such reduc-
tions or limits, if any, are calculated monthly on a cumulative basis. Any
such reductions or limits may be discontinued or modified only with the ex-
press approval of the Trustees. In addition, with respect to the Money Market,
Tax-Exempt Diversified and Tax-Exempt New York Portfolios, GSAM has voluntar-
ily agreed to reduce or limit each Portfolio's annual total operating expenses
(excluding fees payable to Service Organizations, as defined herein) to .40%,
..32% and .33% respectively, of average daily net assets and for the Tax-Exempt
California Portfolio to .42% of average daily net assets. GSAM has no current
intention to but may in the future discontinue or modify any of such limita-
tions at its discretion.
24
<PAGE>
THE DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, serves as the Dis-
tributor of units of each Portfolio pursuant to a Distribution Agreement with
the Trust. The Distributor will assist in the sale of units of each Portfolio
upon the terms described herein. Goldman Sachs also serves as the Transfer
Agent of each Portfolio. For the transfer agency services, Goldman Sachs re-
ceives .04% (on an annualized basis) of the average daily net assets with re-
spect to each Portfolio (other than the Prime Obligations Portfolio). Goldman
Sachs is entitled to receive a fee from the Prime Obligations Portfolio equal
to each classes proportionate share of the total transfer agency fees borne by
the Portfolio. Such fees are equal to the fixed per account charge of $12,000
per year plus $7.50 per account, together with out-of-pocket and transaction
related expenses (including those out-of-pocket expenses payable to servicing
and/or sub-transfer agents) applicable to Class B shares plus .04% of the av-
erage daily net assets of the other classes of the Prime Obligations Portfo-
lio.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold units of the Portfolios in order to increase the assets of the Portfo-
lios. Increasing the Portfolios' assets may enhance investment flexibility and
diversification. Goldman Sachs reserves the right to redeem at any time some
or all of the Portfolio units acquired for its own account. Goldman Sachs will
consider the effect of redemptions on the Portfolios and other unitholders in
deciding whether to redeem its units.
TAXES
Each Portfolio is treated as a separate entity for federal income tax pur-
poses, has elected to be treated and intends to continue to qualify and be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code") for each taxable year. To qualify as such,
each Portfolio must satisfy certain requirements relating to the sources of
its income, diversification of its assets and distribution of its income to
unitholders. As a regulated investment company, each Portfolio will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its unitholders in accordance
with certain timing requirements of the Code.
Dividends paid by a Portfolio from net investment income, the excess of net
short-term capital gain over net long-term capital loss and taxable original
issue discount or market discount income will be taxable to unitholders as or-
dinary income, except for any "exempt interest dividends" paid by the Tax-Ex-
empt Portfolios, as described below. Dividends paid by a Portfolio from the
excess of net long-term capital gain over net short-term capital loss will be
taxable as long-term capital gain regardless of how long the unitholders have
held their units. These tax consequences will apply to distributions of any
Portfolio regardless of whether distributions are received in cash or rein-
vested in units. Certain distributions paid by the Portfolios in January of a
given year will be taxable to unitholders as if received on December 31 of the
year in which they are declared. Unitholders will be informed annually about
the amount and character of distributions received from the Portfolios for
federal income tax purposes, including any distributions that may constitute a
return of capital or any distributions of the Tax-Exempt Portfolios that may
constitute a tax preference item under the federal alternative minimum tax.
The Tax-Exempt Portfolios intend to satisfy certain requirements of the Code
for the payment of "exempt-interest dividends" not included in unitholders'
federal gross income. The Tax-Exempt California Portfolio and the Tax-Exempt
New York Portfolio also intend to satisfy certain requirements of the Califor-
nia and New York City and State personal income tax laws, respectively, so
that exempt-interest dividends paid by these Portfolios
25
<PAGE>
will generally not be subject to personal income tax of the relevant state
(and, in the case of the Tax-Exempt New York Portfolio, New York City personal
income tax). Dividends paid by the Tax-Exempt Portfolios from interest on tax-
exempt obligations and properly designated by the Portfolio as exempt-interest
dividends, including dividends attributable to exempt-interest dividends re-
ceived by a Portfolio from other regulated investment companies, will gener-
ally be exempt from federal income tax, although a portion of such dividends
may be subject to the federal alternative minimum tax. Exempt-interest divi-
dends will be considered in computing the corporate federal alternative mini-
mum tax, and the extent, if any, to which social security or railroad retire-
ment benefits are taxable. Persons who are "substantial users" of facilities
financed by certain industrial development or private activity bonds should
consult their own tax advisers before purchasing units of these Portfolios.
Interest incurred to purchase or carry units of these Portfolios will not be
deductible for federal income tax purposes to the extent related to exempt-in-
terest dividends paid by the Portfolios and may not be deductible in whole or
in part for California or New York City and State income tax purposes.
Exempt-interest dividends of the Tax-Exempt California and Tax-Exempt New
York Portfolios that are derived from interest on California and New York In-
struments, respectively, will generally not be subject to the personal income
tax of the corresponding state, and in the case of the Tax-Exempt New York
Portfolio, New York City personal income tax. Other distributions will gener-
ally be taxable to unitholders for these state and city tax purposes.
Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on taxable distributions if they fail
to furnish their correct taxpayer identification number and certain certifica-
tions required by the Internal Revenue Service or if they are otherwise sub-
ject to backup withholding. Individuals, corporations and other unitholders
that are not U.S. persons under the Code are subject to different tax rules
and may be subject to nonresident alien withholding at the rate of 30% (or a
lower rate provided by an applicable tax treaty) on amounts treated as ordi-
nary dividends from the Portfolios.
If a Portfolio invests in foreign securities, it may be subject to foreign
withholding or other foreign taxes on income earned on such securities and is
expected to be unable to pass such taxes through to unitholders, who therefore
are not expected to include such taxes in income or be entitled to claim for-
eign tax credits or deductions with respect to such taxes.
In addition to federal taxes, a unitholder may be subject to state, local or
foreign taxes on payments received from a Portfolio. A state income (and pos-
sibly local income and/or intangible property) tax exemption is generally
available to the extent a Portfolio's distributions are derived from interest
on (or, in the case of intangible property taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt munici-
pal obligations issued by or on behalf of the particular state or a political
subdivision thereof, provided in some states that certain thresholds for hold-
ings of such obligations and/or reporting requirements are satisfied.
Unitholders should consult their own tax advisers concerning these matters.
NET ASSET VALUE
The net asset value of each Portfolio is determined as of the close of regu-
lar trading on the New York Stock Exchange (normally 4:00 P.M. New York time)
on each Business Day. Net asset value per unit for each class of units of each
Portfolio is calculated by determining the amount of net assets attributable
to each class of units and dividing by the number of units for such class.
26
<PAGE>
On any Business Day, as defined herein, when the Public Securities Associa-
tion ("PSA") recommends that the securities markets close early, each Portfo-
lio reserves the right to cease, accepting purchase and redemption orders for
same Business Day credit at the time the PSA recommends that the securities
markets close. On days any Portfolio closes early, purchase and redemption or-
ders received after the PSA recommended closing time will be credited to the
next Business Day. In addition, each Portfolio reserves the right to advance
the time by which purchase and redemption orders must be received for same
Business Day credit as permitted by the SEC.
Each Portfolio seeks to maintain a net asset value of $1.00 per unit. In
this connection, each Portfolio values its portfolio securities on the basis
of amortized cost. The amortized cost method values a security at its cost on
the date of purchase and thereafter assumes a constant amortization to matu-
rity of any discount or premium, regardless of the impact of fluctuating in-
terest rates on the market value of the instrument. For a more complete de-
scription of the amortized cost valuation method and its effect on existing
and prospective unitholders, see the Statement of Additional Information.
There can be no assurance that a Portfolio will be able at all times to main-
tain a net asset value per unit of $1.00.
YIELD INFORMATION
From time to time, each Portfolio may advertise its yield, effective yield
and average total return. Average annual total return is determined by comput-
ing the average annual percentage change in value of $1,000 invested at the
maximum public offering price for a specified period of at least one year, as-
suming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Portfolio may furnish total return calcu-
lations based on a cumulative, average, year-by-year or other basis for vari-
ous specified periods by means of quotations, charts, graphs or schedules. The
yield of a Portfolio refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the adver-
tisement). This income is then annualized; that is, the amount of income gen-
erated by the investment during that week is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The ef-
fective yield is calculated similarly but, when annualized, the income earned
by an investment in the Portfolio is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The Tax-Exempt Portfolios may each also quote tax-equivalent yield. Each
Portfolio's tax-equivalent yield is calculated by determining the rate of re-
turn that would have to be achieved on a fully taxable investment to produce
the after-tax equivalent (which, in the case of the Tax-Exempt California com-
bines federal and state taxes, in the case of Tax-Exempt New York Portfolio
and combines federal, state and city taxes of the Portfolio's yield, assuming
certain tax brackets for a unitholder.
Investors should note that the investment results of a Portfolio are based
on historical performance and will fluctuate over time. Any presentation of a
Portfolio's total return, yield, effective yield or tax-equivalent yield for
any prior period should not be considered a representation of what an invest-
ment may earn or what a Portfolio's total return, yield, effective yield or
tax-equivalent yield may be in any future period. In addition to the above,
each Portfolio may from time to time advertise its performance relative to
certain averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.
27
<PAGE>
Total return, yield, effective yield and tax-equivalent yield will be calcu-
lated separately for each class of units in existence. Because each such class
of units is subject to different expenses, the total return and net yield of
such classes of a Portfolio for the same period may differ. See "Organization
and Units of the Portfolios" below.
ORGANIZATION AND UNITS OF THE PORTFOLIOS
Each Portfolio is a series of the Goldman Sachs Trust, which was formed un-
der the laws of the State of Delaware on January 28, 1997. The Funds were for-
merly series of Goldman Sachs Money Market Trust, a Massachusetts business
trust, and were reorganized into the Trust as of April 30, 1997. The Trustees
have authority under the Trust's Declaration of Trust to create and classify
units of beneficial interest in separate series, without further action by
unitholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of units into
one or more classes. (Institutions that provide services to holders of ILA Ad-
ministration, ILA Service and Cash Management shares are referred to in this
Prospectus as "Service Organizations").
When issued, units are fully paid and nonassessable. In the event of liqui-
dation, unitholders are entitled to share pro rata in the net assets of the
applicable Portfolio available for distribution to such unitholders. All units
are freely transferable and have no preemptive, subscription or conversion
rights. Unitholders are entitled to one vote per unit, provided that, at the
option of the Trustees, unitholders will be entitled to a number of votes
based upon the net asset values represented by their unitholders.
Units of a Portfolio will be voted separately by Portfolio with respect to
matters pertaining to that Portfolio except for the election of Trustees and
ratification of independent accountants. For example, unitholders of each
Portfolio are required to approve the adoption of any investment advisory
agreement relating to that Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the unitholders of one
Portfolio is effective only as to that Portfolio.
As of April 1, 1998, owned of record % of the outstanding
units of Portfolio.
The Trust does not intend to hold annual meetings of unitholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
units outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of unitholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Investment
Company Act, communicate with other unitholders in connection with requiring a
special meeting of unitholders. The Trustees will call a special meeting of
unitholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by unitholders.
28
<PAGE>
ADDITIONAL SERVICES
Each Portfolio has adopted a Service Plan with respect to the Cash Manage-
ment Shares which authorizes it to compensate certain institutions for provid-
ing account administration and personal and account maintenance services to
their customers who are beneficial owners of such Units (each a "Service Or-
ganization"). Each Portfolio will enter into agreements with Service Organiza-
tions which purchase Cash Management Shares on behalf of their customers
("Service Agreements"). The Service Agreements will provide for compensation
to the Service Organization in an amount up to .50% (on an annualized basis)
of the average daily net assets of the Cash Management Shares of that Portfo-
lio attributable to or held in the name of the Service Organization for its
customers; provided, however, that the fee paid for personal and account main-
tenance services shall not exceed .25% of such average daily net assets. The
services provided by a Service Organization may include acting, directly or
through an agent, as the sole unitholder of record, maintaining account rec-
ords for its customers, processing orders to purchase, redeem and exchange
Cash Management Shares for its customers, responding to inquiries from pro-
spective and existing unitholders and assisting customers with investment pro-
cedures.
For the fiscal year ended December 31, 1997, the Trust did not pay Service
Organizations any fees pursuant to the Service Plan since Cash Management
Shares were not then offered.
Holders of Cash Management Shares of a Portfolio will bear all expenses and
fees paid to Service Organizations with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Cash Management Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the Serv-
ice Organization under a Service Agreement and may affect an investor's return
with respect to an investment in a Portfolio.
All inquiries of beneficial owners of Cash Management Shares of the Portfo-
lios should be directed to such owners' Service Organization.
DISTRIBUTION PLAN
Each Portfolio has adopted a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act (the "Distribution Plan"). Under the Distribution
Plan, Goldman Sachs is entitled to a quarterly fee from each Portfolio for
distribution services equal, on an annual basis, to 0.50% of the average daily
net assets attributable to Cash Management Shares.
Goldman Sachs may use the distribution fee for its expenses of distributing
Cash Management Shares. The types of expenses for which Goldman Sachs may be
compensated for distribution services under the Distribution Plan include com-
pensation paid to and expenses incurred by authorized dealers, Goldman Sachs
and their respective officers, employees and sales representatives, commis-
sions paid to authorized dealers, allocable overhead, telephone and travel ex-
penses, the printing of prospectuses for prospective Shareholders, preparation
and distribution of sales literature, advertising of any type and all other
expenses incurred in connection with activities primarily intended to result
in the sale of Cash Management Shares. If the fee received by Goldman Sachs
pursuant to the Distribution Plan exceeds its expenses, Goldman Sachs may re-
alize a profit from these arrangements. The Distribution Plan will be reviewed
and are subject to approval annually by the Board of Trustees of the Trust.
The aggregate compensation that may be received under the Distribution Plan
for distribution services may not exceed the limitations imposed by the NASD's
Conduct Rules.
29
<PAGE>
PURCHASE OF UNITS
It is expected that all direct purchasers of Cash Management Shares will be
Service Organizations or their nominees, which may purchase Cash Management
Shares of the Portfolios through Goldman Sachs. Customers of Service Organiza-
tions may invest in such Units only through their Service Organizations.
As set forth below, Cash Management Shares of the Portfolios may be pur-
chased on any Business Day at the net asset value next determined after re-
ceipt from the Service Organization of both the purchase order and the pur-
chase amount in federal funds. Purchase orders may be made by telephoning
Goldman Sachs at 800-621-2550 or by a written request addressed to Goldman
Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900 Sears Tower,
Chicago, Illinois 60606. It is strongly recommended that payment be effected
by wiring federal funds to The Northern Trust Company ("Northern"), Chicago,
Illinois, as subcustodian for State Street Bank and Trust Company ("State
Street").
Purchases of Cash Management Shares may also be made by a Service Organiza-
tion by delivering a Federal Reserve draft or check (except that a third party
check will not be accepted) payable only to the appropriate Portfolio and
drawn on a U.S. bank to Goldman Sachs, Attention: Shareholder Services,
Goldman Sachs Trust, 4900 Sears Tower, Chicago, Illinois 60606. It is expected
that Federal Reserve drafts will ordinarily be converted to federal funds on
the day of receipt and that checks will be converted to federal funds within
two Business Days after receipt. Cash Management Shares purchased by check may
not be redeemed until the check has cleared, as described under "Redemption of
Units."
Purchases of units of any Portfolio may also be made through an Automated
Clearing House ("ACH") transfer to Goldman Sachs Trust c/o Northern, as
subcustodian for State Street. Purchase orders are effected at the net asset
value next determined after receipt of both the purchase order and the pur-
chase amount in federal funds. It is expected that ACH transfers will ordinar-
ily be converted to federal funds on the Business Day following receipt of the
ACH transfer.
Cash Management Shares of each Portfolio are deemed to have been purchased
when an order becomes effective and are entitled to dividends on Cash Manage-
ment Shares purchased as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IF ORDER IS RECEIVED FROM A SERVICE
ORGANIZATION BY GOLDMAN SACHS DIVIDENDS BEGIN
----------------------------------- -----------------
(1) In the case of the Taxable Portfolios
<S> <C> <C> <C> <C>
By: 3:00 p.m.-N.Y. time Same Business Day
- ---------------------------------------------------------------------------------
After: 3:00 p.m.-N.Y. time Next Business Day
- ---------------------------------------------------------------------------------
(2) In the case of the Tax-Exempt Portfolios
By: 1:00 p.m.-N.Y. time Same Business Day
- ---------------------------------------------------------------------------------
After: 1:00 p.m.-N.Y. time Next Business Day
- ---------------------------------------------------------------------------------
</TABLE>
The Service Organizations are responsible for timely transmittal of purchase
orders to Goldman Sachs and federal funds to Northern. In order to facilitate
timely transmittal, the Service Organizations have established times by which
purchase orders and federal funds must be received by them.
A Business Day means any day on which the New York Stock Exchange is open,
except for days on which Chicago, Boston or New York banks are closed for lo-
cal holidays.
30
<PAGE>
Cash Management Shares of the Portfolios are purchased at the net asset
value per unit without the imposition of a sales charge. Goldman Sachs, as
each Portfolio's transfer agent, will maintain a complete record of transac-
tions and Cash Management Shares held in each record holder's account. The
Trust and Goldman Sachs each reserves the right to reject any purchase order
for any reason.
MINIMUM INVESTMENT AND OTHER INFORMATION
The Trust does not have any minimum purchase or account requirements with
respect to Cash Management Shares. However, a Service Organization may impose
a minimum amount for initial and subsequent investments in Cash Management
Shares of the Portfolios, and may establish other requirements such as a mini-
mum account balance. A Service Organization may effect redemptions of noncom-
plying accounts, and may impose a charge for any special services rendered to
its customers. Customers should contact their Service Organization for further
information concerning such requirements and charges. A Service Organization
may purchase Cash Management Shares in connection with sweep account programs.
REPORTS TO UNITHOLDERS
The Trust will issue an annual report containing audited financial state-
ments and a semiannual report to record holders of Cash Management Shares of
each Portfolio, including Service Organizations who hold such Units for the
benefit of their customers. Upon request, a printed confirmation for each
transaction will be provided by Goldman Sachs. Any dividends and distributions
paid by the Portfolios are also reflected in regular statements issued by
Goldman Sachs to unitholders of record. Service Organizations will be respon-
sible for providing similar services to their own customers who are the bene-
ficial owners of such Units.
DISTRIBUTIONS
All or substantially all of each Portfolio's net investment income will be
declared daily (as of 4:00 p.m. New York time) as a dividend and distributed
to Service Organizations monthly. Distributions will be made in additional
Cash Management Shares of the same Portfolio or, at the election of a Service
Organization, in cash. The election to reinvest dividends and distributions or
receive them in cash may be changed by a Service Organization at any time upon
written notice to Goldman Sachs. If no election is made, all dividends and
capital gain distributions will be reinvested. Dividends will be reinvested as
of the last calendar day of each month. Cash distributions will be paid on or
about the first business day of each month. Net short-term capital gains, if
any, will be distributed in accordance with the requirements of the Code and
may be reflected in a Portfolio's daily distributions. Each Portfolio may dis-
tribute at least annually its long-term capital gains, if any, after reduction
by available capital losses. In order to avoid excessive fluctuations in the
amount of monthly capital gains distributions, a portion of any net capital
gains realized on the disposition of securities during the months of November
and December may be distributed during the subsequent calendar year. Although
realized gains and losses on the assets of a Portfolio are reflected in the
net asset value of the Portfolio, they are not expected to be of an amount
which would affect the Portfolio's net asset value of $1.00 per unit.
A Portfolio's net investment income consists of the excess of (i) accrued
interest or discount (including both original issue and market discount on
taxable securities) on portfolio securities, and (ii) any income of the Port-
folio from sources other than capital gains over (iii) the amortization of
market premium on all portfolio securities and (iv) the estimated expenses of
the Portfolio, including a proportionate share of the general expenses of the
Trust.
31
<PAGE>
EXCHANGES
Cash Management Shares of each Portfolio may be exchanged by Service Organi-
zations for units of the corresponding class of any Portfolio or Fund of
Goldman Sachs Trust at the net asset value next determined either by writing
to Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606 or, if previously elected in the Account
Information Form, by calling Goldman Sachs at 800-621-2550. All telephone ex-
changes must be registered in the same name(s) and with the same address as
are registered in the Portfolio from which the exchange is being made. It may
be difficult to implement the telephone exchange privilege in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
exchange requests by telephone, Goldman Sachs employs reasonable procedures as
set forth under "Redemption of Units" to confirm that such instructions are
genuine. Exchanges are available only in states where the exchange may legally
be made. The exchange privilege may be modified or withdrawn at any time on 60
days' written notice.
REDEMPTION OF UNITS
HOW TO REDEEM
Customers of Service Organizations may redeem Cash Management Shares of a
Portfolio through their respective Service Organizations. The Service Organi-
zations are responsible for the transmittal of redemption requests by their
customers to Goldman Sachs. In order to facilitate timely transmittal of
redemption requests, Service Organizations have established procedures by
which redemption requests must be made and times by which redemption requests
must be received by them. Additional documentation may be required when deemed
appropriate by a Service Organization.
A Service Organization may redeem such Units without charge upon request on
any Business Day at the net asset value next determined after receipt by
Goldman Sachs of the redemption request. Redemption requests may be made by
telephoning Goldman Sachs at 800-621-2550 or by a written request addressed to
Goldman Sachs, Attention: Shareholder Services, Goldman Sachs Trust, 4900
Sears Tower, Chicago, Illinois 60606. A Service Organization may request re-
demptions by telephone only if the optional telephone privilege has been
elected on the Account Information Form. It may be difficult to implement re-
demptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Goldman Sachs employs reasonable procedures specified by the Trust
to confirm that such instructions are genuine. Among other things, any redemp-
tion request that requires money to go to an account or address other than
that designated on the Account Information Form must be in writing and signed
by an authorized person designated on the Account Information Form. Any such
written request is also confirmed by telephone with both the requesting party
and the designated bank account to verify instructions. Other procedures may
be implemented from time to time. If reasonable procedures are not implement-
ed, the Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Trust nor Goldman Sachs will be
responsible for the authenticity of redemption instructions received by tele-
phone. A redemption may also be made with respect to certain Portfolios by
means of the check redemption privilege described below. Goldman Sachs re-
serves the right to redeem accounts with balances below $500.
Additional documentation may be required by Goldman Sachs in order to estab-
lish that a redemption request has been properly authorized. A redemption re-
quest will not be considered to have been received in proper form
32
<PAGE>
until such additional documentation has been submitted to Goldman Sachs by the
Service Organization. The payment of redemption proceeds for Cash Management
Shares recently purchased by check will be delayed for up to 15 days until the
check has cleared.
PAYMENT OF REDEMPTION PROCEEDS AND DIVIDENDS
In accordance with the following, redemption proceeds will be wired to the
record holder of Cash Management Shares.
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<TABLE>
<CAPTION>
REDEMPTION REQUEST REDEMPTION
RECEIVED FROM A SERVICE PROCEEDS
ORGANIZATION BY GOLDMAN SACHS ORDINARILY DIVIDENDS
------------------------------------ ---------- ---------------------
<S> <C> <C> <C>
(1) In the case of the Taxable Portfolios
By: 3:00 p.m.-N.Y. time Wired Same Not earned on Day
Business request is received
Day
- -----------------------------------------------------------------------------------------------------------------------------------
After: 3:00 p.m.-N.Y. time Wired Next Earned on Day
Business request is received
Day
- -----------------------------------------------------------------------------------------------------------------------------------
(2) In the case of the Tax-Exempt Portfolios
By: 12:00 noon-N.Y. time Wired Same Not earned on Day
Business request is received
Day
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After: 12:00 noon-N.Y. time Wired Next Earned on Day
Business request is received
Day
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</TABLE>
The Portfolios will arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the Service Organization's bank account
designated in the Account Information Form. Redemption proceeds will normally
be wired as set forth above, but may be paid up to three Business Days after
receipt of the Service Organization's properly executed redemption request.
For example, payment may be delayed if the Federal Reserve Bank is closed on
the day redemption proceeds would ordinarily be wired. After a wire has been
initiated by Goldman Sachs, neither Goldman Sachs nor the Trust assumes any
further responsibility for the performance of intermediaries or the Cash Man-
agement Shareholder's Service Organization in the transfer process. If a prob-
lem with such performance arises, the Cash Management Shareholder should deal
directly with such intermediaries or Service Organization.
CHECK REDEMPTION PRIVILEGE
A Service Organization may elect to have a special account with State Street
for the purpose of redeeming Cash Management Shares from its account in a
Portfolio by check. When State Street receives a completed signature card and
authorization form, the Service Organization will be provided with a supply of
checks. Checks drawn on this account may be payable to the order of any person
in any amount of $500 or more, but cannot be certified. The payee of the check
may cash or deposit it like any other check drawn on a bank. When such a check
is presented to State Street for payment, a sufficient number of full and
fractional Cash Management Shares will be redeemed to cover the amount of the
check. Cancelled checks will be returned to the Service Organization by State
Street.
The check redemption privilege enables a Service Organization to receive the
dividends declared on the Cash Management Shares to be redeemed until such
time as the check is processed. Because of this feature, the
33
<PAGE>
check redemption privilege may not be used for a complete liquidation of an
account. If the amount of a check is greater than the value of Cash Management
Shares held in the Service Organization's account, the check will be returned
unpaid, and the Service Organization may be subject to extra charges.
Goldman Sachs reserves the right to impose conditions on, limit the avail-
ability of or terminate the check redemption privilege at any time with re-
spect to a particular Service Organization or all Service Organizations in
general. The Trust and State Street reserve the right at any time to suspend
redemptions by check and intend to do so in the event that federal legislation
or regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of the Portfolios.
----------------
34
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Trust with your correct Social Secu-
rity or other Taxpayer Identification Number (TIN), regardless of whether you
file tax returns. Failure to do so may subject you to penalties. Failure to
provide your correct TIN and to sign your name in the certification section of
the Account Information Form could result in withholding of 31% by the Trust
for the federal backup withholding tax on distributions, redemptions, ex-
changes and other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal Reve-
nue Service (IRS). Backup withholding could apply to payments relating to your
account prior to the Trust's receipt of your TIN.
Special rules apply for certain entities. For example, for an account estab-
lished 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 with-
holding because you failed to report all your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such with-
holding should cease, you must cross out item (2) in the certification section
of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered securi-
ties and commodities dealers and others.
If you are a nonresident alien or foreign entity you must provide a com-
pleted Form W-8 to the Trust in order to avoid backup withholding on certain
payments. Other payments to you may be subject to non-resident alien withhold-
ing of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
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GOLDMAN SACHS MONEY MARKET FUNDS
CASH MANAGEMENT SHARES
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE: 800-621-2550
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unitholder and Portfolio Expenses.......................................... 2
Financial Highlights....................................................... 4
An Introduction to the Portfolios.......................................... 11
Investment Policies Matrix................................................. 13
Description of Securities and Investment Techniques........................ 15
Investment Limitations..................................................... 23
Management................................................................. 24
Taxes...................................................................... 25
Net Asset Value............................................................ 26
Yield Information.......................................................... 27
Organization and Units of the Portfolios................................... 28
Additional Services........................................................ 29
Purchase of Units.......................................................... 30
Reports to Unitholders..................................................... 31
Distributions.............................................................. 31
Exchanges.................................................................. 32
Redemption of Units........................................................ 32
Appendix................................................................... A-1
</TABLE>
ILAPROCMUMM
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GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
CASH MANAGEMENT SHARES
------------
PROSPECTUS
------------
MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
4900 Sears Tower
Chicago, Illinois 60606
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION -- MAY 1, 1998
CASH MANAGEMENT SHARES
_________________________________________________________________
Goldman Sachs Trust(the "Trust") is an open-end management investment company
(or mutual fund) which includes the Goldman Sachs - Institutional Liquid Assets
portfolios. This Statement of Additional Information relates solely to the
offering of Cash Management Shares of:
Prime Obligations Portfolio;
Money Market Portfolio;
Government Portfolio;
Tax-Exempt Diversified Portfolio;
Tax-Exempt California Portfolio; and
Tax-Exempt New York Portfolio (individually, a "Portfolio" and collectively
the "Portfolios").
The terms "units" or "shares" may be used interchangeably herein to refer to
shares of the Portfolios.
Goldman Sachs Asset Management ("GSAM" or the "Adviser"), a separate operating
division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Portfolios'
investment adviser. Goldman Sachs serves as distributor and transfer agent to
the Portfolios.
The Goldman Sachs Funds offer banks, corporate cash managers, investment
advisers and other institutional investors a family of professionally-managed
mutual funds, including money market, fixed income and equity funds, and a range
of related services. All products are designed to provide clients with the
benefit of the expertise of GSAM and its affiliates in security selection, asset
allocation, portfolio construction and day-to-day management.
The hallmark of the Goldman Sachs Funds is personalized service, which reflects
the priority that Goldman Sachs places on serving clients' interests. As
Goldman Sachs clients, Service Organizations, as defined below, will be assigned
an Account Administrator ("AA"), who is ready to help with questions concerning
their accounts. During business hours, Service Organizations can call their AA
through a toll-free number to place purchase or redemption orders or to obtain
Portfolio and
-1-
<PAGE>
account information. The AA can also answer inquiries about rates of return and
portfolio composition/holdings, and guide Service Organizations through
operational details. A Goldman Sachs client can also utilize the SMART personal
computer software system which allows Service Organizations to purchase and
redeem units and also obtain Portfolio and account information directly.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus relating to Cash Management Shares dated May
1, 1998, as amended and supplemented from time to time. A copy of each
Prospectus may be obtained without charge from Service Organizations, as defined
herein, or by calling Goldman, Sachs & Co. at 800-621-2550 or by writing
Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
-2-
<PAGE>
TABLE OF CONTENTS
Page in
Statement of
Additional
Information
--------------
Investment Policies and
Practices of the Portfolios.......................... 4
Investment Limitations............................... 43
Trustees and Officers................................ 46
The Adviser, Distributor and
Transfer Agent....................................... 52
Portfolio Transactions............................... 58
Net Asset Value...................................... 60
Redemptions.......................................... 62
Calculation of Yield Quotations...................... 62
Tax Information...................................... 67
Organization and Capitalization...................... 73
Custodian and Subcustodian........................... 78
Independent Accountants.............................. 79
Financial Statements................................. 79
Service and Distribution Plans....................... 80
Appendix A (Description of
Securities Ratings).................................. A-1
-3-
<PAGE>
INVESTMENT POLICIES AND PRACTICES
OF THE PORTFOLIOS
The following discussion elaborates on the description of each Portfolio's
investment policies and practices contained in the Prospectus:
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. The
principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
CUSTODIAL RECEIPTS
Each Portfolio (other than Treasury Obligations Portfolio, Treasury
Instruments Portfolio, Federal Portfolio and Government Portfolio) may also
acquire custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Government notes or bonds. Such
notes and bonds are held in custody by a bank on behalf of the owners. These
custodial receipts are known by various names, including "Treasury Receipts,"
"Treasury Investors Growth Receipts" ("TIGR's"), and "Certificates of Accrual on
Treasury Securities" ("CATS"). Although custodial receipts are not considered
U.S. Government Securities for certain securities law purposes, they are
indirectly issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities.
BANK AND CORPORATE OBLIGATIONS
Each Portfolio (other than Treasury Obligations Portfolio, Government
Portfolio, Federal Portfolio and Treasury Instruments Portfolio) may invest in
commercial paper. Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies, corporations,
and finance companies. The commercial paper purchased by the Portfolios
consists of direct U.S. dollar denominated obligations of domestic or, in the
case of Money Market Portfolio, foreign issuers. Bank obligations in which the
Portfolios may invest
4
<PAGE>
include certificates of deposit, bankers' acceptances, fixed time deposits and
bank notes. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
The Prime Obligations Portfolio and Money Market Portfolio may invest in
short-term funding agreements. A funding agreement is a contract between an
issuer and a purchaser that obligates the issuer to pay a guaranteed rate of
interest on a principal sum deposited by the purchaser. Funding agreements will
also guarantee the return of principal and may guarantee a stream of payments
over time. A funding agreement has a fixed maturity date and may have either a
fixed or variable interest rate that is based on an index and guaranteed for a
set time period. Because there is no secondary market for these investments, any
such funding agreement purchased by a Portfolio will be regarded as illiquid.
REPURCHASE AGREEMENTS
Each Portfolio (other than the Treasury Instruments Portfolio) may enter into
repurchase agreements only with primary dealers in U.S. Government Securities.
A repurchase agreement is an arrangement under which the purchaser (i.e., the
Portfolio) purchases a U.S. Government security or other high quality short-term
debt obligation (the "Obligation") and the seller agrees, at the time of sale,
to repurchase the Obligation at a specified time and price.
Custody of the Obligation will be maintained by the Portfolios' custodian or
subcustodian. The repurchase price may
5
<PAGE>
be higher than the purchase price, the difference being income to the Portfolio,
or the purchase and repurchase prices may be the same, with interest at a stated
rate due to the Portfolio together with the repurchase price on repurchase. In
either case, the income to the Portfolio is unrelated to the interest rate on
the Obligation subject to the repurchase agreement.
Repurchase agreements pose certain risks for all entities, including the
Portfolios, that utilize them. Such risks are not unique to the Portfolios but
are inherent in repurchase agreements. The Portfolios seek to minimize such
risks by, among others, the means indicated below, but because of the inherent
legal uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and generally, for tax purposes, a repurchase
agreement is deemed to be a loan from the Portfolio to the seller of the
Obligation. It is not clear whether for other purposes a court would consider
the Obligation purchased by the Portfolio subject to a repurchase agreement as
being owned by the Portfolio or as being collateral for a loan by the Portfolio
to the seller.
If in the event of bankruptcy or insolvency proceedings against the seller of
the Obligation, a court holds that the Portfolio does not have a perfected
security interest in the Obligation, the Portfolio may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Portfolio would be at risk of losing some
or all of the principal and income involved in the transaction. To minimize
this risk, the Portfolios utilize custodians and subcustodians that the Adviser
believes follow customary securities industry practice with respect to
repurchase agreements, and the Adviser analyzes the creditworthiness of the
obligor, in this case the seller of the Obligation. But because of the legal
uncertainties, this risk, like others associated with repurchase agreements,
cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, a Portfolio 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 Obligation.
Apart from risks associated with 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 Obligation subject to the repurchase agreement
becomes less than the repurchase price (including accrued interest), the
Portfolio
6
<PAGE>
will direct the seller of the Obligation 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 mature 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, each Portfolio (other than the Treasury Instruments Portfolio),
together with other registered investment companies having advisory agreements
with the Adviser or any of its affiliates, may transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
FOREIGN SECURITIES
The Money Market Portfolio may invest in foreign securities and in
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations issued by major foreign banks, foreign branches of U.S. banks, U.S.
branches of foreign banks and foreign branches of foreign banks. The Tax-Exempt
Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios may also
invest in municipal instruments backed by letters of credit issued by certain of
such banks. Under current Securities and Exchange Commission ("SEC") rules
relating to the use of the amortized cost method of portfolio securities
valuation, the Money Market Portfolio is restricted to purchasing U.S. dollar
denominated securities, but it is not otherwise precluded from purchasing
securities of foreign issuers.
Investments in foreign securities and bank obligations may involve
considerations different from investments in domestic securities due to limited
publicly available information; non-uniform accounting standards; the possible
imposition of withholding or confiscatory taxes; the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest; expropriation; or other adverse political or economic developments.
In addition, it may be more difficult to obtain and enforce a judgment against a
foreign issuer or a foreign branch of a domestic bank.
ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES
The Prime Obligations and Money Market Portfolios may invest in asset-backed
and receivables-backed securities. Asset-backed and receivables-backed
securities represent participations in, or are secured by and payable from,
pools of assets such as motor vehicle installment sale contracts, installment
loan contracts, leases of various types of real and personal property,
7
<PAGE>
receivables from revolving credit (credit card) agreements, corporate
receivables and other categories of receivables. Such asset pools are
securitized through the use of privately-formed trusts or special purpose
vehicles. 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 or other credit
enhancements may be present. The value of a Portfolio's investments in asset-
backed and receivables-backed securities may be adversely affected by prepayment
of the underlying obligations. In addition, the risk of prepayment may cause the
value of these investments to be more volatile than a Portfolio's other
investments.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases, trade receivables and
credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through structures. Consistent with their
respective investment objectives and policies, the Portfolios may invest in
these and other types of asset-backed securities that may be developed in the
future. This Statement of Additional Information will be amended or supplemented
as necessary to reflect the Prime Obligations and Money Market Portfolios'
intention to invest in asset-backed securities with characteristics that are
materially different from the securities described in the preceding paragraph.
However, a Portfolio will generally not invest in an asset-backed security if
the income received with respect to its investment constitutes rental income or
other income not treated as qualifying income under the 90% test described in
"Tax Information" below. In general, the collateral supporting these securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments in response to interest rate fluctuations.
As set forth below, several types of asset-backed and receivables-backed
securities have already been offered to investors, including for example,
Certificates for Automobile Receivables/sm/ ("CARS/sm/") and interests in pools
of credit card receivables. CARS/sm/ represent undivided fractional interests
in a trust ("CAR Trust") whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARS/sm/ are passed through
monthly to certificate holders, and are guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the CAR Trust. An investor's
return on CARS/sm/ may be affected by early prepayment of principal on the
underlying vehicle sales contracts. If the letter of credit is exhausted, the
CAR Trust may be prevented from realizing the full amount due on a sales
8
<PAGE>
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card receivables
are generally unsecured and the debtors 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. There is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor or servicer. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments on the losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transactions or through a combination of such approaches. The degree of credit
support provided for each issue is generally based on historical information
reflecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated or failure of the credit
support could adversely affect the value of or return on an investment in such a
security.
The availability of asset-backed securities may be affected by legislative or
regulatory developments. It is possible that such developments could require
the Prime Obligations and Money Market Portfolios to dispose of any then
existing holdings of such securities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Portfolio may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment
9
<PAGE>
basis. These transactions involve a commitment by the Portfolio 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 trans-
actions are negotiated directly with the other party, and such commitments are
not traded on exchanges, but may be traded over-the-counter.
A Portfolio 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, a Portfolio may
dispose of or negotiate a commitment after entering into it. A Portfolio also
may sell securities it has committed to purchase before those securities are
delivered to the Portfolio on the settlement date. The Portfolio may realize a
capital gain or loss in connection with these transactions; distributions from
any net capital gains would be taxable to its unitholders. For purposes of
determining a Portfolio's average dollar weighted maturity, the maturity of
when-issued or forward commitment securities will be calculated from the
commitment date.
When a Portfolio purchases securities on a when-issued or forward commitment
basis, the Portfolio's custodian or subcustodian will maintain in a segregated
account cash or liquid assets having a value (determined daily) at least equal
to the amount of the Portfolio's purchase commitments. In the case of a forward
commitment to sell portfolio securities subject to such commitment, the
custodian or subcustodian will hold the portfolio securities in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Portfolio will maintain sufficient assets at all times to cover
its obligations under when-issued purchases and forward commitments.
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Portfolio (other than the Treasury Obligations, Federal and Treasury
Instruments Portfolios) may purchase variable amount master demand notes. These
obligations permit the investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangements between a Portfolio, as lender, and the
borrower. Variable amount master demand notes are direct lending arrangements
between the lender and borrower and are not generally transferable, nor are they
ordinarily rated. A Portfolio may invest in them only if the Adviser believes
that the notes are of comparable quality to the other obligations in which that
Portfolio may invest.
10
<PAGE>
VARIABLE RATE AND FLOATING RATE DEMAND INSTRUMENTS
Each Portfolio (other than the Treasury Obligations, Federal and Treasury
Instruments Portfolios) may purchase variable and floating rate demand
instruments that are tax exempt municipal obligations or other debt securities
that possess a floating or variable interest rate adjustment formula. These
instruments permit a Portfolio to demand payment of the principal balance plus
unpaid accrued interest upon a specified number of days' notice to the issuer or
its agent. The demand feature may be backed by a bank letter of credit or
guarantee issued with respect to such instrument.
The terms of the variable or floating rate demand instruments that a Portfolio
may purchase provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon current market
levels, the prime rate of a bank or other appropriate interest rate adjustment
index as provided in the respective instruments. Some of these instruments are
payable on demand on a daily basis or on not more than seven days' notice.
Others, such as instruments with quarterly or semiannual interest rate
adjustments, may be put back to the issuer on designated days on not more than
thirty days' notice. Still others are automatically called by the issuer unless
the Portfolio instructs otherwise. The Trust, on behalf of the Portfolios,
intends to exercise the demand only (1) upon a default under the terms of the
debt security, (2) as needed to provide liquidity to a Portfolio, (3) to
maintain the respective quality standards of a Portfolio's investment portfolio,
or (4) to attain a more optimal portfolio structure. A Portfolio will determine
the variable or floating rate demand instruments that it will purchase in
accordance with procedures approved by the Trustees to minimize credit risks.
To be eligible for purchase by a Portfolio, a variable or floating rate demand
instrument which is unrated must have high quality characteristics similar to
other obligations in which the Portfolio may invest. The Adviser may determine
that an unrated variable or floating rate demand instrument meets a Portfolio's
quality criteria by reason of being backed by a letter of credit or guarantee
issued by a bank that meets the quality criteria for the Portfolio. Thus,
either the credit of the issuer of the obligation or the guarantor bank or both
will meet the quality standards of the Portfolio.
The maturity of the variable or floating rate demand instruments held by a
Portfolio will ordinarily be deemed to be the longer of (1) the notice period
required before the Portfolio is entitled to receive payment of the principal
amount of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment. The acquisition of variable or
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floating rate demand notes for a Portfolio must also meet the requirements of
rules issued by the SEC applicable to the use of the amortized cost method of
securities valuation. The Portfolios will also consider the liquidity of the
market for variable and floating rate instruments, and in the event that such
instruments are illiquid, the Portfolios' investments in such instruments will
be subject to the limitation on illiquid investments.
A Portfolio (other than Treasury Obligations Portfolio, Treasury Instruments
Portfolio, Government Portfolio and Federal Portfolio) may invest in
participation interests in variable or floating rate tax-exempt obligations held
by financial institutions (usually commercial banks). Such participation
interests provide the Portfolio with a specific undivided interest (up to 100%)
in the underlying obligation and the right to demand payment of its proportional
interest in the unpaid principal balance plus accrued interest from the
financial institution upon a specific number of day's notice. In addition, the
participation interest generally is backed by an irrevocable letter of credit or
guarantee from the institution. The financial institution usually is entitled
to a fee for servicing the obligation and providing the letter of credit.
RESTRICTED AND OTHER ILLIQUID SECURITIES
A Portfolio may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 (the "1933 Act"), including
restricted securities that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the 1933 Act. However, a Portfolio will not
invest more than 10% of the value of its net assets in securities which are
illiquid, which includes fixed time deposits and repurchase agreements maturing
in more than seven days that cannot be traded on a secondary market and
restricted securities, unless, in the case of restricted securities, the
Trust's Board of Trustees determines, based upon a continuing review of the
trading markets for the specific restricted security, that such restricted
securities are liquid. The Board of Trustees may adopt guidelines and delegate
to the Adviser the daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain sufficient oversight and
be ultimately responsible for the determinations. Since it is not possible to
predict with assurance that the market for securities eligible for resale under
Rule 144A will continue to be liquid, the Board will carefully monitor each
Portfolio's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio to the extent that qualified institutional buyers become for a
time uninterested in purchasing
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these restricted securities.
MUNICIPAL OBLIGATIONS
The Prime Obligations, Money Market, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios may invest in municipal
obligations. Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on most of
these obligations is generally exempt from regular federal income tax. The two
principal classifications of municipal obligations are "notes" and "bonds".
Notes. Municipal notes are generally used to provide for short-term capital
needs and generally have maturities of one year or less. Municipal notes
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, tax and revenue anticipation notes, construction loan notes, tax-exempt
commercial paper and certain receipts for municipal obligations.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. They are frequently general obligations of the
issuer, secured by the taxing power for payment of principal and interest.
Revenue anticipation notes are issued in expectation of receipt of other types
of revenue such as federal or state aid. Tax anticipation notes and revenue
anticipation notes are generally issued in anticipation of various seasonal
revenues such as income, sales, use, and business taxes. Bond anticipation
notes are sold to provide interim financing in anticipation of long-term
financing in the market. In most cases, these monies provide for the repayment
of the notes. Tax-exempt commercial paper consists of short-term unsecured
promissory notes issued by a state or local government or an authority or agency
thereof. The Portfolios which invest in municipal obligations may also acquire
securities in the form of custodial receipts which evidence ownership of future
interest payments, principal payments or both on certain state and local
governmental and authority obligations when, in the opinion of bond counsel,
interest payments with respect to such custodial receipts are excluded from
gross income for federal income tax purposes, and in the case of the Tax-Exempt
California and Tax-Exempt New York Portfolios, exempt from California and New
York (city and state) personal income taxes, respectively. Such obligations are
held in custody by a bank on behalf of the holders of the receipts. These
custodial receipts are known by various names, including "Municipal Receipts"
("MRs") and "Municipal Certificates of Accrual on Tax-Exempt Securities" ("M-
CATS"). There are a number of other types of
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notes issued for different purposes and secured differently from those described
above.
Bonds. Municipal bonds, which generally meet longer term capital needs and
have maturities of more than one year when issued, have two principal
classifications, "general obligation" bonds and "revenue" bonds.
General obligation bonds are issued by entities such as states, counties,
cities, towns and regional districts and are used to fund a wide range of public
projects including the construction or improvement of schools, highways and
roads, water and sewer systems and a variety of other public purposes. The
basic security of general obligation bonds is the issuer's pledge of its faith,
credit, and taxing power for the payment of principal and interest. The taxes
that can be levied for the payment of debt service may be limited or unlimited
as to rate or amount or special assessments.
Revenue bonds have been issued to fund a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges and
tunnels; port and airport facilities; colleges and universities; and hospitals.
The principal security for a revenue bond is generally the net revenues derived
from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.
Private activity bonds (a term that includes certain types of bonds the
proceeds of which are used to a specified extent for the benefit of persons
other than governmental units), although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by the
industrial user. The Tax-Exempt Diversified Portfolio and the Tax-Exempt
California Portfolio do not intend to invest in private activity bonds if the
interest from such bonds would be
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an item of tax preference to unitholders under the federal alternative minimum
tax.
Municipal bonds with a series of maturity dates are called serial bonds. The
serial bonds which the Portfolios may purchase are limited to short-term serial
bonds---those with original or remaining maturities of thirteen months or less.
The Portfolios may purchase long-term bonds provided that they have a remaining
maturity of thirteen months or less or, in the case of bonds called for
redemption, the date on which the redemption payment must be made is within
thirteen months. The Portfolios may also purchase long-term bonds (sometimes
referred to as "Put Bonds"), which are subject to a Portfolio's commitment to
put the bond back to the issuer at par at a designated time within thirteen
months and the issuer's commitment to so purchase the bond at such price and
time.
The Portfolios which invest in municipal obligations may invest in tender
option bonds. A tender option bond is a municipal obligation (generally held
pursuant to a custodian 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 in conjunction with the
agreement of a third party, such as a bank, broker-dealer or other financial
institutions, pursuant to which such institution grants the security holder the
option, at periodic intervals, to tender its 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 bond,
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 by, or a significant downgrading in the
credit rating assigned to, the issuer of the bond.
The tender option will be taken into consideration in determining the maturity
of tender option bonds and the average portfolio maturity of a Portfolio. 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. Consequently,
tender option bonds are deemed to be liquid unless, in the opinion of the
Adviser, the credit quality of the bond issuer and the financial institution is
deemed, in light of the relevant Portfolio's credit quality requirements, to be
inadequate.
Although the Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New
York Portfolios intend to invest in tender
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option bonds the interest on which will, in the opinion of counsel for the
issuer and sponsor or counsel selected by the Adviser, be excluded from gross
income for federal income tax purposes, there is no assurance that the Internal
Revenue Service will agree with such counsel's opinion in any particular case.
Consequently, there is a risk that a Portfolio 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. A similar risk exists for certain other investments
subject to puts or similar rights. Additionally, the federal income tax
treatment of certain other aspects of these investments, including the proper
tax treatment of tender options and the associated fees, in relation to various
regulated investment company tax provisions is unclear. The Tax- Exempt
Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios intend to
manage their respective portfolios in a manner designed to eliminate or minimize
any adverse impact from the tax rules applicable to these investments.
In addition to general obligation bonds, revenue bonds and serial bonds, there
are a variety of hybrid and special types of municipal obligations as well as
numerous differences in the security of municipal obligations both within and
between the two principal classifications above.
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios may purchase municipal instruments that are backed by letters of
credit issued by foreign banks that have a branch, agency or subsidiary in the
United States. Such letters of credit, like other obligations of foreign banks,
may involve credit risks in addition to those of domestic obligations, including
risks relating to future political and economic developments, nationalization,
foreign governmental restrictions such as exchange controls and difficulties in
obtaining or enforcing a judgment against a foreign bank (including branches).
For the purpose of investment restrictions of the Portfolios, the
identification of the "issuer" of municipal obligations that are not general
obligation bonds is made by the Adviser on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.
An entire issue of municipal obligations may be purchased by one or a small
number of institutional investors such as one of the Portfolios. Thus, the
issue may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale, municipal
obligations which are not publicly offered may nevertheless be readily
marketable.
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Municipal obligations purchased for a Portfolio may be subject to the
Portfolio's policy on holdings of illiquid securities. The Adviser determines
whether a municipal obligation is liquid based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its value.
The Adviser believes that the quality standards applicable to each Portfolio's
investments enhance liquidity. In addition, stand-by commitments and demand
obligations also enhance liquidity.
Yields on municipal obligations depend on a variety of factors, including
money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the quality of the
issue. High quality municipal obligations tend to have a lower yield than lower
rated obligations. Municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay when due principal of and interest on
its or their municipal obligations may be materially affected.
INVESTING IN CALIFORNIA
The financial condition of the State of California ("California"), its public
authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per unit and the interest
income of, the Tax-Exempt California Portfolio, or result in the default of
existing obligations, including obligations which may be held by the Tax- Exempt
California Portfolio. The following section provides only a brief summary of
the complex factors affecting the financial condition of California, and is
based on information obtained from California, as publicly available prior to
the date of this Statement of Additional Information. The information contained
in such publicly available documents has not been independently verified. It
should be noted that the creditworthiness of obligations issued by local issuers
may be unrelated to the creditworthiness of California, and that there is no
obligation on the part of California to make payment on such local obligations
in the event of default in the absence of a specific guarantee or pledge
provided by California.
During the early 1990's, California experienced significant
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financial difficulties, which reduced its credit standing, but the State's
finances have improved since 1995. The ratings of certain related debt of other
issuers for which California has an outstanding lease purchase, guarantee or
other contractual obligation (such as for state-insured hospital bonds) are
generally linked directly to California's rating. Should the financial condition
of California deteriorate again, its credit ratings could be further reduced,
and the market value and marketability of all outstanding notes and bonds issued
by California, its public authorities or local governments could be adversely
affected.
Economic Factors. California's economy is the largest among the 50
----------------
states (accounting for almost 13% of the nation's output of goods and services)
and one of the largest in the world. California's population of more than 32.6
million represents over 12% of the total United States population and grew by
27% in the 1980s. While California's substantial population growth during the
1980's stimulated local economic growth and diversification and sustained a real
estate boom between 1984 and 1990, it increased strains on California's limited
water resources and demands for government services. Population growth slowed
since 1991 even while substantial immigration has continued, due to a
significant increase in outmigration by California residents. However, with the
California economy improving, the recent net outmigration within the Continental
U.S. is expected to decrease or be reversed.
From mid-1990 to late 1993, California's economy suffered its worst recession
since the 1930s, with over 700,000 jobs lost. The largest job losses were in
Southern California, led by declines in the aerospace and construction
industries. Significantly related to cuts in lost federal defense spending.
Since the start of 1994, the California economy has been in a steady recovery
in all parts of the State. The State Department of Finance reports net job
growth, particularly in construction and related manufacturing, wholesale and
retail trade, electronics, exports, transportation, recreation and services.
This growth has offset the continuing but slowing job losses in the aerospace
industry and restructuring of the finance and utility sectors. Prerecession job
levels were reached in 1996. Unemployment in California is down more than three
percent from its 10% peak in January, 1994, but still remains higher than the
national average rate.
Constitutional Limitations on Taxes, Other Changes and Appropriations
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Limitations on Property Taxes. Certain California Instruments may be
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obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as
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a source of revenue. The taxing power of California local governments and
districts is limited by Article XIIIA of the California constitution, also known
as "Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of March
1, 1975, if acquired earlier), subject to certain adjustments. This system has
resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax". Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62", have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the voters
--------------------------------------------
of the State approved Proposition 218, called the "Right to Vote on Taxes Act."
Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which
contain a number of provisions affecting the ability of local agencies to levy
and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a two-
thirds vote. Further, any general purpose tax which was imposed, extended or
increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.
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Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainly the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
Appropriation Limits. The State and its local governments are
--------------------
subject to an annual "appropriations limit" imposed by Article XIIIB of the
California Constitution, enacted by the voters in 1979 and significantly amended
by Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB
prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations limit
imposed. "Appropriations subject to limitation" are authorizations to spend
"proceeds of taxes," which consist of tax revenues and certain other funds,
including proceeds from regulatory licenses, user charges or other fees, to the
extent that such proceeds exceed the cost of providing the
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product or service, but "proceeds of taxes" excludes most State subventions to
local governments. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain other
non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979, or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for certain
capital outlay projects, (4) appropriations by the State of post 1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect changes
in cost of living and population and any transfer of service responsibilities
between governmental units. The definitions for such adjustments were
liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50%
paid to schools and community colleges. With more liberal annual adjustment
factors since 1988, and depressed revenues since 1990 because of the recession,
few governments, including the State, are currently operating near their
spending limits, but this condition may change over time. The State's 1996-97
Budget Act provides for State appropriations more than $7 billion under the
Article XIIIB limit. Local governments may by voter approval exceed their
spending limits for up to four years.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of the
California Constitution, the ambiguities and possible inconsistencies of their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of these
articles on California Instruments. It is not presently possible to predict the
outcome of any pending litigation with respect to the ultimate scope, impact or
constitutionality of these articles, or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service or their obligations. Future initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
State Debt. Under the California Constitution, debt service on outstanding
----------
general obligation bonds is the second charge to the General Fund after support
of the public school system and
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public institutions of higher education. Total outstanding general obligation
bonds and lease purchase debt of California increased from $9.4 billion at June
30, 1987 to $23.8 billion at March 1, 1997. The State also had outstanding at
March 1, 1997 $358 million of general obligation commercial paper notes which
will be refunded into long-term bonds at a later date. In FY1995- 96, debt
service on general obligation bonds and lease purchase debt was approximately
5.2% of General Fund revenues. State voters approved $6.4 billion of new general
obligation bond authorizations on the 1996 ballots.
Recent Financial Results. The principal sources of General Fund revenues in
------------------------
1995-1996 were the California personal income tax (45% of total revenues), the
sales tax (34%), bank and corporation taxes (13%), and the gross premium tax on
insurance (3%). California maintains a Special Fund for Economic Uncertainties
(the "SFEV"), derived from General Fund revenues, as a reserve to meet cash
needs of the General Fund.
General. Throughout the 1980s, California state spending increased rapidly as
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California's population and economy also grew rapidly, including increased
spending for many assistance programs to local governments, which were
constrained by Proposition 13 and other laws. The largest state program is
assistance to local public school districts. In 1988, an initiative
(Proposition 98) was enacted which (subject to suspension by a two-thirds vote
of the Legislature and the Governor) guarantees local school districts and
community college districts a minimum share of California General Fund revenues
(currently about 35%).
Beginning at the start of the 1990-91 Fiscal Year, California faced adverse
economic, fiscal and budget conditions. The economic recession seriously
affected California's tax revenues. It also caused increased expenditures for
health and welfare programs. Even though the economy is recovering, California
is still facing a structural imbalance in its budget with the largest programs
supported by the General Fund (education, health, welfare and corrections)
growing at rates higher than the growth rates for the principal revenue sources
of the General Fund. These structural concerns will be exacerbated in coming
years by the expected need to substantially increase capital and operating funds
for corrections as a result of a "Three Strikes" law enacted in 1994.
Recent Budgets. As a result of these factors, among others, from the late
--------------
1980's until 1992-93, the State had a period of nearly chronic budget imbalance,
with expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the SFEU,
approaching $2.8 billion at its peak at June 30, 1993. Starting in the 1990-91
Fiscal Year and for each year thereafter, each
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budget required multibillion dollar actions to bring projected revenues and
expenditures into balance and to close large "budget gaps" which were
identified. The Legislature and Governor eventually agreed on a number of
different steps to produce Budget Acts in the Fiscal Years 1991-92 to 1995-96,
including the following (not all of these actions were taken each year):
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on local
government;
. transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools;
. reduction in growth of support for higher education programs, coupled with
increases in student fees;
. revenue increases (particularly in the 1991-92 Fiscal Year budget), most of
which were for a short duration;
. increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal aid
than the State Administration had requested); and
. various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94 and
1995-96, which reduced the accumulated budget
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deficit to less than $100 million as of June 30, 1996. The State Department of
Finance estimated that the General Fund received revenues of about $46.3 billion
in FY 1995-96, more than $2 billion higher than was originally expected, as a
result of the strengthening economy. Expenditures totaled about $45.4 billion,
also about $2 billion higher than budgeted, because, among other factors, the
State Constitution requires disbursement of a percentage of revenues to local
school districts and federal actions to reduce welfare costs and to pay for
costs of illegal immigrants were not forthcoming to the extent expected.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. When the Legislature and the Governor failed to adopt
a budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed
the State to carry out its normal annual cash flow borrowing to replenish its
cash reserves, the State Controller was forced to issue approximately $3.8
billion of registered warrants ("IOUs") over a 2-month period to pay a variety
of obligations representing prior years' or continuing appropriations, and
mandates from court orders. Available funds were used to make constitutionally-
mandated payments, such as debt service on bonds and warrants.
The State's cash condition became so serious that from late spring 1992 until
1995, the State had to rely on issuance of short- term notes which matured in a
subsequent fiscal year to finance its ongoing deficit and pay current
obligations. With the repayment of the last of these deficit notes in April,
1996, the State does not plan to rely further on external borrowing across
fiscal years, but will continue its normal cash flow borrowing during a fiscal
year.
Current Budget. The 1996-97 Budget Act was signed by the Governor on July 15,
--------------
1996, along with various implementing bills. The Legislature rejected the
Governor's proposed 15% cut in personal income taxes (to be phased over three
years), but did approve a 5% cut in bank and corporation taxes, to be effective
for income years starting on January 1, 1997. As a result, revenues for the
Fiscal Year are estimated to total $47.643 billion, a 3.3 percent increase over
the final estimated 1995-96 revenues. The Budget Act contains General Fund
appropriations totaling $47.251 billion, a 4.0 percent increase over the final
estimated 1995-96 expenditures.
The following are principal features of the 1996-97 Budget Act:
1. Funding for schools and community college
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districts increased by $1.65 billion total above revised 1995-96 levels. Almost
half of this money was budgeted to fund class-size reductions in kindergarten
and grades 1-3. Also, for the second year in a row, the full cost of living
allowance (3.2 percent) was funded. The funding increases have brought K-12
expenditures to almost $4,800 per pupil, an almost 15% increase over the level
prevailing during the recession years.
2. Proposed cuts in health and welfare totaling $660 million. All
of these cuts required federal law changes (including welfare reform, which was
enacted), federal waivers, or federal budget appropriations in order to be
achieved. Ultimate federal actions after enactment of the Budget Act will allow
the State to save only about $360 million of this amount.
3. A 4.9 percent increase in funding for the University of
California and the California State University system, with no increases in
student fees for the second consecutive year.
4. The Budget Act assumed the federal government would provide
approximately $700 million in new aid for incarceration and health care costs of
illegal immigrants. These funds reduce appropriations in these categories that
would otherwise have to be paid from the General Fund.
With signing of the Budget Act, the State implemented its regular cash flow
borrowing program with the issuance of $3.0 billion of Revenue Anticipation
Notes to mature on June 30, 1997. The Budget Act appropriated a modest budget
reserve in the SFEU of $305 million, as of June 30, 1997. The General Fund fund
balance, however, still reflects $1.6 billion of "loans" which the General Fund
made to local schools in the recession years, representing cash outlays above
the mandatory minimum funding level. Settlement of litigation over these
transactions in July 1996 calls for repayment of these loans over the period
ending in 2001-02, about equally split between outlays from the General Fund and
from schools' entitlements. The 1996-97 Budget Act contained a $150 million
appropriation from the General Fund toward this settlement.
The Department of Finance projected, when the Budget Act was passed, that, on
June 30, 1997, the State's available internal borrowable (cash) resources will
be $2.9 billion, after payment of all obligations due by that date, so that no
external cross- fiscal year borrowing will be needed. The State will continue
to rely on internal borrowing and intra-year external note borrowing to meet its
cash flow requirements.
The Department of Finance has reported that, based on stronger than expected
revenues during the first six months of the 1996-97 fiscal year, reflecting the
continued strength of the
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State's economic recovery, General Fund revenues for the full 1996-97 fiscal
year will be almost $800 million above projections, at about $48.4 billion. This
is expected to be offset by required increased payments to schools, and lower
than expected savings resulting from federal welfare reform actions and federal
aid for illegal immigrants. As a result, the expected balance of the SFEU at
June 30, 1997 has been slightly reduced to about $197 million, still the first
positive balance in the decade of the 90's. The State has not yet given any
prediction of how the federal welfare reform law will impact the State's
finances, or those of its local agencies; the State is in the midst of making
many decisions concerning implementation of the new welfare law.
Proposed 1997-98 Budget. On January 9, 1997, the Governor released his
-----------------------
proposed budget for FY 1997-98. Assuming continuing strength in the economy,
the Governor projects General Fund revenues of $50.7 billion, and proposes
expenditures of $50.3 billion, to leave a budget reserve in the SFEU of $550
million at June 30, 1998. The Governor proposed further programs to reduce
class size in lower primary grades, using excess revenues from FY 1996-97. He
also proposed a further cut in corporate taxes, and sweeping changes in public
assistance programs to respond to the new federal welfare reform law.
Although the State's strong economy is producing record revenues to the State
government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending
growth also put pressure on local governments. There can be no assurances that,
if economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
Bond Ratings. The ratings on California's long-term general
------------
obligation bonds were reduced in the early 1990's from "AAA" levels which had
existed prior to the recession. In 1996, Fitch and Standard & Poor's raised
their ratings of California's general obligation bonds, which are currently
assigned ratings of "A+" from Standard & Poor's, "A1" from Moody's and "A+" from
Fitch. There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of California to make payment on such obligations in the event of default.
Legal Proceedings. California is involved in certain legal
------------------
proceedings (described in California's recent financial
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statements) that, if decided against California, may require California to make
significant future expenditures or may substantially impair revenues. Courts
have recently entered decisions which could overturn several parts of the
state's recent budget compromises. The matters covered by these lawsuits include
a deferral of payments by California to the Public Employees Retirement System,
reductions in welfare payments and the use of certain cigarette tax funds for
health costs. All of these cases are subject to further proceedings and appeals,
and if California eventually loses, the final remedies may not have to be
implemented in one year.
Obligations of Other Issuers
----------------------------
Other Issuers of California Instruments. There are a number of state
---------------------------------------
agencies, instrumentalities and political subdivisions of the State of
California that issue municipal obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them may vary considerably from the credit
quality of obligations backed by the full faith and credit of the State of
California.
State Assistance. Property tax revenues received by local governments
----------------
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
California's General Fund surplus to local agencies, the reallocation of certain
state revenues to local agencies and the assumption of certain governmental
functions by the State of California to assist municipal issuers to raise
revenues. Through 1990-91, local assistance (including public schools)
accounted for around 75% of General Fund spending. To reduce California General
Fund support for school districts, the 1992-93 and 1993-94 Budget Acts caused
local governments to transfer a total of $3.9 billion of property tax revenues
to school districts, representing loss of all the post-Proposition 13 "bailout"
aid. The largest share of these transfers came from counties, and the balance
from cities, special districts and redevelopment agencies. In order to make up
part of this shortfall, the Legislature proposed, and voters approved in 1993,
dedicating 0.5% of the sales tax to counties and cities for public safety
purposes. In addition, the Legislature has changed laws to relieve local
governments of certain mandates, allowing them to reduce costs.
To the extent that California should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of state
assistance to local governments may continue to be reduced. Any such reductions
in
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state aid could compound the serious fiscal constraints already experienced by
many local governments, particularly counties. A number of counties have
indicated that their budgetary condition is extremely serious. In the 1995-96
and 1996-97 fiscal years, Los Angeles County, the largest in the State, had to
make significant cuts in services and personnel, particularly in the health care
system in order to balance its budget. The County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange County, which recently emerged
from federal bankruptcy protection, has substantially reduced services and
personnel in order to live within much reduced means.
Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which will have to be enacted
by June, 1997 in order to comply with the federal welfare reform law. It is now
yet known how the State's legislation will turn out and what its overall impact
will be on local government finances.
Assessment Bonds. California Instruments which are assessment bonds may be
----------------
adversely affected by a general decline in real estate values or a slowdown in
real estate sales activity. In many cases, such bonds are secured by land which
is undeveloped at the time of issuance but anticipated to be developed within a
few years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most
cases the issuer of these bonds is not required to make payments on the bonds in
the event of delinquency in the payment of assessments or taxes, except from
amounts, if any, in a reserve fund established for the bonds.
California Long-Term Lease Obligations. Certain California long-term lease
--------------------------------------
obligations, though typically payable from the general fund of the municipality,
are subject to "abatement" in the event the facility being leased is unavailable
for beneficial use and occupancy by the municipality during the term of the
lease. Abatement is not a default, and there may be no remedies available to the
holders of the certificates evidencing the lease obligation in the event
abatement occurs. The most common cases of abatement are failure to complete
construction of the facility before the end of the period during which lease
payments have been capitalized and uninsured casualty losses to the facility
(e.g. due to earthquake). In the event abatement occurs with respect to a lease
obligation, lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may not be paid when
due.
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Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a state receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State of California was a named defendant (on the grounds
that it controlled the District's finances). One of the defenses raised in
answer to this lawsuit was the invalidity of the District's lease. The trial
court upheld the validity of the lease, and the case was subsequently settled.
Any ultimate judgment in any future case against the position taken by the
Trustee may have adverse implications for lease transactions of a similar nature
by other California entities.
Other Considerations
--------------------
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in state regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks related
to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g. because of major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which typically are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
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The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California Instruments in which the California Portfolio may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Instruments.
Substantially all of California is within an active geologic region subject to
major seismic activity. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing billions of dollars in damages. The
federal government provided more than $13 billion in aid for both earthquakes,
and neither event is expected to have any long-term negative economic impact.
Any security in the Tax-Exempt California Portfolio could be affected by an
interruption of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or state government to appropriate
sufficient funds within their respective budget limitations.
INVESTING IN NEW YORK
Some of the significant financial considerations relating to the Tax-Exempt
New York Portfolio's investments in New York Instruments are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Instruments that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the nation and has
- -------------
a relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of
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the nation's finance, insurance, transportation, communications and services
employment, and a very small share of the nation's farming and mining activity.
The State has a declining proportion of its workforce engaged in manufacturing,
and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for a large portion
of the State's population and personal income.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position.
There can be no assurance that the State economy will not experience worse-
than-predicted results in the 1996-97 fiscal year, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. State
per capita income for 1994 was estimated at $25,999, which was 19.2% above the
1994 estimated national average of $21,809. Between 1975 and 1990 total
employment grew by 21.3 percent while the labor force grew only by 15.7 percent.
During this period, unemployment fell from 9.5 percent to 5.2 percent of the
labor force. In 1991 and 1992, however, total employment in the State fell by
5.5 percent. As a result, the unemployment rate rose to 8.5 percent reflecting
a recession that has had a particularly strong impact on the entire Northeast.
Calendar years 1993 and 1994 saw only a partial recovery.
STATE BUDGET. The State Constitution requires the governor (the "Governor") to
- ------------
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The Governor presented his 1996-97 Executive Budget to the Legislature on
December 15, 1995, and subsequently amended it.
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The Governor's Executive Budget projected balance on a cash basis in the
General Portfolio. It reflected a continuing strategy of substantially reduced
State spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives.
On March 15, 1996, the Governor presented amendments to the 1996-97 Executive
Budget to provide for balancing the 1996-97 state financial plan if the federal
government failed to adopt entitlement changes assumed to produce savings in the
State's 1996-97 Executive Budget.
The State's budget for the 1996-97 fiscal year was enacted by the Legislature
on July 13, 1996, more than three months after the start of the fiscal year.
Prior to adoption of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including necessary appropriations for all State- supported debt
service. The State Financial Plan for the 1996-97 fiscal year was formulated on
July 25, 1996 and was based on the State's budget as enacted by the Legislature
and signed into law by the Governor, as well as actual results for the first
quarter of the current fiscal year (the "1996- 97 State Financial Plan").
The 1996-97 State Financial Plan was projected to be balanced on a cash basis.
As compared to the Governor's proposed budget as revised on March 20, 1996, the
1996-97 State Financial Plan increases General Portfolio spending by $842
million, primarily from funding increased for education, special education and
higher education ($563 million). The balance represented funding increases to a
variety of other programs, including community projects and increased assistance
to fiscally distressed cities. Resources used to fund these additional
expenditures include $540 million in increased revenues projected for 1996-97
based on higher-than- projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources.
The State issued its first update to the 1996-97 State Financial Plan (the
"Mid-Year Update") on October 25, 1996. Revisions have been made to estimates of
both receipts and disbursements based on: (1) updated economic forecasts for
both the nation and the State, (2) an analysis of actual receipts and
disbursements through the first six months of the fiscal year, and (3) an
assessment of changing program requirements. The Mid- Year Update reflected a
balanced 1996-97 State Financial Plan, with a reserve for contingencies in the
General Portfolio of $300 million. This reserve will be utilized to help offset
a variety of potential risks and other unexpected contingencies that the State
may face during the balance of the 1996-97 fiscal year.
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Although revisions to the 1996-97 State Financial Plan contained in the Mid-
Year Update are favorable, the State faces certain risks which could potentially
cost the State up to one- half billion dollars. The Division of the Budget
believes these risks are balanced by reserves in the 1996-97 State Financial
Plan, including the $300 million reserve created in the Mid-Year Update.
However, there can be no assurance that these reserves will fully offset
litigation or other risks to the 1996-97 State Financial Plan.
One major uncertainty to the 1996-97 State Financial Plan continues to be
risks related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year. An additional
risk to the 1996- 97 State Financial Plan arises from the potential impact of
certain litigation now pending against the State, which could produce adverse
effects on the State's projections of receipts and disbursements.
Similarly, certain litigation which by itself did not produce a material
judgment against the State could have an adverse impact on the 1996-97 State
Financial Plan because of the precedential nature of the court's decision.
Specifically, the State Court of Appeals has denied a motion to appeal a lower
court decision in the so-called "GTE Spacenet" case, in which the court ruled
that GTE Spacenet was not subject to the 3.5 percent tax on gross receipts
imposed under section 186-a of the tax law. The court decision is limited to
provisions of section 186-a as it existed prior to the 1995 amendments, and has
little prospective effect. While this litigation in and of itself carries only
a small judgment in favor of GTE Spacenet and similar companies, the
consequences of the ruling could eventually entail refunds to other taxpayers of
several hundred million dollars. Refund claims of over $300 million have been
filed which, with interest and assuming a similar exposure for open years for
which claims have yet to be filed, could approach $600 million in potential
claims.
On August 13, 1996, the State Comptroller released a report in which he
identified several risks to the 1996-97 State Financial Plan and estimated that
the State faces a potential imbalance in receipts and disbursements of
approximately $3 billion for the State's 1997-98 fiscal year and approximately
$3.2 billion for the State's 1998-99 fiscal year.
The Governor is required to submit a balanced budget to the State Legislature
and has indicated he will close any potential imbalance in the 1997-98 State
Financial Plan primarily through General Portfolio expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. It is
expected that the 1997-98 State Financial Plan will reflect a continuing
strategy of substantially reduced State spending, including
33
<PAGE>
agency consolidations, reductions in the State workforce, and efficiency and
productivity initiatives.
On August 22, 1996, the President signed into law the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996. This federal legislation
fundamentally changed the programmatic and fiscal responsibilities for
administration of welfare programs at the federal, state and local levels. The
new law abolishes the federal Aid to Families with Dependent Children program
(AFDC), and creates a new Temporary Assistance to Needy Families program (TANF)
funded with a fixed federal block grant to states. The new law also imposes
(with certain exceptions) a
five-year durational limit on TANF recipients, requires that virtually all
recipients be engaged in work or community service activities within two years
of receiving benefits, and limits assistance provided to certain immigrants and
other classes of individuals. States are required to meet work activity
participation targets for their TANF caseload; these requirements are phased in
over time. States that fail to meet these federally mandated job participation
rates, or that fail to conform with certain other federal standards, face
potential sanctions in the form of a reduced federal block grant.
On October 16, 1996, the Governor submitted the State's TANF implementation
plan to the federal government as required under the new federal welfare law.
Submission of this plan to the federal government requires New York State to
begin compliance with certain time limits on welfare benefits and permits the
State to become eligible for approximately $2.36 billion in federal block grant
funding. Legislation will be required to implement the State's TANF plan. The
Governor has indicated that he plans to introduce legislation necessary to
conform with federal law shortly, and that he may submit amendments to the State
plan if necessary.
States are required to comply with the new federal welfare reform law no later
than July 1, 1997. Given the size and scope of the changes required under
federal law, it is likely that these proposals will produce extensive public
discussions. There can be no assurances that the State Legislature will enact
welfare reform proposals as submitted by the Governor and as required under
federal law.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State and its agencies and instrumentalities,
but also by entities, such as the federal government, that are not under the
control of the State. In addition, the 1996-97 State Financial Plan is based
upon forecasts of national and State economic activity. Economic
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forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. The Division of Budget
believes that its projections of receipts and disbursements relating to the
current State Financial Plan, and the assumptions on which they are based, are
reasonable. Actual results, however, could differ materially and adversely from
the projections set forth therein, and those projections may be changed
materially and adversely from time to time. There are also risks and
uncertainties concerning the future- year impact of actions taken in the 1996-97
budget.
In the State's 1997 fiscal year and in certain recent fiscal years, the State
has failed to enact a budget prior to the beginning of the State's fiscal year.
RECENT FINANCIAL RESULTS. The General Portfolio is the principal operating
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Portfolio of the State and is used to account for all financial transactions,
except those required to be accounted for in another Portfolio. It is the
State's largest Portfolio and receives almost all State taxes and other
resources not dedicated to particular purposes.
The General Portfolio is projected to be balanced on a cash basis for the
1996-97 fiscal year. Total receipts and transfers from other Portfolios are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Portfolio disbursements and transfers to other
Portfolios are projected to be $33.12 billion, an increase of $444 million from
the total in the prior fiscal year.
Total revenues for 1994-95 were $31.455 billion. Revenues decreased by $173
million over the prior fiscal year, a decrease of less than one percent. Total
expenditures for 1994-95 totaled $33.079 billion, an increase of $2.083 billion,
or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted accounting
principles) basis as of March 31, 1995 showed an accumulated deficit in its
combined governmental Portfolios of $1.666 billion, reflecting liabilities of
$14.778 billion and assets of $13.112 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
- --------------------------------
State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
----
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
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The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain public
authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a contractual-
obligation financing arrangement with the Local Government Assistance
Corporation ("LGAC") in an effort to restructure the way the State makes certain
local aid payments.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal
borrowing of the State at $4.7 billion, less net proceeds of bonds issued by
LGAC and bonds issued to provide for capitalized interest, except in cases where
the Governor and the legislative leaders have certified the need for additional
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borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion,
completing the program. The impact of LGAC's borrowing is that the State is able
to meet its cash flow needs in the first quarter of the fiscal year without
relying on short-term seasonal borrowings.
In June 1994, the Legislature passed a proposed constitutional amendment that
would significantly change the long-term financing practices of the State and
its public authorities. The proposed amendment would permit the State, within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State Portfolios dedicated for transportation purposes), and not by
the full faith and credit of the State. In addition, the proposed amendment
would (i) permit multiple purpose general obligation bond proposals to be
proposed on the same ballot, (ii) require that State debt be incurred only for
capital projects included in a multi-year capital financing plan, and (iii)
prohibit, after its effective date, lease-purchase and contractual-obligation
financing mechanisms for State facilities.
Before the approved constitutional amendment could be presented to the voters
for their consideration, it had to be passed by a separately elected
legislature. The amendment was passed by the Senate and Assembly in June 1995.
The Amendment was thereafter submitted to voters in November 1995, where it was
defeated.
On January 13, 1992, S&P reduced its ratings on the State's general obligation
bonds from A to A- and, in addition, reduced its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. S&P
also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, S&P revised the rating outlook assessment
to stable. On February 14, 1994, S&P raised its outlook to positive and, on
February 28, 1994, confirmed its A- rating. On January 6, 1992, Moody's reduced
its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness.
The State anticipated that its capital programs would be financed, in part, by
State and public authorities borrowings in 1996-97. The State expected to issue
$411 million in general obligation bonds (including $153.6 million for purposes
of redeeming outstanding bond anticipation notes) and $154 million
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in general obligation commercial paper. The Legislature had also authorized the
issuance of up to $101 million in certificates of participation during the
State's 1996-97 fiscal year for equipment purchases. The projection of the State
regarding its borrowings for the 1996-97 fiscal year may change if circumstances
require.
In the 1996 legislative session, the Legislature approved the Governor's
proposal to present to the voters in November 1996 a $1.75 billion State general
obligation bond referendum to finance various environmental improvement and
remediation projects. The Clean Water, Clean Air Bond Act was approved by the
voters in November 1996. As a result, the amount of general obligation bonds
issued during the 1996-97 fiscal year may increase above the $411 million
currently included in the 1996-97 borrowing plan to finance a portion of this
new program.
Principal and interest payments on general obligation bonds and interest
payments on bond anticipation notes were $735 million for the 1995-96 fiscal
year, and were estimated to be $719 million for the 1996-97 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $340 million for the 1995-96 fiscal year, and were estimated to be
$323 million for 1996-97.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against the State or its officers or
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employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges by commercial insurers,
employee welfare benefit plans, and health maintenance organizations to the
imposition of 13%, 11% and 9% surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation
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to timely provide certain data; (9) a challenge to the constitutionality of a
State lottery game; and (10) an action seeking reimbursement from the State for
certain costs arising out of the provision of pre-school services and programs
for children with handicapped conditions.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on
----------------- -----------------
January 21, 1994, the State entered into a settlement agreement with various
parties. Pursuant to all agreements executed in connection with the action, the
State was required to make aggregate payments of $351.4 million. Annual payments
to the various parties will continue through the State's 2002-03 fiscal year in
amounts which will not exceed $48.4 million in any fiscal year subsequent to the
State's 1994-95 fiscal year. Litigation challenging the constitutionality of
the treatment of certain moneys held in a reserve Portfolio was settled in June
1996 and certain amounts in a Supplemental Reserve Portfolio previously credited
by the State against prior State and local pension contributions will be paid in
1998.
The legal proceedings noted above involve State finances, State programs and
miscellaneous tort, real property and contract claims in which the State is a
defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State. Adverse
developments in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced 1996-97 State Financial
Plan. An adverse decision in any of these proceedings could exceed the amount
of the 1996-97 State Financial Plan reserve for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1996-97
State Financial Plan. In its audited financial statements for the fiscal year
ended March 31, 1996, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $474 million.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness
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when it matures, or affects New York State's power or ability, as a matter of
law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to the
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fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is State-
supported or State-related. As of September 30, 1995, date of the latest data
available, there were 17 Authorities that had outstanding debt of $100 million
or more. The aggregate outstanding debt, including refunding bonds, of these 17
Authorities was $73.45 billion.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State Portfolios.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New York
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may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
City has achieved balanced operating results for each of its fiscal years since
1981 as reported in accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that
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impaired the borrowing ability of both the City and New York State. In that year
the City lost access to the public credit markets. The City was not able to sell
short-term notes to the public again until 1979.
In 1975, S&P suspended its A rating of City bonds. This suspension remained in
effect until March 1981, at which time the City received an investment grade
rating of BBB from S&P. On July 2, 1985, S&P revised its rating of City bonds
upward to BBB+ and on November 19, 1987, to A-. On July 2, 1993, S&P reconfirmed
its A- rating of City bonds, continued its negative rating outlook assessment
and stated that maintenance of such rating depended upon the City's making
further progress towards reducing budget gaps in the outlying years. Moody's
ratings of City bonds were revised in November 1981 from B (in effect since
1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to
A and again in February 1991 to Baa1. On July 10, 1995, S&P downgraded its
rating on the City's $23 billion of outstanding general obligation bonds to
"BBB+" from "A-", citing to the City's chronic structural budget problems and
weak economic outlook. S&P stated that New York City's reliance on one-time
revenue measures to close annual budget gaps, a dependence on unrealized labor
savings, overly optimistic estimates of revenues and state and federal aid and
the City's continued high debt levels also contributed to its decision to lower
the rating. Moody's currently has the City's rating under review for a possible
downgrade.
New York City is heavily dependent on New York State and federal assistance to
cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City proceeds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds
and notes payable from certain stock transfer tax revenues, from the City's
portion of the State sales tax derived in the City and, subject to certain prior
claims, from State per capita aid otherwise payable by the State to the City.
Failure by the State to continue the imposition of such taxes, the reduction of
the rate of such taxes to rates less than those in effect on July 2, 1975,
failure by the State to pay such aid revenues and the reduction of such aid
revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City. As of
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December 31, 1995, MAC had outstanding an aggregate of approximately $4.684
billion of its bonds. MAC is authorized to issue bonds and notes to refunds its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to the Transit
Authority and the New York City School Construction Authority for the 1992
through 1997 fiscal years in the event the City fails to provide such financing.
The City and MAC have reached an agreement in principle under which MAC will
develop and implement a debt restructuring program which will provide the City
with $125 million in budget relief in fiscal year 1996, in addition to the $20
million of additional budget relief provided by MAC to the City since January
1996. The City has agreed with MAC that it will reduce certain expenditures by
$125 million in each of the four fiscal years starting in fiscal year 1997. The
proposed refinancing, which must satisfy MAC refinancing criteria, is subject to
market conditions.
Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "Control Board") and
since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
From time to time, the Control Board staff, OSDC, the City comptroller and
others issue reports and make public statements regarding the City's financial
condition, commenting on, among other matters, the City's financial plans,
projected revenues and expenditures and actions by the City to eliminate
projected operating deficits. Some of these reports and statements have warned
that the City may have underestimated certain expenditures and overestimated
certain revenues and have suggested that the City may not have adequately
provided for future contingencies. Certain of these reports have analyzed the
City's future economic and social conditions and have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services.
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On January 31, 1996, the City published the financial plan for the 1996-1999
fiscal years (the "City Financial Plan"), which is a modification to a financial
plan submitted to the Control Board on July 11, 1995. The City Financial Plan
set forth proposed actions by the City for the 1996 fiscal year to close
substantial projected budget gaps resulting from lower than projected tax
receipts and other revenues and greater than projected expenditures. In addition
to substantial proposed agency expenditure reductions, the City Financial Plan
reflected a strategy to substantially reduce spending for entitlements for the
1996 and subsequent fiscal years, and to decrease the City's costs for Medicaid
in the 1997 fiscal year and thereafter by increasing the federal share of
Medicaid costs otherwise paid by the City. This strategy has been the subject of
substantial debate, and implementation of this strategy will be significantly
affected by State and federal budget proposals currently being considered. It is
likely that the City Financial Plan will be changed significantly in connection
with the preparation of the Executive Budget for the 1997 fiscal year as a
result of the status of State and federal budget proposals and other factors.
The City Financial Plan also set forth projections for the 1997 through 1999
fiscal years and outlined a proposed gap- closing program to eliminate a
projected gap of $2.0 billion for the 1997 fiscal year, and to reduce projected
gaps of $3.3 billion and $4.1 billion for the 1998 and 1999 fiscal years,
respectively, assuming successful implementation of the gap- closing program for
the 1996 fiscal year.
The proposed gap-closing actions for the 1997 through 1999 fiscal years
included: (i) additional agency actions, totaling between $643 million and $691
million in each of the 1997 through 1999 fiscal years; (ii) additional savings
resulting from State and federal aid and cost containment in entitlement
programs to reduce City expenditures and increase revenues by $650 million in
the 1997 fiscal year and by $727 million in each of the 1998 and 1999 fiscal
years; (iii) additional proposed federal aid of $50 million in the 1997 fiscal
year and State aid of $100 million in each of the 1997 through 1999 fiscal
years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, certain of which actions is expected to
require legislative action by the City Council; and (v) the assumed receipt of
revenues relating to rent payments for the City's airports, totaling $244
million, $226 million and $70 million in the 1997 through 1999 fiscal years,
respectively, which are currently the subject of a dispute with the Port
Authority and the collection of which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's remedies
under the leases through pending legal actions. The City was also preparing an
additional contingency gap-closing program for the 1997 fiscal year to be
comprised of $200 million
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in additional agency actions.
The federal and State budgets, when adopted, may result in substantial
reductions in revenues for the City, as well as a reduction in projected
expenditures in entitlement programs, including Medicare, Medicaid and welfare
programs. The nature and extent of the impact on the City of the federal and
State budgets, when adopted, is uncertain, and no assurance can be given that
federal or State actions included in the federal and State adopted budgets may
not have a significant adverse impact on the City's budget and the City
Financial Plan.
The projections for the 1996 through 1999 fiscal years reflected the costs of
the proposed settlement with the teachers union and the recent settlement with a
coalition of municipal unions, and assumed that the City will reach agreement
with its remaining municipal unions under terms which are generally consistent
with such settlements.
The City's financial plans have been the subject of extensive public comment
and criticism. The City comptroller has issued reports identifying risks
ranging between $440 million and $560 million in the 1996 fiscal year before
taking into account the availability of $160 million in the general reserve, and
between $2.05 billion and $2.15 billion in the 1997 fiscal year after
implementation of the City's proposed gap-closing actions. With respect to the
1997 fiscal year, the report noted that the City Financial Plan assumed the
implementation of highly uncertain State and federal actions, most of which are
unlikely to be implemented, that would provide between $1.2 billion and $1.4
billion in relief to the City, and identified additional risks. The report
concluded that the magnitude of the budget risk for the 1997 fiscal year, after
two years of large agency cutbacks and workforce reductions, indicated the
seriousness of the City's continuing budget difficulties, and that the City
Financial Plan would require substantial revision in order to provide a credible
program for dealing with the large projected budget gap for the 1997 fiscal
year.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short- term obligations within their fiscal
year of issuance. The City has issued $2.4 billion of short-term obligations in
fiscal year 1996 to finance the City's current estimate of its seasonal cash
flow needs for the 1996 fiscal year. Seasonal financing requirements for the
1995 fiscal year increased to $2.2 billion from $1.75 billion and $1.4 billion
in the 1994 and 1993 fiscal years, respectively.
Certain localities, in addition to the City, could have financial problems
leading to requests for additional New York State assistance. The potential
impact on the State of such requests by localities was not included in the
State's
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projections of its receipts and disbursements.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted in
the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by New York State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.
Beginning in 1990, the City of Troy experienced a series of budgetary deficits
that resulted in the establishment of a Supervisory Board for the City of Troy
in 1994. The Supervisory Board's powers were increased in 1995, when Troy MAC
was created to help Troy avoid default on certain obligations. The legislation
creating Troy MAC prohibits the city of Troy from seeking federal bankruptcy
protection while Troy MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1994, the total indebtedness of all localities in New
York State other than New York City was approximately $17.7 billion. A small
portion (approximately $82.9 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling New York State
legislation. State law requires the comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1994.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If New York State, New York City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within New York State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential
problems of declining urban population, increasing expenditures and other
economic trends could adversely affect localities and require increasing New
York State assistance in
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the future.
STANDBY COMMITMENTS
In order to enhance the liquidity, stability or quality of municipal
obligations, the Prime Obligations, Money Market, Tax-Exempt Diversified, Tax-
Exempt California and Tax-Exempt New York Portfolios each 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 put, demand feature or "standby commitment",
depending on its characteristics. The aggregate price which a Portfolio 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
the Portfolio. 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 the
Portfolio. In considering whether a security meets a Portfolio's quality
standards, the Adviser will look to the creditworthiness of the party providing
the Portfolio with the right to sell.
The Portfolios value municipal obligations 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 Portfolio's net asset value. Since
the value of a standby commitment is dependent on the ability of the standby
commitment writer to meet its obligation to repurchase, the policy of each
Portfolio that may enter into standby commitment transactions is to enter into
such transactions only with banks, brokers or dealers which represent a minimal
risk of default. The duration of standby commitments will not be a factor in
determining the weighted average maturity of a Portfolio.
Management of the Trust 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. Institutional Tax-
Exempt Assets, the predecessor company of which Tax-Exempt Diversified Portfolio
and Tax-Exempt California Portfolio were series, has received a ruling from the
Internal Revenue Service to the effect that it is considered the owner of the
municipal obligations subject to standby commitments so that the interest on
such instruments will be tax-exempt income to it. The
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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. Each of the Tax-
Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios
intends to take the position that it is the owner of any municipal obligations
acquired subject to a standby commitment or acquired or held with certain other
types of put rights and that its distributions of tax-exempt interest earned
with respect to such municipal obligations will be tax-exempt for its
unitholders. There is no assurance that standby commitments will be available to
a Portfolio nor has any Portfolio assumed that such commitments will continue to
be available under all market conditions.
INVESTMENT LIMITATIONS
The following restrictions may not be changed with respect to any Portfolio
without the approval of the majority of outstanding voting securities of that
Portfolio (which, under the Investment Company Act and the rules thereunder and
as used in the Prospectus and this Statement of Additional Information, means
the lesser of (1) 67% of the units of that Portfolio present at a meeting if the
holders of more than 50% of the outstanding units of that Portfolio are present
in person or by proxy, or (2) more than 50% of the outstanding units of that
Portfolio). Investment restrictions that involve a maximum percentage of
securities or assets shall not be considered to be 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 or on behalf of, a
Portfolio, with the exception of borrowings permitted by Investment Restriction
(3).
Accordingly, the Trust may not, on behalf of any Portfolio:
(1) make any investment inconsistent with the Portfolio's classification as
a diversified company under the Investment Company Act of 1940, as amended
("the Act"). This restriction does not, however, apply to any Portfolio
classified as a non- diversified company under the Act.
(2) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no limitation
with respect to, and each Portfolio reserves
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freedom of action, when otherwise consistent with its investment policies, to
concentrate its investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks and U.S. branches of U.S.
or foreign banks and repurchase agreements and securities loans collateralized
by such U.S. Government obligations or such bank obligations. 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 related to financing the activities of their parents.
Notwithstanding the foregoing, the ILA Money Market Portfolio will invest more
than 25% of the value of its total assets in bank obligations (whether foreign
or domestic) except that if adverse economic conditions prevail in the banking
industry the ILA Money Market Portfolio may, for defensive purposes,
temporarily invest less than 25% of the value of its total assets in bank
obligations.
(3) borrow money, except (a) that the Portfolio 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 Portfolio
may, to the extent permitted by applicable law, borrow up to an additional 5%
of its total assets for temporary purposes, (c) the Portfolio may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (d) the Portfolio may purchase securities on
margin to the extent permitted by applicable law.
(4) make loans, except (a) through the purchase of debt obligations in
accordance with each Portfolio's investment objective and policies, (b)
through repurchase agreements with banks, brokers, dealers and other financial
institutions, and (c) loans of securities.
(5) underwrite securities issued by others, except to the extent that the
sale of portfolio securities by the Portfolio may be deemed to be an
underwriting.
(6) purchase, hold or deal in real estate, although the Portfolio 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
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may hold and sell real estate acquired by the Portfolio as a
result of the ownership of securities.
(7) invest in commodities or commodity contracts, except that the Portfolio
may invest in currency and financial instruments and contracts that are
commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Portfolio may, notwithstanding any other fundamental investment
restriction or policy, invest some or all of its assets in a single open-end
investment company or series thereof with substantially the same investment
objectives, restrictions and policies as the Portfolio.
As money market funds, the Portfolios must also comply with Rule 2a-7 under
the Investment Company Act. Amendments to Rule 2a-7 have been proposed and are
expected to be effective at some time in 1997. The following assumes that such
amendments are in effect as currently proposed. While a detailed and technical
Rule, Rule 2a-7 has three basic requirements: portfolio maturity, portfolio
quality and portfolio diversification. Portfolio maturity. Rule 2a-7 requires
that the maximum maturity of any security in a Portfolio's portfolio may not
exceed 397 days and a Portfolio's average portfolio maturity may not exceed 90
days. Portfolio quality. A money market fund may only invest in First Tier and
Second Tier securities (as defined in the Rule and the Prospectus). Each
Portfolio, other than the Tax-Exempt Portfolios, as a matter of non- fundamental
policy only invests in First Tier securities. Portfolio diversification. The
Prime Obligations, Government, Treasury Obligations, Money Market, Federal,
Treasury Instruments and Tax- Exempt Diversified Portfolios may not invest more
than 5% of their total assets in the securities of any one issuer (except U.S.
Government securities, repurchase agreements collateralized by such securities
and certain securities subject to a guarantee or unconditional demand feature).
Each of such Portfolios may, however, invest up to 25% of its total assets in
the First Tier Securities of a single issuer for a period of up to three
business days after the purchase thereof. Tax-Exempt New York and Tax-Exempt
California Portfolios, with respect to 75% of their respective total assets, may
not invest more than 5% of their total assets in the securities of any one
issuer (except U.S. Government securities, repurchase agreements collateralized
by such securities and certain securities subject to a guarantee or
unconditional demand feature); provided that such funds may not invest more than
5% of their respective total assets in the securities of a single issuer unless
the securities are First Tier securities. Immediately after the acquisition of
any put
49
<PAGE>
(i.e., the right to sell the security within a specified period at a price equal
to its amortized cost), with respect to 75% of the assets of a Portfolio, no
more than 10% of the Portfolio's total assets may be invested in securities
issued by or subject to puts issued by the same issuer. In the case of the Tax-
Exempt Portfolios (which are the only Portfolios that invest in Second Tier
securities), immediately after the acquisition of a put that is a Second Tier
security, no more than 5% of the Tax- Exempt Portfolio's total assets may be
invested in securities or puts issued by the institution that issued the put.
The Tax- Exempt Portfolios' investment in Second Tier securities that are
conduit securities, which are municipal securities involving an agreement or
arrangement other than the issuer of the municipal security, that are not
subject to an unconditional demand feature, may not exceed 5% of the Portfolio's
total assets and the Portfolio's investment in such conduit securities issued by
any issuer may not exceed 1% of the Portfolio's total assets. Securities which
are rated in the highest short-term rating category by at least two Nationally
Recognized Statistical Rating Organizations ("NRSROs"), or if only one NRSRO has
assigned a rating, by that NRSRO, are "First Tier Securities". Securities rated
in the top two short-term rating categories by at least two NRSROs, but which
are not First Tier Securities are "Second Tier Securities." NRSROs include S&P,
Moody's, Fitch Investors Services, Inc., Duff and Phelps, Inc., IBCA Limited and
its affiliate IBCA Inc., and Thomson BankWatch, Inc. For a description of their
rating categories, see Appendix A.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value. "U.S. Government securities"
shall mean securities issued or guaranteed by the U.S. Government or any of its
agencies, authorities or instrumentalities.
TRUSTEES AND OFFICERS
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 Investment Company Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C> <C>
Ashok N. Bakhru, 53 Chairman Executive Vice President -
1325 Ave. of Americas & Trustee Finance and Administration
NY, NY 10019 and Administration Chief Financial Officer,
Officier, Coty Inc. (since April 1996); President, ABN
Associates (June 1994 to April 1996); Senior Vice Presient of
Scott Paper Company until June 1994;
</TABLE>
50
<PAGE>
Director of Arkwright Mutual
Insurance Company; Trustee of
International House of
Philadelphia; Member of Cornell
University Council; Trustee of
the Walnut Street Theater.
*David B. Ford, 51 Trustee Managing Director, Goldman
One New York Plaza Sachs (since 1996); General
New York, NY 10004 Partner, Goldman
Sachs (1986- 1996); Co-Head of
GSAM (since December 1994).
51
<PAGE>
NAME, AGE POSITIONS
PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- --------------------------- --------------------------- ----------------------
*John P. McNulty, 44 Trustee Managing Director, Goldman
One New York Plaza Sachs (since 1996); General
New York, NY 10004 Partner of Goldman Sachs (1990- 1994 and
1995-1996); Co-Head of GSAM (since November
1995); Limited Partner of Goldman Sachs
(1994 to November 1995).
*Mary P. McPherson, 60 Trustee President of Bryn Mawr College
Taylor Hall (since 1978); Director of Josiah
Bryn Mawr, PA 19010 Macy, Jr. Foundation (since 1977); Director
of the Philadelphia Contributionship (since
1985); Director of Amherst College (since
1986); Director of Dayton Hudson Corporation
(since 1988); Director of the Spencer
Foundation (since 1993); and member of PNC
Advisory Board (since 1993).
*Alan A. Shuch, 48 Trustee Limited Partner, Goldman Sachs
One New York Plaza (since 1994); Director and
New York, NY 10004 Vice President of Goldman Sachs Funds
Management, Inc. (from April 1990 to
November 1994); President and Chief
Operating Officer, GSAM (from September 1988
to November 1994).
Jackson W. Smart, 66 Trustee Chairman, Executive Committee, One
Northfield Plaza First Commonwealth, Inc. (a
#218 managed dental care company),
Northfield, IL 60093 (since January 1996); Chairman and Chief
Executive Officer, MSP Communications Inc.
(a company engaged in radio broadcasting)
(since November 1988); Director,
Federal Express Corporation (since 1976),
Evanston Hospital Corporation (since 1980),
First Commonwealth, Inc. (since 1988) and
North American Private Equity Group
52
<PAGE>
(a
venture capital fund).
William H. Springer, 67 Trustee Vice Chairman and Chief
701 Morningside Drive Financial and Administrative
Lake Forest, IL 60045 Officer of Ameritech (a telecommunications
holding company)(February 1987 to June
1991); Director, Walgreen Co. (a retail drug
store business); Director of Baker, Fentress
& Co. (a closed-end, management investment
company).
Richard P. Strubel, 57 Trustee Managing Director, Tandem
70 West Madison St. Partners, Inc. (since 1990);
Suite 1400 President and Chief Executive
Chicago, IL 60602 Officer, Microdot, Inc.
(a diversified manufacturer
of fastening systems and
connectors)(January 1984 to
October 1994).
*Douglas C. Grip, 35 Trustee Vice President, Goldman Sachs
One New York Plaza & President (since May 1996); President,
New York, NY 10004 MFS Retirement Services Inc.,
of Massachusetts Financial
Services(prior thereto).
*Scott M. Gilman, 37 Treasurer Director, Mutual Funds Admin-
One New York Plaza istration, GSAM (since April
New York, NY 10004 1994); Assistant Treasurer, Goldman Sachs
Funds Management, Inc. (since March 1993);
Vice President, Goldman Sachs (since March
1990).
*John M. Perlowski, 32 Assistant Vice President, Goldman Sachs
One New York Plaza Treasurer (since July 1995); Director,
New York, NY 10004 Investors Bank and Trust Company (November 1993 to
July 1995); Audit Manager of Arthur Andersen LLP
(prior thereto).
*John W. Mosior, 58 Vice Vice President, Goldman Sachs
4900 Sears Tower President and Manager of Shareholder
Chicago, IL 60606 Servicing of GSAM (since November 1989).
*Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs;
4900 Sears Tower President Manager of Shareholder Ser-
53
<PAGE>
Chicago, IL 60606 vicing of GSAM (since November 1989)
54
<PAGE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
*Michael J. Richman, 36 Secretary Associate General Counsel of
85 Broad Street GSAM (since February 1994);
New York, NY 10004 Vice President and Assistant General
Counsel of Goldman Sachs (since June
1992); Counsel to the Funds Group, GSAM
(since June 1992); Partner, Hale and Dorr
(September 1991 to June 1992).
*Howard B. Surloff, 31 Assistant Assistant General Counsel and
85 Broad Street Secretary Vice President, Goldman Sachs
New York, NY 10004 (since November 1993 and May 1994,
respectively ); Counsel to the Funds
Group, GSAM (since November 1993);
Associate of Shereff, Friedman, Hoffman &
Goodman (prior thereto).
*Valerie A. Zondorak, 31 Assistant Vice President, Goldman Sachs
85 Broad Street Secretary (since March 1997); Counsel to
New York, NY 10004 the Funds Group, GSAM (since
March 1997); Associate of Shereff
Friedman, Hoffman & Goodman
(prior thereto).
*Steven E. Hartstein, 33 Assistant Legal Products Analyst,
85 Broad Street Secretary Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer,
Citibank Global Asset Management (August
1991 to June 1993).
*Deborah Farrell, 25 Assistant Legal Assistant, Goldman
85 Broad Street Secretary Sachs (since January 1994).
New York, NY 10004 Formerly at Cleary Gottlieb,
Steen and Hamilton.
*Kaysie P. Uniacke, 36 Assistant Vice President and Senior
One New York Plaza Secretary Portfolio Manager, GSAM
New York, NY 10004 (since 1988).
*Elizabeth D.
Anderson, 27 Assistant Portfolio Manager, GSAM (since
One New York Plaza Secretary April 1996); Junior Portfolio
New York, NY 10004 Manager, GSAM (1995-1996);
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<PAGE>
Funds Trading Assistant, GSAM (1993-1995);
Compliance Analyst, Prudential Insurance
(1991-1993).
Each interested Trustee and officer holds comparable positions with
certain other investment companies of which Goldman Sachs, GSAM or an affiliate
thereof is the investment adviser, administrator and/or distributor. As of
_____________, 1997 the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding units of beneficial interest of each of the
Portfolios.
The Trust pays each of its Trustees, other than those who are "interested
persons" of Goldman Sachs a fee for each Trustee meeting attended and an annual
fee. Such Trustees are also reimbursed for travel expenses incurred in
connection with attending such meetings.
56
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended December 31,
1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Accrued from Goldman
Aggregate as Part of Sachs Funds
Compensation from Portfolios' (including the
Name of Trustee the Portfolios Expenses Portfolios)*
- --------------- ------------------ -------------------- ---------------
<S> <C> <C> <C>
Paul C. Nagel, Jr.** $18,150 $0 $62,450
Ashok N. Bakhru $22,729 $0 $69,299
Marcia L. Beck*** $0 $0 $0
David B. Ford $0 $0 $0
Alan A. Shuch $0 $0 $0
Jackson W. Smart $18,893 $0 $58,954
William H. Springer $18,893 $0 $58,954
Richard P. Strubel $18,893 $0 $58,954
</TABLE>
______________
* The Goldman Sachs Trust consisted of 36 mutual funds, including the
nine portfolios, on December 31, 1997.
** Retired as of June 30, 1996.
*** Resigned as President and Trustee of the Trust on May 1, 1996.
57
<PAGE>
THE ADVISER, DISTRIBUTOR AND
TRANSFER AGENT
THE ADVISER
GSAM, a separate operating division of Goldman Sachs, acts as the investment
adviser to the Portfolios. Under the Advisory Agreement between Goldman Sachs
on behalf of GSAM and the Trust on behalf of the Portfolios, GSAM, subject to
the supervision of the Board of Trustees of the Trust and in conformity with the
stated policies of each Portfolio, acts as investment adviser and directs the
investments of the Portfolios. In addition, GSAM administers the Portfolios'
business affairs and, in connection therewith, furnishes the Trust with office
facilities and (to the extent not provided by the Trust's custodian, transfer
agent, or other organizations) clerical recordkeeping and bookkeeping services
and maintains the financial and account records required to be maintained by the
Trust. As compensation for these services and for assuming expenses related
thereto, the Trust pays GSAM a fee, computed daily and paid monthly at an annual
rate of .35% of each Portfolio's average daily net assets. GSAM has agreed to
reduce or otherwise limit certain other expenses (excluding fees payable to
Service Organizations, taxes, interest, brokerage and litigation,
indemnification and other extraordinary expenses) of each Portfolio, on an
annualized basis, to .06% of the average daily net assets of the Treasury
Instruments, Money Market, Federal, Tax- Exempt Diversified and Tax-Exempt New
York Portfolios; and to .07% of the average daily net assets of the Prime
Obligations, Treasury Obligations, Government and Tax-Exempt California
Portfolios. The amount of such reductions or limits, if any, are calculated
monthly and are based on the cumulative difference between a Portfolio's
estimated annualized expense ratio and the expense limit for that Portfolio.
This amount shall be reduced by any prior payments related to the current fiscal
year. GSAM has also voluntarily agreed to waive a portion of its advisory fee
for the Treasury Instruments, Money Market, Federal, Tax-Exempt Diversified and
Tax- Exempt New York Portfolios during the fiscal year ended December 31, 1997.
The Trust, on behalf of each Portfolio, is responsible for all expenses other
than those expressly borne by GSAM under the Portfolios' Advisory Agreement.
The expenses borne by Units of each Portfolio include, without limitation, the
fees payable to GSAM, the fees and expenses of the Portfolios' custodian, fees
and expenses of the Portfolios' transfer agent, filing fees for the registration
or qualification of Units under federal or state securities laws, expenses of
the organization of the Portfolios, taxes (including income and excise taxes, if
any), interest, costs of liability insurance, fidelity bonds, indemnification or
58
<PAGE>
contribution, any costs, expenses or losses arising out of any liability of, or
claim for damages or other relief asserted against, the Portfolios for violation
of any law, legal and auditing and tax fees and expenses (including the cost of
legal and certain accounting services rendered by employees of Goldman Sachs
with respect to the Portfolios), expenses of preparing and setting in type
prospectuses, statements of additional information, proxy material, reports and
notices, the printing and distribution of the same to Unitholders and regulatory
authorities, its proportionate share of the compensation and expenses of its
"non-interested" Trustees, and extraordinary expenses incurred by the
Portfolios.
The Advisory Agreement entered into on behalf of the Portfolios was most
recently approved by the Board of Trustees, including the"non-interested"
Trustees, on April 23, 1997 and by the unitholders of each Portfolio (other than
the Treasury Instruments and Tax-Exempt New York Portfolios) on April 19, 1990
and by the unitholders of the Treasury Instruments and Tax-Exempt New York
Portfolios on June 3, 1991. The Advisory Agreement will remain in effect until
June 30, 1998, and will continue in effect thereafter only if such continuance
is specifically approved at least annually by a majority of the Trustees or by a
vote of a majority of the outstanding voting securities of the particular
Portfolio, as defined in the Investment Company Act, and, in either case, by a
majority of "non-interested" Trustees.
For the fiscal years ended December 31, 1997, December 31, 1996 and December
31, 1995 the amount of the advisory fee incurred by each Portfolio was as
follows:
1997 1996 1995
Prime Obligations Portfolio $5,185,990 $6,728,074
Money Market Portfolio 2,955,074 2,618,275
Treasury Obligations Portfolio 3,157,511 3,206,490
Treasury Instruments Portfolio 1,555,342 1,079,236
Government Portfolio 2,509,206 3,259,056
Federal Portfolio 5,426,430 4,543,196
Tax-Exempt Diversified Portfolio 3,850,742 3,795,451
Tax-Exempt California Portfolio 1,410,751 1,030,447
Tax-Exempt New York Portfolio 266,835 234,853
GSAM agreed not to impose a portion of its advisory fees for the fiscal years
ended December 31, 1997, December 31, 1996 and December 31, 1995 with respect to
the Money Market, Treasury Instruments, Federal, Tax-Exempt Diversified and Tax-
Exempt New
59
<PAGE>
York Portfolios. Had such fees been imposed, the following additional fees
would have been incurred for the periods indicated:
1997 1996 1995
Money Market Portfolio $ 492,512 $ 436,325
Treasury Instruments Portfolio 2,073,789 1,438,992
Federal Portfolio 4,069,823 3,407,655
Tax-Exempt Diversified Portfolio 1,540,297 1,518,129
Tax-Exempt New York Portfolio 92,366 109,464
In addition, GSAM assumed certain expenses related to the operations of each
Portfolio during various periods of 1997, 1996 and 1995 to the extent such
expenses would have caused each Portfolio's total expenses to exceed, on an
annualized basis, certain contractual or voluntary expense limitations. Had
these expenses not been assumed, the following additional expenses would have
been incurred for such years:
1997 1996 1995
---- ---- ----
Prime Obligations Portfolio $234,432 $347,317
Money Market Portfolio 243,590 135,715
Treasury Obligations Portfolio 212,886 203,882
Treasury Instruments Portfolio 220,794 223,652
Government Portfolio 231,536 276,785
Federal Portfolio 452,463 302,153
Tax-Exempt Diversified Portfolio 24,367 239,829
Tax-Exempt California Portfolio 22,092 19,625
Tax-Exempt New York Portfolio 16,029 32,403
The Advisory Agreement provides that GSAM shall not be liable to a Portfolio
for any error of judgment by GSAM or for any loss sustained by the Portfolio
except in the case of GSAM's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. Each Portfolio may use any name derived from the
name "Goldman Sachs" only so long as the Advisory Agreement remains in effect.
The Advisory Agreement also provides that it shall terminate automatically if
assigned and that it may be terminated with respect to any particular Portfolio
without penalty by vote of a majority of the Trustees or a majority of the
outstanding voting securities of that Portfolio on 60 days' written notice to
GSAM or by GSAM without penalty at any time on 90 days' written notice to the
Trust.
Under the Advisory Agreement, GSAM is also responsible for the administration
of each Portfolio's business affairs subject to the supervision of the Trustees
and, in connection therewith, furnishes each Portfolio with office facilities
and is responsible for ordinary clerical, recordkeeping and bookkeeping
60
<PAGE>
functions, to the extent not provided pursuant to the Portfolios' custodian
agreements; preparation and filing of documents required to comply with federal
and state securities laws; supervising the activities of the Portfolios'
custodian and transfer agent; providing assistance in connection with meetings
of the Trustees and unitholders; and other administrative services necessary to
conduct the Trust's business.
In managing the Tax-Exempt Diversified Portfolio, the Tax-Exempt California
Portfolio and the Tax-Exempt New York Portfolio, GSAM will draw upon the
extensive research generated by Goldman Sachs' Municipal Credit Group. The
Credit Group's research team continually reviews current information regarding
the issuers of municipal and other tax-exempt securities, with particular focus
on long-term creditworthiness, short-term liquidity, debt service costs,
liability structures, and administrative and economic characteristics.
THE DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs acts as principal underwriter and distributor of each
Portfolio's units. The Distribution Agreement between Goldman Sachs and the
Trust was most recently approved by the Trustees on April 23, 1997. Goldman
Sachs retained approximately $300 of commissions on redemptions of Class B
shares during 1996. Goldman Sachs also serves as the Portfolios' transfer
agent. Goldman Sachs provides customary transfer agency services to the
Portfolios, including the handling of unitholder communications, the processing
of unitholder transactions, the maintenance of unitholder account records,
payment of dividends and distributions and related functions. For these
services, Goldman Sachs receives .04% (on an annualized basis) of the average
daily net assets with respect to each Portfolio (other than the Prime
Obligations Portfolio). With respect to the Prime Obligations Portfolio,
Goldman Sachs is entitled to receive a fee from the Portfolio equal to the
classes proportionate share of the total transfer agency fees borne by the
Portfolio, which are equal to $12,000 per year plus $7.50 per account, together
with out-of-pocket expenses (including those out of pocket expenses payable to
servicing agents) applicable to ILA Class B and ILA Class C Units and .04% of
the average daily net assets of the other classes of the Prime Obligations
Portfolio. Goldman Sachs may from time to time agree that the fee it would
otherwise be entitled to receive under its transfer agency agreement will be
reduced.
For the fiscal years ended December 31, 1997, December 31, 1996 and December
31, 1995 the Portfolios incurred transfer agency fees as follows:
61
<PAGE>
1997 1996 1995
Prime Obligations Portfolio $592,685 $768,923
Money Market Portfolio 394,010 349,060
Treasury Obligations Portfolio 360,858 366,456
Treasury Instruments Portfolio 414,758 287,798
Government Portfolio 286,766 372,463
Federal Portfolio 1,085,286 908,708
Tax-Exempt Diversified Portfolio 616,119 607,252
Tax-Exempt California Portfolio 161,229 117,765
Tax-Exempt New York Portfolio 41,051 39,298
Goldman Sachs is one of the largest international investment banking firms in
the United States. Founded in 1869, Goldman Sachs is a major investment banking
and brokerage firm providing a broad range of financing and investment services
both in the United States and abroad. As of ___________, 1997, Goldman Sachs
and its consolidated subsidiaries had assets of approximately $___ billion and
partners' capital of $___ billion. Goldman Sachs became registered as an
investment adviser in 1981. As of ________, 1997, Goldman Sachs, together with
its affiliates, acted as investment adviser, administrator or distributor for
approximately $_____ billion in total assets.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
----------------------------------------------------------------------------
GOLDMAN SACHS. The involvement of the Adviser 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 limita- tion, the Adviser
and its 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 Portfolios and/or which engage in transactions in the
same types of securities, currencies and instruments as the Portfolios. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed-income markets, in each case on a proprietary basis and
for the accounts of customers. As such, Goldman Sachs and its affiliates are
actively engaged in transactions in the same securities, currencies, and
instruments in which the Portfolios invest. Such activities could affect the
prices and availability of the securities, currencies, and instruments in which
the Portfolios invest, which could have an adverse impact on each Portfolio's
performance. Such transactions, particularly in respect of proprietary accounts
or customer accounts other than those included in the Adviser's and its advisory
affiliates' asset management activities, will be executed independently of
62
<PAGE>
the Portfolios' transactions and thus at prices or rates that may be more or
less favorable. When the Adviser and its advisory affiliates seek to purchase or
sell the same assets for their managed accounts, including the Portfolios, the
assets actually purchased or sold may be allocated among the accounts on a basis
determined in its good faith discretion to be equitable. In some cases, this
system may adversely affect the size or the price of the assets purchased or
sold for the Portfolios.
From time to time, the Portfolios' 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 Adviser, and/or its affiliates, will
not initiate or recommend certain types of transactions in certain securities or
instruments with respect to which, or in securities of issuers for which, the
Adviser and/or its affiliates are performing services or when position limits
have been reached.
In connection with their management of the Portfolios, the Adviser may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Adviser will not be under
any obligation, however, to effect transactions on behalf of the Portfolios 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 Portfolios and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Portfolios. 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 Adviser in managing the Portfolios.
The results of each Portfolio's investment activities may differ significantly
from the results achieved by the Adviser and its 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
Portfolio. Moreover, it is possible that a Portfolio will sustain losses during
periods in which Goldman Sachs and its affiliates achieve significant profits on
their trading for proprietary or other accounts. The opposite result is also
possible.
An investment policy committee which may include partners of
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<PAGE>
Goldman Sachs and its affiliates may develop general policies regarding a
Portfolio's activities, but will not be involved in the day-to-day management of
such Portfolio. In such instances, those individuals may, as a result, obtain
information regarding the Portfolio'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 Portfolio invests.
In addition, certain principals and certain of the employees of the Adviser
are also principals or employees of Goldman Sachs or its 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 Adviser may enter into transactions and invest in instruments 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 Portfolios, and such party may have no incentive to assure
that the Portfolios 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 Portfolios invest or which may be based on the performance of a
Portfolio. The Portfolios 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 Portfolios. At times, these activities may cause departments of
the Firm to give advice to clients that may cause these clients to take actions
adverse to the interest of the client. To the extent affiliated transactions
are permitted, the Portfolios will deal with Goldman Sachs and its affiliates on
an arm's-length basis.
Each Portfolio will be required to establish business relationships with its
counterparties based on the Portfolio'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 Portfolio's establishment of its business
relationships, nor is it expected that a Portfolio's counterparties will rely on
the credit of Goldman Sachs or any of its affiliates in evaluating the
Portfolio's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates
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<PAGE>
may, but is not required to, purchase and hold shares of a Portfolio in order to
increase the assets of the Portfolio. Increasing a Portfolio's assets may
enhance investment flexibility and diversification and may contribute to
economies of scale that tend to reduce a Portfolio's expense ratio. Goldman
Sachs reserves the right to redeem at any time some or all of the shares of a
Portfolio acquired for its own account. A large redemption of shares of a
Portfolio by Goldman Sachs could significantly reduce the asset size of the
Portfolio, which might have an adverse effect on a Portfolio's investment
flexibility, portfolio diversification and expense ratio. Goldman Sachs will
consider the effect of redemptions on a Portfolio and other unitholders in
deciding whether to redeem its units.
PORTFOLIO TRANSACTIONS
GSAM places the portfolio transactions of the Portfolios and of all other
accounts managed by GSAM for execution with many firms. GSAM uses its best
efforts to obtain execution of portfolio transactions at prices which are
advantageous to each Portfolio and at reasonable competitive spreads or (when a
disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, GSAM will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the general
execution and operational capabilities of the firm, the reputation, reliability,
experience and financial condition of the firm, the value and quality of the
services rendered by the firm in this and other transactions, and the
reasonableness of the spread or commission, if any. Securities purchased and
sold by the Portfolios are generally traded in the over-the-counter market on a
net basis (i.e., without commission) through broker-dealers and banks acting for
their own account rather than as brokers, or otherwise involve transactions
directly with the issuer of such securities.
Goldman Sachs is active as an investor, dealer and/or underwriter in many
types of municipal and money market instruments. Its activities in this regard
could have some effect on the markets for those instruments which the Portfolios
buy, hold or sell. An order has been granted by the SEC under the Investment
Company Act which permits the Portfolios to deal with Goldman Sachs in
transactions in certain taxable securities in which Goldman Sachs acts as
principal. As a result, the Portfolios may trade with Goldman Sachs as
principal subject to the terms and conditions of such exemption.
65
<PAGE>
Under the Investment Company Act, the Portfolios are prohibited from
purchasing any instrument of which Goldman Sachs is a principal underwriter
during the existence of an underwriting or selling syndicate relating to such
instrument, absent an exemptive order (the order referred to in the preceding
paragraph will not apply to such purchases) or the adoption of and compliance
with certain procedures under such Act. The Trust has adopted procedures which
establish, among other things, certain limitations on the amount of debt
securities that may be purchased in any single offering and on the amount of the
Trust's assets that may be invested in any single offering. Accordingly, in view
of Goldman Sachs' active role in the underwriting of debt securities, a
Portfolio's ability to purchase debt securities in the primary market may from
time to time be limited.
In certain instances there may be securities which are suitable for more than
one Portfolio as well as for one or more of the other clients of GSAM.
Investment decisions for each Portfolio and for GSAM's other clients are made
with a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Portfolio is concerned.
Each Portfolio believes that over time its ability to participate in volume
transactions will produce better executions for the Portfolios.
During the fiscal year ended December 31, 1997, the Trust acquired and sold
securities of its regular broker/dealers: Bear Stearns, Chase Manhattan, Daiwa
Securities, Lehman, Morgan Stanley, Smith Barney Inc., Swiss Bank Corp. and
Union Bank of Switzerland.
As of December 31, 1997, the Prime Obligations Portfolio held the following
amounts of securities of its regular broker/dealers; as defined in Rule 10b-1
under the Investment Company Act, or their parents ($ in thousands): Chase
Manhattan ($______), Smith Barney ($______), Morgan Stanley ($______), and Swiss
Bank Corp. ($_____).
As of December 31, 1997, the Money Market Portfolio held the
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following amounts of securities of its regular broker/dealers; as defined in
Rule 10b-1 under the Investment Company Act, or their parents ($ in thousands):
Bear Stearns ($______), Morgan Stanley ($______), Chase Manhattan ($_______),
and Swiss Bank Corp. ($______).
As of December 31, 1997, the Treasury Obligations Portfolio held the following
amounts of securities of its regular broker/dealers; as defined in Rule 10b-1,
or their parents ($ in thousands): Bear Stearns Companies ($______), Daiwa
Securities ($______), Lehman ($______), Smith Barney Inc. ($______), Union Bank
of Switzerland ($______), Chase Manhattan ($_______), Morgan Stanley ($_______),
and Swiss Bank Corp. ($______).
As of December 31, 1997, the Government Portfolio held the following amounts
of securities of its regular broker/dealers; as defined in Rule 10b-1, or their
parents ($ in thousands): Bear Stearns Companies ($______), Daiwa Securities
($______), Lehman ($______), Morgan Stanley ($_______), Chase Manhattan
($_______), and Swiss Bank Corp. ($______).
NET ASSET VALUE
The net asset value per unit of each Portfolio is determined by the
Portfolios' custodian as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each Business Day. A Business
Day means any day on which the New York Stock Exchange is open, except for days
on which Chicago, Boston or New York banks are closed for local holidays. Such
holidays include: New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, the Fourth of July, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.
Each Portfolio's securities are valued using the amortized cost method of
valuation in an effort to maintain a constant net asset value of $ 1.00 per
unit, which the Board of Trustees has determined to be in the best interest of
the Portfolios and their unitholders. This method involves valuing a security
at cost on the date of acquisition and thereafter assuming a constant accretion
of a discount or amortization of a premium to maturity, regardless of the impact
of fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Portfolio would receive if it sold the instrument. During such periods, the
yield to an investor in a Portfolio may differ somewhat from that obtained in a
similar investment company which uses available market quotations to value all
of its portfolio securities. During periods of declining interest rates, the
quoted yield on units of a Portfolio may tend to be
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higher than a like computation made by a fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by a Portfolio resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield if he or she purchased units of the Portfolio on that day, than
would result from investment in a fund utilizing solely market values, and
existing investors in the Portfolio would receive less investment income. The
converse would apply in a period of rising interest rates.
The Trustees have established procedures designed to stabilize, to the extent
reasonably possible, each Portfolio's price per unit as computed for the purpose
of sales and redemptions at $1.00. Such procedures include review of each
Portfolio by the Trustees, at such intervals as they deem appropriate, to
determine whether the Portfolio's net asset value calculated by using available
market quotations (or an appropriate substitute which reflects market
conditions) deviates from $1.00 per unit based on amortized cost, as well as
review of methods used to calculate the deviation. If such deviation exceeds
1/2 of 1%, the Trustees will promptly consider what action, if any, will be
initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
unitholders, they will take such corrective action as they regard to be
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of units in kind; or establishing a net
asset value per unit by using available market quotations or equivalents. In
addition, in order to stabilize the net asset value per unit at $1.00 the
Trustees have the authority (1) to reduce or increase the number of units
outstanding on a pro rata basis, and (2) to offset each unitholder's pro rata
portion of the deviation between the net asset value per unit and $1.00 from the
unitholder's accrued dividend account or from future dividends. Each Portfolio
may hold cash for the purpose of stabilizing its net asset value per unit.
Holdings of cash, on which no return is earned, would tend to lower the yield on
such Portfolio's units.
In order to continue to use the amortized cost method of valuation for each
Portfolio's investments, the Portfolios must comply with Rule 2a-7. See
"Investment Restrictions."
The proceeds received by each Portfolio for each issue or sale of its units,
and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Portfolio
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and constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the books of account, and will be charged
with the liabilities in respect to such Portfolio and with a share of the
general liabilities of the Trust. Expenses with respect to the Portfolios are to
be allocated in proportion to the net asset values of the respective Portfolios
except where allocations of direct expenses can otherwise be fairly made. In
addition, within each Portfolio, ILA Units, ILA Administration Units, ILA
Service Units and ILA Class B and Class C Units (Prime Obligations Portfolio
only) will be subject to different expense structures (see "Organization and
Capitalization").
REDEMPTIONS
The Trust may suspend the right of redemption of units of a Portfolio and may
postpone payment for any period: (i) during which the New York Stock Exchange is
closed other than customary weekend and holiday closings or during which trading
on the New York Stock Exchange is restricted, (ii) when the SEC determines that
a state of emergency exists which may make payment or transfer not reasonably
practicable, (iii) as the SEC may by order permit for the protection of the
unitholders of the Trust or (iv) at any other time when the Trust may, under
applicable laws and regulations, suspend payment on the redemption of the
Portfolio's units.
The Trust agrees to redeem units of each Portfolio solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio during any 90-
day period for any one unitholder. The Trust reserves the right to pay other
redemptions, either total or partial, by a distribution in kind of securities
(instead of cash) from the applicable Portfolio's portfolio. The securities
distributed in such a distribution would be valued at the same value as that
assigned to them in calculating the net asset value of the units being redeemed.
If a unitholder receives a distribution in kind, he or she should expect to
incur transaction costs when he or she converts the securities to cash.
CALCULATION OF YIELD QUOTATIONS
Each Portfolio's yield quotations are calculated by a standard method
prescribed by the rules of the SEC. Under this method, the yield quotation is
based on a hypothetical account having a balance of exactly one unit at the
beginning of a seven-day period.
Yield, effective yield and tax-equivalent yield are calculated separately for
each class of units of a Portfolio. Each type of unit is subject to different
fees and expenses and may have differing yields for the same period.
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The yield quotation is computed as follows: the net change, exclusive of
capital changes (i.e., realized gains and losses from the sale of securities and
unrealized appreciation and depreciation), in the value of a hypothetical pre-
existing account having a balance of one unit at the beginning of the base
period is determined by dividing the net change in account value by the value of
the account at the beginning of the base period. This base period return is then
multiplied by 365/7 with the resulting yield figure carried to the nearest 100th
of 1%. Such yield quotation shall take into account all fees that are charged to
a Portfolio.
Each Portfolio also may advertise a quotation of effective yield for a 7-
calendar day period. Effective yield is computed by compounding the
unannualized base period return determined as in the preceding paragraph by
adding 1 to that return, raising the sum to the 365/7 power and subtracting one
from the result, according to the following formula:
Effective Yield = [(base period return + 1)365/7] - 1
The Tax-Exempt Diversified, Tax-Exempt California, Tax-Exempt New York,
Federal and Treasury Instruments Portfolios may also advertise a tax-equivalent
yield which is computed by dividing that portion of a Portfolio's yield (as
computed above) which is tax-exempt by one minus a stated income tax rate and
adding the quotient to that portion, if any, of the yield of the Portfolio that
is not tax-exempt.
Unlike bank deposits or other investments which pay a fixed yield or return
for a stated period of time, the return for a Portfolio will fluctuate from time
to time and does not provide a basis for determining future returns. Return is
a function of portfolio quality, composition, maturity and market conditions as
well as of the expenses allocated to each Portfolio. The return of a Portfolio
may not be comparable to other investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate return.
The yield, effective yield and tax-equivalent yield of each Portfolio with
respect to ILA Units, ILA Administration Units, ILA Service Units and ILA Class
B Units for the seven-day period ended December 31, 1997 were as follows:
Tax-
Effective Equivalent
Yield Yield Yield
----- ----- -----
Prime Obligations Portfolio:
ILA Units 5.12 5.25 N/A
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Tax-
Effective Equivalent
Yield Yield Yield
----- ----- -----
ILA Administration Units 4.97 5.10 N/A
ILA Service Units 4.72 4.85 N/A
ILA Class B Units 4.12 4.25 N/A
Money Market Portfolio:
ILA Units 5.20 5.33 N/A
ILA Administration Units 5.05 5.18 N/A
ILA Service Units 4.80 4.93 N/A
Treasury Obligations Portfolio:
ILA Units 5.19 5.32 N/A
ILA Administration Units 5.04 5.17 N/A
ILA Service Units 4.79 4.92 N/A
Treasury Instruments Portfolio:
ILA Units 4.84 4.95 N/A
ILA Administration Units 4.69 4.80 N/A
ILA Service Units 4.44 4.55 N/A
Government Portfolio:
ILA Units 5.19 5.32 N/A
ILA Administration Units 5.04 5.17 N/A
ILA Service Units 4.79 4.92 N/A
Federal Portfolio:
ILA Units 5.15 5.28 N/A
ILA Administration Units 5.00 5.13 N/A
ILA Service Units 4.75 4.88 N/A
Tax-Exempt Diversified Portfolio:
ILA Units 3.58 3.64 5.93
ILA Administration Units 3.43 3.49 5.68
ILA Service Units 3.18 3.24 5.26
Tax-Exempt California Portfolio***:
ILA Units 3.47 3.53 5.75
ILA Administration Units 3.32 3.38 5.50
ILA Service Units** 3.07 3.13 5.08
Tax-Exempt New York Portfolio*
ILA Units 3.52 3.58 5.83
ILA Administration Units 3.37 3.43 5.58
ILA Service Units** 3.12 3.18 5.17
- -------------------------
* 6.39%, 6.12% and 5.67% for the ILA Units, ILA Administration Units and
ILA Service Units, respectively, when taking New York State taxes into
account, and 6.72%, 6.43% and 5.96%, respectively, when taking New York City
taxes into account.
** Assuming such Units had been outstanding and were subject to maximum
administration or service fees.
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*** 6.48%, 6.20% and 5.73% for the ILA Units, ILA Administration Units and ILA
Service Units, respectively, when taking California State taxes into
account.
The information set forth in the foregoing table reflects certain fee
reductions and expense limitations voluntarily agreed to by the Adviser. See
"The Adviser, Distributor and Transfer Agent." In the absence of such fee
reductions and expense limitations, the yield of each Portfolio for the same
period would have been as follows:
Tax-
Effective Equivalent
Yield Yield Yield
------- ----- ------
Prime Obligations Portfolio
ILA Units 5.10 5.23 N/A
ILA Administration Units 4.95 5.08 N/A
ILA Service Units 4.70 4.83 N/A
ILA Class B Units 4.10 4.23 N/A
Money Market Portfolio
ILA Units 5.15 5.28 N/A
ILA Administration Units 5.00 5.13 N/A
ILA Service Units 4.75 4.88 N/A
Treasury Obligations Portfolio
ILA Units 5.16 5.30 N/A
ILA Administration Units 5.01 5.15 N/A
ILA Service Units 4.76 4.90 N/A
Treasury Instruments Portfolio
ILA Units 4.62 4.73 N/A
ILA Administration Units 4.47 4.58 N/A
ILA Service Units 4.22 4.33 N/A
Government Portfolio
ILA Units 5.16 5.30 N/A
ILA Administration Units 5.01 5.15 N/A
ILA Service Units 4.76 4.90 N/A
Federal Portfolio
ILA Units 4.99 5.11 N/A
ILA Administration Units 4.84 4.96 N/A
ILA Service Units 4.59 4.71 N/A
Tax-Exempt Diversified Portfolio
ILA Units 3.48 3.54 5.76
ILA Administration Units 3.33 3.39 5.51
ILA Service Units 3.08 3.14 5.10
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Tax-Exempt California Portfolio***
ILA Units 3.47 3.53 5.75
ILA Administration Units 3.32 3.38 5.50
ILA Service Units** 3.07 3.13 5.08
Tax-Exempt New York Portfolio*
ILA Units 3.42 3.48 5.66
ILA Administration Units 3.27 3.33 5.41
ILA Service Units** 3.02 3.08 5.00
- ------------------------------------
* 6.21%, 5.94% and 5.48% for the ILA Units, ILA Administration Units and ILA
Service Units, respectively, when taking New York State taxes into account,
and 6.53%, 6.24% and 5.77%, respectively, when taking New York City taxes
into account.
** Assuming such Units had been outstanding and were subject to maximum
administration or service fees.
*** 6.48%, 6.20% and 5.73% for the ILA Units, ILA Administration Units and ILA
Service Units, respectively, when taking the California State Taxes into
account.
The quotations of tax-equivalent yield set forth above for the seven-day
period ended December 31, 1997 are based on a federal marginal tax rate of
39.6%.
With respect to the Tax-Exempt California Portfolio, the California top
marginal State personal income tax rate of 9.30% is being assumed in addition to
the 39.6% federal tax rate, for a combined tax rate of 46.42%. With respect to
the Tax-Exempt New York Portfolio, the tax equivalent yields are being shown
under three scenarios. The first scenario assumes a federal marginal tax rate
of 39.6%, the second scenario assumes a New York top marginal State personal
income tax rate of 6.85%, for a combined effective tax rate of 44.94%. The
third scenario assumes a New York City top marginal personal income tax rate of
4.46% in addition to the above federal and New York State tax rates, for a
combined effective tax rate of 47.63%. The combined tax rates assume full
deductibility of state and, if applicable, city taxes in computing federal tax
liability.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed or recommended 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 form a part of
such an asset allocation strategy. Such advertisements and information may also
include a discussion of GSAM's current economic outlook and domestic and
international market views and recommend periodic tactical modifications to
current asset
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allocation strategies. Such advertisements and information may
include other material which highlight or summarize the services provided in
support of an asset allocation program.
From time to time any Portfolio may publish an indication of
its past performance as measured by independent sources such as (but not limited
to) Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Money, Morningstar Mutual Funds, Micropal, Personal
Investor, Sylvia Porter's Personal Finance, and The Wall Street Journal.
The Trust may also advertise information which has been provided to the NASD
for publication in regional and local newspapers. In addition, the Trust may
from time to time advertise a Portfolio's performance relative to certain
indices and benchmark investments, including (without limitation): inflation and
interest rates, certificates of deposit (CDs), money market deposit accounts
(MMDAs), checking accounts, savings accounts and repurchase agreements. The
Trust may also compare a Portfolio's performance with that of other mutual funds
with similar investment objectives.
The composition of the investments in such mutual funds, comparative indices
and the characteristics of such benchmark investments are not identical to, and
in some cases are very different from, those of a Portfolio. 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 a Fund to
calculate its performance data.
A Portfolio's performance data will be based on historical results and is not
intended to indicate future performance. A Portfolio's performance will vary
based on market conditions, portfolio expenses, portfolio investments and other
factors. Return for a Portfolio will fluctuate unlike certain bank deposits or
other investments which pay a fixed yield or return.
The Trust may also, at its discretion, from time to time make a list of a
Portfolio's holdings available to investors upon request. The Trust may from
time to time summarize the substance of discussions contained in shareholder
reports in advertisements and publish the Adviser's views as to markets, the
rationale for a Fund's investments and discussions of a Fund's current holdings.
In addition, from time to time, quotations from articles from financial and
other publications, such as those listed above, may be used in advertisements,
sales literature and in reports to unitholders.
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TAX INFORMATION
Each Portfolio has qualified and has elected or intends to qualify and elect
to be treated and to qualify as a separate regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code").
Such qualification does not involve supervision of management or investment
practices or policies by any governmental agency or bureau.
In order to qualify as a regulated investment company, each Portfolio must,
among other things, (a) derive at least 90% of its gross income for the taxable
year from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or certain other
investments (the "90% Test"); (b) derive less than 30% of its gross income for
the taxable year from the sale or other disposition of stock or securities or
certain other investments held less than three months; and (c) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of the Portfolio's total gross assets is represented by
cash and cash items (including receivables), U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to an amount not greater in value than 5% of the
value of the Portfolio's total assets and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of the
Portfolio's total (gross) assets is invested in the securities (other than U.S.
Government securities and securities of other regulated investment companies) of
any one issuer or two or more issuers controlled by the Portfolio and engaged in
the same, similar or related trades or businesses. For purposes of these
requirements, participation interests will be treated as securities, and the
issuer will be identified on the basis of market risk and credit risk associated
with any particular interest. Certain payments received with respect to such
interests, such as commitment fees and certain facility fees, may not be treated
as income qualifying under the 90% test.
Each Portfolio, as a regulated investment company, will not be subject to
federal income tax on any of its net investment income and net realized capital
gains that are distributed to unitholders with respect to any taxable year in
accordance with the Code's timing and other requirements, provided that the
Portfolio distributes at least 90% of its investment company taxable income
(generally, all of its net taxable income other than "net capital gain," which
is the excess of net long-term capital gain over net short-term capital loss)
for such year and, in the case of any Portfolio that earns tax-exempt interest,
at
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least 90% of the excess of the tax-exempt interest it earns over certain
disallowed deductions. A Portfolio will be subject to federal income tax at
regular corporate rates on any investment company taxable income or net capital
gain that it does not distribute for a taxable year. In order to avoid a non-
deductible 4% federal excise tax, each Portfolio 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 all taxable ordinary income and
the excess of capital gains over capital losses for the previous year that were
not distributed in such year and on which the Portfolio paid no federal income
tax.
Dividends paid by a Portfolio from taxable net investment income (including
income attributable to accrued market discount and a portion of the discount on
certain stripped tax-exempt obligations and their coupons) and the excess of net
short-term capital gain over net long-term capital loss will be treated as
ordinary income in the hands of unitholders. Such distributions will not
qualify for the corporate dividends-received deduction. Dividends paid by a
Portfolio from the excess of net long-term capital gain (if any) over net short-
term capital loss are taxable to unitholders as long-term capital gain,
regardless of the length of time the units of a Portfolio have been held by such
unitholders, and also will not qualify for the corporate dividends-received
deduction. A Portfolio's net realized capital gains for a taxable year are
computed by taking into account realized capital losses, including any capital
loss carryforward of that Portfolio.
Distributions paid by the Tax-Exempt Diversified, Tax-Exempt California and
Tax-Exempt New York Portfolios from tax-exempt interest received by them and
properly designated as "exempt- interest dividends" will generally be exempt
from regular federal income tax, provided that at least 50% of the value of the
applicable Portfolio's total assets at the close of each quarter of its taxable
year consists of tax-exempt obligations, i.e., obligations described in Section
- -
103(a) of the Code (not including units of other regulated investment companies
that may pay exempt-interest dividends, because such units are not treated as
tax-exempt obligations for this purpose). Dividends paid by the other
Portfolios from any tax-exempt interest they may receive will not be tax-exempt,
because they will not satisfy the 50% requirement described in the preceding
sentence. A portion of any tax-exempt distributions attributable to interest on
certain "private activity bonds," if any, received by a Portfolio may constitute
a tax preference items and may give rise to, or increase liability under, the
alternative minimum tax for particular unitholders. In addition, tax-exempt
distributions of the Portfolios may be considered in computing the "adjusted
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current earnings" preference item of their corporate unitholders in determining
the corporate alternative minimum tax. To the extent that the Tax-Exempt
Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios invest in
certain short-term instruments, including repurchase agreements, the interest on
which is not exempt from Federal income tax, or earn other taxable income any
distributions of income from such investments or other taxable income will be
taxable to unitholders as ordinary income. All or substantially all of any
interest on indebtedness incurred directly or indirectly to purchase or carry
units of the Portfolio will generally not be deductible. The availability of
tax-exempt obligations and the value of the Portfolios may be affected by
restrictive tax legislation enacted in recent years.
In purchasing municipal obligations, the Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios 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 and, where
applicable, the tax-exempt nature of such interest under the personal income tax
laws of a particular state. These Portfolios do not undertake independent
investigations concerning the tax-exempt status of such obligations, nor do they
guarantee or represent that bond counsels' opinions are correct.
Distributions of net investment income and net realized capital gains will be
taxable as described above, whether received in units or in cash. Unitholders
electing to receive distributions in the form of additional units will have a
cost basis in each unit so received equal to the amount of cash they would have
received had they elected to receive cash.
Certain Portfolios may be subject to foreign withholding taxes or other
foreign taxes with respect to their investments in certain securities of foreign
entities. These taxes may be reduced or eliminated under the terms of
applicable U.S. income tax treaties in some cases, and each Portfolio intends to
satisfy any procedural requirements to qualify for benefits under these
treaties. Although no Portfolio anticipates that more than 50% of the value of
its total assets at the close of a taxable year will be composed of securities
of foreign corporations, if the 50% requirement were satisfied by a portfolio,
that a Portfolio could make an election under Code Section 853 to permit its
unitholders to claim a credit or deduction on their federal income tax returns
for their pro rata portion of qualified taxes paid by that Portfolio in foreign
countries. In the event such an election is made, unitholders will be required
to include their pro rata share of such taxes in gross income and may be
entitled to claim a foreign tax credit or deduction with respect to such taxes,
subject to certain limitations under the Code. Unitholders who are precluded
from taking such credits or
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deductions will nevertheless be taxed on their pro rata share of the foreign
taxes included in their gross income, unless they are otherwise exempt from
federal income tax.
Each Portfolio will be required to report to the Internal Revenue Service all
taxable distributions, except in the case of certain exempt unitholders. Under
the backup withholding provisions of Code Section 3406, all such distributions
may be subject to withholding of federal income tax at the rate of 31% in the
case of nonexempt unitholders who fail to furnish the Portfolio with their
taxpayer identification number and with certain certifications required by the
Internal Revenue Service or if the Internal Revenue Service or a broker notifies
a Portfolio that the number furnished by the unitholder is incorrect or that the
unitholder is subject to backup withholding as a result of failure to report
interest or dividend income. However, any taxable distributions from the Tax-
Exempt Diversified, Tax-Exempt California and Tax-Exempt New York Portfolios
will not be subject to backup withholding if the applicable Portfolio reasonably
estimates that at least 95% of its distributions will be exempt-interest
dividends. The Portfolios may refuse to accept an application that does not
contain any required taxpayer identification number or certification that the
number provided is correct, if applicable, or that the investor is an exempt
recipient. If the withholding provisions are applicable, any such distributions,
whether taken in cash or reinvested in units, will be reduced by the amounts
required to be withheld. Investors may wish to consult their tax advisers about
the applicability of the backup withholding provisions.
Redemptions (including exchanges) and other dispositions of units in
transactions that are treated as sales for tax purposes will generally not
result in taxable gain or loss, provided that the Portfolios successfully
maintain a constant net asset value per share, but a loss may be recognized to
the extent a CDSC is imposed on the redemption or exchange of ILA Class B or
Class C Units. All or a portion of such a loss may be disallowed under
applicable code provisions in certain circumstances. Unitholders should consult
their own tax advisors with reference to their circumstances to determine
whether a redemption, exchange, or other disposition of Portfolio Units is
properly treated as a sale for tax purposes.
All distributions (including exempt-interest dividends) whether received in
units or cash, must be reported by each unitholder who is required to file a
federal income tax return. The Portfolios will inform unitholders of the federal
income tax status of their distributions after the end of each calendar year,
including, in the case of the Tax-Exempt Diversified, Tax-Exempt California and
Tax-Exempt New York Portfolios, the amounts that qualify as exempt-interest
dividends and any portions of
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such amounts that constitute tax preference items under the federal alternative
minimum tax. Unitholders who receive exempt-interest dividends and have not held
their units of the applicable Portfolio for its entire taxable year may have
designated as tax-exempt or as a tax preference item a percentage of their
distributions which is not exactly equal to a proportionate share of the amount
of tax- exempt interest or tax preference income earned during the period of
their investment in such Portfolio. Each unitholder should consult his or her
own tax advisor to determine the tax consequences of an investment in a
Portfolio in the unitholder's own state and locality.
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. Unitholders should consult their tax advisers for more
information.
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.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Each unitholder who is not a U.S. person should consult his or
her tax adviser regarding the U.S. and non-U.S. tax consequences of ownership of
units of a Portfolio, including the possibility that such a unitholder may be
subject to a U.S. nonresident alien withholding tax at a rate of 30% (or at a
lower rate under an applicable U.S. income tax treaty) on certain distributions
from a Portfolio and, if a current IRS Form W-8 or acceptable substitute is not
on file with the Portfolio, may be subject to backup withholding on certain
payments.
STATE AND LOCAL
The Portfolios may be subject to state or local taxes in jurisdictions in
which the Portfolios may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of a Portfolio
and its unitholders under such laws may differ from their treatment under
Federal income tax laws, and an investment in the Portfolios may have tax
consequences for unitholders that are different from those of a direct
investment in the Portfolios' securities. Unitholders should consult their own
tax advisers concerning these matters. For example, in such states or localities
it may be appropriate for unitholders to review with their tax advisers the
state income and, if applicable, intangible property tax consequences of
investments by the Portfolios in securities issued by the
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particular state or the U.S. Government or its various agencies or
instrumentalities, because many states (i) exempt from personal income tax
distributions made by regulated investment companies from interest on
obligations of the particular state or on direct U.S. Government obligations
and/or (ii) exempt from intangible property tax the value of the units of such
companies attributable to such obligations, subject to certain state-specific
requirements and/or limitations. See also the discussion below of these
applicable provisions in California and New York.
Provided that the Portfolios qualify as regulated investment companies and
incur no federal income tax liability, the Portfolios may still be subject to
New York State and City minimum taxes, which are small in amount.
California State Taxation. The following discussion of California tax law
assumes that the Tax-Exempt California Portfolio will be qualified as a
regulated investment company under Subchapter M of the Code and will be
qualified thereunder to pay exempt-interest dividends. The Tax-Exempt
California Portfolio intends to qualify for each taxable year under California
law to pay "exempt interest dividends" which will be exempt from the California
personal income tax.
Individual unitholders of the Tax-Exempt California Portfolio who reside in
California will not be subject to California personal income tax on
distributions received from the Portfolio to the extent such distributions are
exempt-interest dividends attributable to interest on obligations the interest
on which is exempt from California personal income tax provided that the
Portfolio satisfies the requirement of California law that at least 50% of its
assets at the close of each quarter of its taxable year be invested in such
obligations and properly designates such exempt-interest dividends under
California Law. Distributions from the Tax-Exempt California Portfolio which are
attributable to sources other than those described in the second preceding
sentence will generally be taxable to such unitholders as ordinary income.
Moreover, California legislation which incorporates Subchapter M of the Code
provides that capital gain dividends may be treated as long-term capital gains.
Such gains are currently subject to personal income tax at ordinary income tax
rates. Capital gains that are retained by the Portfolio will be taxed to that
Portfolio, and California residents will receive no California personal income
tax credit for such tax. Distributions other than exempt-interest dividends are
includable in income subject to the California alternative minimum tax.
Distributions from investment income and long-term and short-term capital
gains will generally not be excluded from taxable income in determining
California corporate franchise taxes for corporate unitholders and will be
treated as ordinary
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dividend income for such purposes. In addition, such distributions may be
includable in income subject to the alternative minimum tax.
Interest on indebtedness incurred or continued by unitholders to purchase or
carry units of the Tax-Exempt California Portfolio will not be deductible for
California personal income tax purposes.
In addition, any loss realized by a unitholder of the Tax-Exempt California
Portfolio upon the sale of units held for six months or less may be disallowed
to the extent of any exempt-interest dividends received with respect to such
units. Moreover, any loss realized upon the redemption of units within six
months from the date of purchase of such units and following receipt of a long-
term capital gains distribution will be treated as long-term capital loss to the
extent of such long-term capital gains distribution. Finally, any loss realized
upon the redemption of units within thirty days before or after the acquisition
of other units of the same Portfolio may be disallowed under the "wash sale"
rules.
New York City and State Taxation. Individual unitholders who are residents of
New York State will be able to exclude for New York State income tax purposes
that portion of the exempt-interest dividends properly designated as such from
the Tax-Exempt New York Portfolio which is derived from interest on obligations
of New York State and its political subdivisions and obligations of Puerto Rico,
the U.S. Virgin Islands and Guam. Exempt- interest dividends may be properly
designated as such only if, as anticipated, at least 50% of the value of the
assets of the Portfolio are invested at the close of each quarter of its taxable
year in obligations of issuers the interest on which is excluded from gross
income for federal income tax purposes. Individual unitholders who are
residents of New York City will also be able to exclude such income for New York
City income tax purposes. Interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares of the Tax-Exempt New York Portfolio is
not deductible for New York State or New York City personal income tax purposes.
Long-term capital gains, if any, that are distributed by the Tax-Exempt New
York Portfolio and are properly designated as capital gain dividends will be
treated as capital gains for New York State and City income tax purposes in the
hands of New York State and New York City residents
Unitholders should consult their tax advisers about the application of the
provisions of tax law described in this Statement of Additional Information in
light of their particular tax situations.
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This discussion of the tax treatment of the Portfolio and its unitholders is
based on the tax laws in effect as of the date of this Statement of Additional
Information.
ORGANIZATION AND CAPITALIZATION
The Portfolios were reorganized from series of a Massachusetts business Trust
as part of Goldman Sachs Trust, a Delaware business trust, by a Declaration of
Trust dated January 28, 1997 on April 30, 1997.
The Act requires that where more than one class or series of units 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. The Trustees
also have authority to classify and reclassify any series of units into one or
more classes of units. As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of up to three classes of
units of each of the Portfolios: ILA Units, ILA Administration Units and ILA
Service Units. In addition, the Trustees have authorized a fourth and fifth
class of units, ILA Class B Units and ILA Class C Units, with respect to the
Prime Obligations Portfolio. The Trustees have also authorized Cash Management
Shares of the Prime Obligations Portfolio, Money Market Portfolio, Government
Portfolio, Tax-Exempt Diversified Portfolio, Tax-Exempt California Portfolio and
Tax-Exempt New York Portfolio.
Each ILA Unit, ILA Administration Unit, ILA Service Unit, ILA Class B Unit,
ILA Class C Unit and Cash Management Share of a Portfolio represents an equal
proportionate interest in the assets belonging to that Portfolio. It is
contemplated that most units (other than ILA Class B or Class C Units) will be
held in accounts of which the record owner is a bank or other institution
acting, directly or through an agent, as nominee for its customers who are the
beneficial owners of the units or another organization designated by such bank
or institution. ILA Class B and Class C Units generally are only issued upon
exchange from Class B or Class C Shares, respectively, of other Funds of the
Goldman Sachs mutual funds. ILA Units may be purchased for accounts held in the
name of an investor or institution that is not compensated by the Trust for
services provided to the institution's investors. ILA Administration Units may
be purchased for accounts held in the name of an investor or an institution that
provides certain account administration services to its customers, including
maintenance of account records and processing orders to purchase, redeem and
exchange ILA Administration Units. ILA Administration Units of each Portfolio
bear the cost of administration fees at the annual rate of up to .15 of 1% of
the average daily net assets of such Units. ILA
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Service Units may be purchased for accounts held in the name of an institution
that provides certain account administration and unitholder liaison services to
its customers, including maintenance of account records, processing orders to
purchase, redeem and exchange ILA Service Units, responding to customer
inquiries and assisting customers with investment procedures. ILA Service Units
bear the cost of service fees at the annual rate of up to .40 of 1% of the
average daily net assets of such Units. ILA Class B Units of the Prime
Obligations Portfolio are sold subject to a contingent deferred sales charge of
up to 5.0% and ILA Class C Units are sold subject to a contingent deferred sales
charge of 1.0% if redeemed within 12 months of purchase. ILA Class B and Class C
Units are sold 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. ILA Class B and Class C
Units bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of
up to 0.75% of the average daily net assets attributable to ILA Class B and
Class C Units, respectively. ILA Class B and Class C Units also bear the cost of
an Authorized Dealer Service Plan at an annual rate of up to 0.25% of the
average daily net assets of the Prime Obligations Portfolio attributable to ILA
Class B and Class C Units. Cash Management Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
and shareholder liaison services to its customers, including maintenance of
account records, processing orders to purchase, redeem and exchange Cash
Management Shares, responding to customer inquiries and assisting customers with
investment procedures. Cash Management Shares bear the cost of service fees at
the annual rate of up to .50 of 1% of the average daily net assets of such
shares. Cash Management Shares also bear the cost of distribution (Rule 12b-1)
fees at an annual rate of .50% of the average daily net assets attributable to
Cash Management Shares.
It is possible that an institution or its affiliates may offer different
classes of units to its customers and thus receive different compensation with
respect to different classes of units of the same Portfolio. In the event a
Portfolio is distributed by salespersons or any other persons, they may receive
different compensation with respect to different classes of units of the
Portfolio. ILA Administration Units, ILA Service Units, ILA Class B Units, ILA
Class C Units and Cash Management Shares each have certain exclusive voting
rights on matters relating to their respective plans. Units of each class may
be exchanged only for Units of the same class in another Portfolio or, in the
case of the Prime Obligations Portfolio, shares of the corresponding class of
certain other mutual funds sponsored by Goldman Sachs. Except as described
above, the six classes of units are identical. Certain aspects of the Units may
be altered, after advance notice to unitholders, if it is deemed
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necessary in order to satisfy certain tax regulatory requirements.
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 units 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 directors from the separate voting requirements of Rule 18f-
2.
When issued units are fully paid and non-assessable. In the event of
liquidation, unitholders are entitled to share pro rata in the net assets of the
applicable class of the relevant Portfolio available for distribution to such
unitholders. All units entitle their holders to one vote per unit, are freely
transferable and have no preemptive subscription or conversion rights.
The Trust is not required to hold annual meetings of unitholders and does not
intend to hold such meetings. In the event that a meeting of unitholders is
held, each unit of the Trust will be entitled, as determined by the Trustees,
either to one voter for each unit or to one vote for each dollar of net asset
value represented by such units on all matters presented to unitholders
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. Unitholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of unitholders 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 units entitled to vote at
such meetings. The unitholders 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
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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 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.
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
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Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Prime Obligations Portfolio were Duquesne Capital
Management, Inc., 2579 Washington Rd. Ste. 322, Pittsburgh, PA 15241-2563
(____%); GS Capital Partners, L.P., 85 Broad Street, 10th Floor, New York, NY
10004-2434 (____%); and United Missouri Bank of Kansas City, PO Box 419692,
Kansas City 64141-6692 (____%).
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Money Market Portfolio were Bank of New York, 48 Wall
Street, New York, NY 10286 (_____%) and Stone Street & Bridge Street Funds, 85
Broad Street, 4th Floor, New York, NY 10004-2434 (____%).
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Treasury Obligations Portfolio were Bank of New York
(NCD), 1 Wall Street, 5th Floor, New York, NY 10286-0001 (_____%); Bank One
Investment Advisors Corp., PO Box 710211, Columbus, OH, 43271-0211 (____%); and
First National Bank of Omaha, PO Box 3128, Omaha, NE 68103-0128 (_____%).
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Treasury Instruments Portfolio were Bank of New York
(NCD), 1 Wall Street, 5th Floor, New York, NY 10286-0001 (_____%); Emerald
Partners, 237 Park Avenue Ste. 801, New York, NY 10017-3142 (____%); Mid-
America Bank of Louisville, PO Box 1101, Louisville, KY 40201 (____%); and
Morgan Stanley, 2 No. LaSalle Street, Ste. 500, Chicago, IL 60602 (____%).
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Government Portfolio were Comerica Bank, PO Box 55-519,
Detroit, MI 48255-0499 (____%); Morgan Stanley, 2 No. LaSalle Street, Ste. 500,
Chicago, IL 60602 (_____%); Northern Trust, 50 South LaSalle Street, Chicago, IL
60675 (____%); United Missouri Bank of Kansas City, PO Box 419692, Kansas City,
MO 64141-6692 (____%); and Wells Fargo Bank, 26610 Agoura Rd., Calabasas, CA
91302-1954 (____%).
As of _____________, the only holders of record of 5% or more of the
outstanding units of the Tax-Exempt New York Portfolio were Acker Accounts, PO
Box 800, New York, NY 10960 (____%); Bank of New York, 48 Wall Street, New York,
NY 10286 (_____%); Marine Midland Bank, PO Box 4203, Buffalo, NY 14240
(____%); and Spears Benzak, 45 Rockefeller, 33rd Floor, New York, NY (____%).
As of _____________, the only holders of record of 5% or
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more of the outstanding units of the Federal Portfolio were Bank of New York, 48
Wall Street, New York, NY 10286 (_____%); and Hillard Lyons Trust Co., PO Box
32760, Louisville, KY 40232-2760 (____%).
UNITHOLDER AND TRUSTEE LIABILITY
Under Delaware law, the unitholders of the Portfolios 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 unitholder liability exists
in many other states. As a result, to the extent that a Delaware business trust
or a unitholder 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 unitholders to liability. To guard against this risk, the
Declaration of Trust contains express disclaimer of unitholder liability for
acts or obligations of a Portfolio. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
Portfolio or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Portfolio for all loss suffered by a unitholder as a result of
an obligation of the Portfolio. The Declaration of Trust also provides that a
Portfolio shall, upon request, assume the defense of any claim made against any
unitholder for any act or obligation of the Portfolio and satisfy any judgment
thereon. In view of the above, the risk of personal liability of unitholders is
remote.
In addition to the requirements set forth under the Declaration of Trust, the
Trust provides that unitholders may bring a derivative action on behalf of the
Trust only if the following conditions are met: (a) unitholders eligible to
bring such derivative action under Delaware law who hold at least 10% of the
outstanding units of the Portfolio, or 10% of the outstanding units 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 unitholder request and to investigate the basis of such
claim. The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Unitholders making such request to reimburse the Portfolio for the expense of
any such 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
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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.
CUSTODIAN AND SUBCUSTODIAN
State Street Bank and Trust Company ("State Street") has been retained to act
as custodian of the Portfolios' assets. In
that capacity, State Street maintains the accounting records and calculates the
daily net asset value per unit of the Portfolios. Its mailing address is P.O.
Box 1713, Boston, MA 02105. State Street has appointed The Northern Trust
Company, 50 South LaSalle Street, Chicago, Illinois 60675 as subcustodian to
hold cash and certain securities purchased by the Trust.
INDEPENDENT ACCOUNTANTS
________________________, independent public accountants,
______________________________________, have been selected as auditors of the
Trust. In addition to audit services, ______ ____________ prepares the Trust's
federal and state tax returns, and provides consultation and assistance on
accounting, internal control and related matters.
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SERVICE AND DISTRIBUTION PLANS
SERVICE PLAN
The Trust, on behalf of each Portfolio, has adopted a service plan (the
"Plan") with respect to the Cash Management Shares, which authorizes the
Portfolios to compensate Service Organizations for providing certain account
administration and personal and account maintenance services to their customers
who are or may become beneficial owners of such Shares. Pursuant to the Plan,
the Trust, on behalf of each Portfolio, enters into agreements with Service
Organizations which purchase Cash Management 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, or
arrange for another party to act as the recordholder and nominee for customers
who beneficially own Cash Management Shares of a Portfolio, (b) maintain account
records for customers who beneficially own Cash Management Shares, (c) answer
questions and handle correspondence from customers regarding their accounts, (d)
process customer orders to purchase, redeem [and exchange] Cash Management
Shares, and handle the transmission of funds representing the customers'
purchase price or redemption proceeds, (e) issue confirmations for transactions
in Shares by customers, (f) provide facilities to answer questions from
prospective and existing investors about Cash Management Shares, (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, (j) act as liaison
between customers and the Trust, including obtaining information from the Trust,
working with the Trust to correct errors and resolve problems and providing
statistical and other information to the Trust, (k) provide services to
customers intended to facilitate or improve their understanding of the benefits
and risks of a Portfolio, (l) facilitate 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, (m) facilitate electronic or computer trading and/or processing
in a Portfolio or providing electronic, computer or other database information
regarding a Portfolio to Customers, and (n) develop, maintain and support
systems necessary to support Cash Management Shares. As compensation for such
services, the Trust on behalf of each Portfolio pays each Service Organization a
service fee in an amount up to .50% (on an annual basis) of the average daily
net assets of the Cash Management Shares of each Portfolio
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attributable to or held in the name of such Service Organization for its
customers; provided, however, that the fee paid for personal and account
maintenance services shall not exceed .25% of such average daily net assets.
No Cash Management Shares were outstanding as of the fiscal year ended
December 31, 1997.
The Trust has adopted the Plan pursuant to Rule 12b-l under the Investment
Company Act in order to avoid any possibility that payments to the Service
Organizations pursuant to the Service Agreements might violate the Investment
Company Act. Rule 12b-l, which was adopted by the Securities and Exchange
Commission under the Investment Company Act, regulates the circumstances under
which an investment company such as the Trust may bear expenses associated with
the distribution of its securities. In particular, such an investment company
cannot engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of securities 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 Cash Management Shares. However, should such
payments be deemed by a court or the Securities and Exchange Commission to be
distribution expenses, such payments would be duly authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
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. 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
Trust, 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 Cash Management Shares automatically pursuant to pre-authorized
instructions, for example, effecting such transactions on a manual basis might
affect the size and/or growth of the Portfolios. In addition, state securities
laws on this issue may differ from the interpretations of federal law expressed
herein and banks and other financial institutions purchasing Cash Management
Shares on behalf of their customers may be required to register as dealers
pursuant to state law. Any such alteration or discontinuance of services could
require the Trustees of the Trust to consider changing the Trust's method of
operations or providing alternative means of offering Cash
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Management Shares to customers of such Service Organizations, in which case the
operation of the Trust, its size and/or its growth might be significantly
altered. It is not anticipated, however, that any alteration of the Trust's
operations would have any effect on the net asset value per unit or result in
financial losses to any unitholder.
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 the Trust in connection with the investment of fiduciary
funds in Cash Management Shares. 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 Securities and Exchange Commission,
the Department of Labor or state securities regulators are urged to consult
legal advisers before investing fiduciary assets in Cash Management Shares.
DISTRIBUTION PLAN
As described in the Prospectus, the Trust has also adopted, on behalf of each
Portfolio, a distribution plan (the "Distribution Plan") pursuant to Rule 12b-1
under the Investment Company Act with respect to Cash Management Shares. See
"Distribution Plan" in the Prospectus.
The compensation payable under the Distribution Plan with respect to each
Portfolio may not exceed 0.50% per annum of the average daily net assets
attributable to Cash Management Shares of that Portfolio. Currently, Goldman
Sachs is limiting the fee payable by each Portfolio to 0.__% of average daily
net assets attributable to Cash Management Shares. Goldman Sachs has no current
intention of modifying or discontinuing such waivers and limitation, but may do
so in the future at its discretion.
Goldman Sachs may pay up to the entire amount of its fee under the
Distribution Plan to Service Organizations or other institutions for providing
services in connection with the sale of each Portfolio's Cash Management Shares.
To the extent such fee is not paid to Service Organizations or institutions,
Goldman Sachs may retain such fee as compensation for its services and expenses
incurred in accordance with the Distribution Plan of distributing a Portfolio's
Cash Management Shares. If such fee exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements.
The Distribution Plan is a compensation plan which provides for the payment of
a specified distribution fee without regard to the distribution expenses
actually incurred by Goldman Sachs. If
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the Distribution Plan were terminated by the Trust's Board of Trustees and no
successor plan were adopted, a Portfolio would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures. [However, Goldman
Sachs does not intent to make expenditures for which it may be compensation
under the Distribution Plan at a rate that materially exceeds the rate of
compensation received under the Plan.]
BOTH PLANS
The Trustees of the Trust, 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 Service Plan and the Distribution Plan (the
"Plans") or the related Service Agreements, voted to approve the Plans and
Service Agreements at a meeting called for the purpose of voting on such Plans
and Service Agreements on April __, 1998. They will remain in effect until
___________, 1999, and will continue in effect thereafter only if such
continuance is specifically approved annually by a vote of the Trustees in the
manner described above. The Plans may not be amended to increase materially the
amount to be spent thereunder without approval of the Cash Management
shareholders of the affected Portfolio, and all material amendments of the Plans
must also be approved by the Trustees in the manner described above. The Plans
may be terminated at any time by a majority of the Trustees as described above
or by vote of a majority of the outstanding Cash Management Shares of the
affected Portfolio. The Service Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Trustees as
described above or by a vote of a majority of the outstanding Cash Management
Shares of the affected Portfolio on not more than 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 shall be
determined by the discretion of the Trust's Nominating Committee, which consists
of all of the non-interested members of the Board of Trustees. The Trustees
have determined that, in their judgment, there is a reasonable likelihood that
the Plans will benefit the Portfolios and holders of Cash Management Shares of
such Portfolios. The Trustee will review, at least quarterly, a written report
of the services provided and amounts expended under the Plans and the purposes
for which such services were performed and expenditures were made.
92
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
MOODY'S INVESTORS SERVICE, INC.
Bond Ratings
- ------------
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A categories.
The modifier 1 indicates that the obligation ranks in the higher end of the
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of the respective category.
Short-Term Ratings
- ------------------
- ------------------
The ratings indicated herein are believed to be the most recent
ratings available at the date of this Statement of Additional Information for
the securities listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of the portfolios taxable year end.
A-1
<PAGE>
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 or
repayment ability will often be evidenced by many of the following
characteristics:
. Leading market positions in well established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
. Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of 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.
State and Municipal Obligations
- -------------------------------
Moody's ratings for state and municipal short-term obligations will be
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.
Symbols used will be as follows:
MIG 1/VMIG 1 -- This designation denotes best quality enjoying strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
A short-term rating may also be assigned on an issue having a demand feature-
variable rate demand obligation. Such ratings will be designated as VMIG to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and
A-2
<PAGE>
payment relying on external liquidity. Additionally, investors should be alert
to the fact that the source of payment may be limited to the external liquidity
with no or limited legal recourse to the issuer in the event the demand is not
met.
STANDARD & POOR'S RATINGS GROUP
Bond Ratings
- ------------
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.
PLUS (+) OR MINUS (-): The AA and A ratings may be modified by the addition
of a plus or minus sign to show relative standing within the category.
Short-Term Ratings
- ------------------
A-1: A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. 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: A short-term obligation rated A-2 is 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.
MUNICIPAL NOTES
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes maturing in 3 years or less will likely
receive a note rating.
A-3
<PAGE>
Note rating symbols are as follows:
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus (+)
designation.
SP-2 -- Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols
are used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
DUFF & PHELPS, INC.
Bond Ratings
- ------------
AAA: The highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
Duff & Phelps applies modifiers, + and -, in the AA and A categories for long-
term fixed income securities. The modifier + indicates that the security ranks
in the higher end of the category: the modifier AA or A indicates a mid-range
ranking; and the modifier - indicates that the issue ranks in the lower end of
the category.
Short-Term Ratings
- ------------------
D-1: Commercial paper and certificates of deposit rated
A-4
<PAGE>
Duff 1 are considered to have a very high certainty of timely payment. Liquidity
factors are excellent and are supported by good fundamental protection factors.
Risk factors are minor.
D-2: Commercial paper and certificates of deposit rated Duff 2 are considered
to have a good certainty of timely payment. Liquidity factors and company
fundamentals are considered sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good and risk factors
are small.
Duff & Phelps applies a plus and minus rating scale, D-1+ , D- 1 and D-1- in
the Duff 1 top grade category for short-term debt. The rating D-1+ indicates
that the security has the highest certainty of timely payment, short-term
liquidity, including internal operating fators and/or ready access to
alternative sources of funds, is clearly outstanding and safety is just below
risk-free U.S. Treasury short-term obligations; the rating D-1 indicates a very
high certainty of timely payment, liquidity factors are excellent and are
supported by good fundamental protection factors and risk factors are minimal;
and the rating D- 1- indicates a high certainty of timely payment, liquidity
factors are strong and are supported by good fundamental protection factors and
risk factors are very small.
FITCH IBCA, INC.
AAA: Bonds which are rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong capacity
for timely payment of financial commitments, which is unlikely to be adversely
affected by reasonably foreseeable events.
AA: Bonds which are rated AA are considered to be investment grade and of
very high credit quality. These ratings denote a very low expectation of
investment risk and indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: Bonds which are rated A are considered to be investment grade and of high
credit quality. These ratings denote a low expectation of investment risk and
indicate strong capacity for timely payment of financial commitments.
Fitch IBCA applies plus (+) and minus (-) modifiers in the AA and A categories
to indicate the relative position of a credit within the rating category.
Fitch IBCA's short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most
A-5
<PAGE>
obligations or up to three years for U.S. public finance securities.
F1: Short-term debt obligations rated F-1 are considered to be of highest
credit quality. Those issues determined to possess exceptionally strong credit
quality and having the strongest capacity for timely payment may be denoted with
a plus ("+") sign designation.
F2: Short-term debt obligations rated F-2 are considered to be of good credit
quality. Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitment, but the margin of safety is not as great as for
issues assigned F1 ratings.
IBCA LIMITED AND IBCA INC.
A1: Short-term obligations rated A1 are supported by the highest capacity for
timely repayment. Where issues possess a particularly strong credit feature a
rating of A1+ is assigned.
A2: Short-term obligations rated A2 are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
THOMSON BANKWATCH, INC.
AAA: The highest category; indicates an extremely high ability to repay
principal and interest on a timely basis.
AA: The second highest category; 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: The third highest category; indicates 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.
Ratings from AAA through A may include a plus (+) or minus (-) designation which
indicates where within the respective category the issue is placed.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less.
A-6
<PAGE>
TBW-1: The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2: The second highest category; 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.
A-7
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Not Applicable
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A as initially filed (Reference A); to
Pre-Effective Amendment No. 1 to such Registration Statement (Reference B);
to Post-Effective Amendment No. 1 to such Registration Statement (Reference
C); to Post-Effective Amendment No. 2 to such Registration Statement
(Reference D); to Post-Effective Amendment No. 4 to such Registration
Statement (Reference F); to Post-Effective Amendment No. 12 to such
Registration Statement (Reference M); to Post-Effective Amendment No. 14 to
such Registration Statement (Reference O); to Post-Effective Amendment No.
15 to such Registration Statement (Accession No. 0000950130-95-002856); to
Post-Effective Amendment No. 16 to such Registration Statement (Reference
Q); to Post-Effective Amendment No. 17 to such Registration Statement
(Reference R); to Post-Effective Amendment No. 19 to such Registration
Statement (Reference T); to Post-Effective Amendment No. 20 to such
Registration Statement (Reference U); to Post-Effective Amendment No. 21 to
such Registration Statement (Reference V); to Post-Effective Amendment No.
23 to such Registration Statement (Reference X); to Post-Effective
Amendment No. 24 to such Registration Statement (Reference Y); to Post-
Effective Amendment No. 25 to such Registration Statement (Accession No.
0000950130-95-000628); to Post-Effective Amendment No. 26 to such
Registration Statement (Accession No. 0000950130-95-002856); to Post-
Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931); 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. 33 to such
Registration Statement (Accession No. 0000950130-97-0001867); 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. 0000-950130-98-000676)
The following exhibits are incorporated herein by reference to Goldman
Sachs Equity Portfolios, Inc.'s Registration Statement on Form N-1A as
initially filed (Reference A*); to
<PAGE>
Post-Effective Amendment No. 1 to such Registration Statement filed on
September 28, 1990 (Reference C*); to Post-Effective Amendment No. 9 to
such Registration Statement filed on April 1, 1993 (Reference G*); to Post-
Effective Amendment No. 11 to such Registration Statement filed on March
31, 1994 (Reference I*); to Post-Effective Amendment No. 14 to such
Registration Statement filed on November 30, 1995 (Reference L*); to Post-
Effective Amendment No. 16 to such Registration Statement filed on March
31, 1995 (Reference M*); and Post-Effective Amendment No. 17 to such
Registration Statement filed on May 31, 1995 (Reference N*).
The following exhibits are incorporated herein by reference to Goldman
Sachs Money Market Trust's Registration Statement on Form N-1A as filed.
Post-Effective Amendment No. 17 to Registrant's Registration Statement on
Form S-5 (Reference B**); to Registrant's Proxy Statement dated May 6, 1981
(Reference C**); to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (Reference E**); to Post-Effective
Amendment No. 26 to Registrant's Registration Statement on Form N-1A
(Reference F**); to Post-Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A (Reference I**); to Post-Effective
Amendment No. 35 to Registrant's Registration Statement on Form N-1A
(Reference J**); to Post-Effective Amendment No. 36 to Registrant's
Registration Statement on Form N-1A (Reference K**); to Post-Effective
Amendment No. 38 to Registrant's Registration Statement on Form N-1A
(Reference M**); to Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A (Reference N**); to Post-Effective
Amendment No. 40 to Registrant's Registration Statement on Form N-1A
(Reference O**); to Post-Effective Amendment No. 41 to Registrant's
Registration Statement on Form N-1A (Reference P**); to Post-Effective
Amendment No. 43 to Registrant's Registration Statement on Form N-1A
(Reference R**); to Post-Effective Amendment No. 44 to Registrant's
Registration Statement on Form N-1A (Reference S**); to Post-Effective
Amendment No. 46 to Registrant's Registration Statement on Form N-1A
(Reference U**); to Post-Effective Amendment No. 51 to Registrant's
Registration Statement on Form N-1A (Reference Z**); and to Post-Effective
Amendment No. 54 to Registrant's Registration Statement on Form N-1A
(Reference AA**).
1(a). Agreement and Declaration of Trust. (Accession No. 0000950130-
97-000573)
1(b). Amendment No. 1 to Agreement and Declaration of Trust.
(Accession No. 0000950130-97-004495)
1(c). Amendment No. 2 to Agreement and Declaration of Trust.
(Accession No. 0000950130-97-004495)
2
<PAGE>
1(d). Amendment No.3 dated January 28, 1997 to the Agreement and
Declaration of Trust. (Accession No. 0000950130-98-000676)
1(e). 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)
2. By-laws of the Delaware business trust. (Accession No.
0000950130-97-000573)
3. Not applicable.
4. Not applicable.
5(a). 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)
5(b). 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)
5(c). 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)
5(d). 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)
5(e). Management Agreement dated January 28, 1998 on behalf of the
Registrant and Goldman Sachs Asset Management, Goldman Sachs
Funds Management L.P. and Goldman Sachs Asset Management
International. (Accession No. 0000950130-98-000676)
5(f). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs Asset
Management. (Accession No. 0000950130-98-000676)
5(g). 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)
3
<PAGE>
6. Distribution Agreement dated April 30, 1997 as amended October
21, 1997 between Registrant and Goldman, Sachs & Co. (Accession
No. 0000950130-97-004495)
7. Not applicable.
8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Accession No. 0000950130-95-002856)
8(b). Wiring Agreement among State Street Bank and Trust Company,
Goldman, Sachs & Co. and The Northern Trust Company. (Reference
B)
8(c). Fee schedule relating to the Custodian Agreement between
Registrant and State Street Bank and Trust Company. (Reference
C)
8(d). 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)
8(e). Letter Agreement between Registrant and State Street Bank and
Trust pertaining to the latter's designation of Security Pacific
National Bank as its sub-custodian and certain other matters.
(Reference C)
8(f). Amendment dated August, 1989 to the Wiring Agreement among State
Street Bank and Trust Company, Goldman, Sachs & Co. and The
Northern Trust Company relating to the indemnification of The
Northern Trust Company. (Reference D)
9(a). Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Accession No. 0000950130-95-002856)
9(b). Fee schedule relating to the Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. (Reference B)
9(c). 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)
10. Opinion of Drinker Biddle and Reath. (Accession No. 0000950130-
97-004495)
4
<PAGE>
10(a). Opinion of Morris, Nichols, Arsht & Tunnell - (Accession No.
0000950130-97-001846).
12. Not applicable.
13. Subscription Agreement with Goldman, Sachs & Co. (Reference B)
14. Not applicable.
15(a). Class A Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
15(b). Class B Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
15(c). Class C Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998. (Accession No. 0000950130-98-000676)
16. Schedule for Computation of Performance Data. (Reference V)
18(a). Plan entered into by Registrant pursuant to Rule 18f-3.
(Accession No. 0000950130-95-000628)
19. Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Sringer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805)
19(a). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-
98-000676)
The following exhibit relating to Goldman Sachs Trust is filed herewith
electronically pursuant to EDGAR rules:
5(b). Advisory Agreement between Registrant and Goldman, Sachs & Co.,
filed as Exhibit A.
5(d). Consent dated June 20, 1987 to change in duties under the Advisory
Agreement and Distribution Agreement between Registrant and Goldman,
Sachs & Co.
5(i). Consent pursuant to paragraph 1 of each Advisory Agreement and
Distribution Agreement regarding Treasury Instruments, Tax-Exempt
New Jersey and Tax-Exempt New York Portfolio
5
<PAGE>
8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company, filed as Exhibit 1(e)
8(b). Letter-agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company pertaining to the fees payable
by Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(c) .
8(c). Amendment dated May 28, 1981 to the Custodian Agreement referred to
above as Exhibit 8(a)
8(d). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire charges
under the Custodian Agreement, filed as Exhibit 8(f)
8(f). Letter Agreement dated March 28, 1983 between Registrant and State
Street Bank and Trust Company pertaining to the latter's designation
of Bank of America, N.T. and S.A. as its subcustodian and certain
other matters, filed as Exhibit 8(d)
8(g). Letter Agreement dated March 21, 1985 between Registrant and State
Street Bank and Trust Company pertaining to the creation of a joint
repurchase agreement account, filed as Exhibit 8(g)
8(h). Letter Agreement dated November 7, 1985, with attachments, between
Registrant and State Street Bank and Trust Company authorizing State
Street Bank and Trust Company to permit redemption of units by
check, filed as Exhibit 8(h)
8(i). Money Transfer Services Agreement dated November 14, 1985, including
attachment, between Registrant and State Street Bank and Trust
Company pertaining to transfers of funds on deposit with State
Street Bank and Trust Company, filed as Exhibit 8(i)
8(j). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company amending the Custodian Agreement
Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire charges
8(k). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust Company
8(l). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company amending the
6
<PAGE>
Custodian Agreement
8(m). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company
8(n). Letter Agreement between Registrant and State Street Bank and Trust
Company pertaining to the latter's designation of Security Pacific
National Bank as its sub-custodian and certain other matters
8(o). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company .
8(p). Amendment dated September 15, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company
15(d). Form of Distribution Plan Pursuant to Rule 12b-1 for Cash Management
Shares.
15(e). Form of Service Plan for Cash Management Shares .
17(k). Letter Agreement dated May 1, 1998 between Registrant and State
Street Bank and Trust Company amending the Custodian Agreement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
--------------------------------
Number of
Title of Class Record Holders
- -------------- --------------
Treasury Obligations Portfolio
ILA Units 726
ILA Administration Units 82
ILA Service Units 5
Treasury Instruments Portfolio
ILA Units 297
ILA Administration Units 31
ILA Service Units 7
Federal Portfolio
ILA Units 2,891
ILA Administration Units 581
ILA Service Units 109
Government Portfolio
ILA Units 1,397
ILA Administration Units 62
ILA Service Units 5
Prime Obligations Portfolio
7
<PAGE>
ILA Class A 27
ILA Units 749
ILA Class B 108
ILA Class C 20
ILA Administration Units 80
ILA Service Units 588
Money Market Portfolio
ILA Units 724
ILA Administration Units 894
ILA Service Units 3
Tax-Exempt Diversified Portfolio
ILA Class A 53
ILA Units 2,477
ILA Administration Units 19
ILA Service Units 16
Tax-Exempt California Portfolio
ILA Units 976
ILA Administration Units 1
ILA Service Units 1
Tax-Exempt New York Portfolio
ILA Units 241
ILA Administration Units 61
ILA Service Units 1
Financial Square Treasury Obligations Fund
FST Shares 372
FST Administration Shares 113
FST Service Shares 639
FST Preferred Shares 6
Financial Square Prime Obligations Fund
FST Shares 432
FST Administration Shares 177
FST Service Shares 296
FST Preferred Shares 8
Financial Square Government Fund
FST Shares 233
FST Administration Shares 204
FST Service Shares 91
FST Preferred Shares 6
Financial Square Money Market Fund
FST Shares 529
FST Administration Shares 293
FST Service Shares 151
FST Preferred Shares 21
Financial Square Tax-Free Money Market Fund
FST Shares 290
FST Administration Shares 46
FST Service Shares 77
FST Preferred Shares 4
Financial Square Treasury Instruments Fund
FST Shares 138
FST Administration Shares 10
FST Service Shares 7
FST Preferred Shares 1
Financial Square Federal Fund
8
<PAGE>
FST Shares 223
FST Administration Shares 43
FST Service Shares 151
FST Preferred Shares 6
Financial Square Municipal Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Premium Money Market Fund
FST Shares 39
FST Administration Shares 2
FST Service Shares 2
FST Preferred Shares 2
Goldman Sachs Short Duration Government Fund
Class A 107
Class B 37
Class C 24
Institutional Shares 342
Administration Shares 52
Service Shares 3
Goldman Sachs Adjustable Rate Government Fund
Class A 406
Institutional Shares 421
Administration Shares 20
Service Shares 2
Goldman Sachs Short Duration Tax-Free Fund
Class A 101
Class B 12
Class C 10
Institutional Shares 129
Administration Shares 3
Service Shares 0
Goldman Sachs Core Fixed Income Fund
Class A 273
Class B 92
Class C 52
Institutional Shares 217
Administration Shares 50
Service Shares 2
Goldman Sachs Global Income Fund
Class A 3,322
Class B 391
Class C 75
Institutional Shares 51
Service Shares 4
Goldman Sachs Government Income Fund
Class A 1,483
Class B 461
Class C 106
9
<PAGE>
Institutional Shares 5
Service Shares 1
Goldman Sachs Municipal Income Fund
Class A 1,599
Class B 74
Class C 19
Institutional Shares 2
Service Shares 1
Goldman Sachs High Yield Fund
Class A 1,650
Class B 567
Class C 213
Institutional Shares 0
Service Shares 0
Goldman Sachs Capital Growth Fund
Class A 37,639
Class B 3,149
Class C 397
Institutional Shares 10
Service Shares 5
Goldman Sachs CORE U.S. Equity Fund
Class A 17,004
Class B 3,996
Class C 340
Institutional Shares 33
Service Shares 8
Goldman Sachs Small Cap Value Fund
Class A 21,605
Class B 4,014
Class C 497
Institutional Shares 10
Service Shares 5
Goldman Sachs International Equity Fund
Class A 28,731
Class B 5,489
Class C 279
Institutional Shares 50
Service Shares 12
Goldman Sachs Growth and Income Fund
Class A 58,617
Class B 19,916
Class C 1,687
Institutional Shares 36
Service Shares 15
Goldman Sachs Asia Growth Fund
Class A 9,297
Class B 733
Class C 93
Institutional Shares 8
Service Shares 3
Goldman Sachs Balanced Fund
Class A 6,578
Class B 1,524
Class C 392
10
<PAGE>
Institutional Shares 11
Service Shares 6
Goldman Sachs Mid Cap Equity Fund
Class A 3,338
Class B 1,982
Class C 406
Institutional Shares 43
Service Shares 6
Goldman Sachs CORE Large Cap Growth Fund
Class A 1,812
Class B 901
Class C 204
Institutional Shares 17
Service Shares 7
Goldman Sachs Emerging Markets Equity Fund
Class A 160
Class B 16
Class C 16
Institutional Shares 13
Service Shares 5
Goldman Sachs CORE Small Cap Equity Fund
Class A 761
Class B 424
Class C 181
Institutional Shares 11
Service Shares 5
Goldman Sachs CORE International Equity Fund
Class A 589
Class B 278
Class C 114
Institutional Shares 12
Service Shares 5
Goldman Sachs Real Estate Securities Fund
Class A 0
Class B 0
Class C 0
Institutional Shares 0
Service Shares 0
Goldman Sachs Income Strategy Portfolio
Class A 37
Class B 19
Class C 10
Institutional Shares 1
Service Shares 1
Goldman Sachs Growth & Income Strategy Portfolio
Class A 168
Class B 109
Class C 61
Institutional Shares 2
Service Shares 1
Goldman Sachs Growth Strategy Portfolio
Class A 181
Class B 99
11
<PAGE>
Class C 57
Institutional Shares 2
Service Shares 1
Goldman Sachs Aggressive Growth Strategy Portfolio
Class A 71
Class B 50
Class C 31
Institutional Shares 1
Service Shares 1
(Information supplied as of February 1, 1998)
ITEM 27. INDEMNIFICATION
---------------
Article III of the Declaration of Trust of Goldman Sachs Trust, the Delaware
business trust, provides for indemnification of the Trustees, offices and agents
of the Trust, subject to certain limitations. The Declaration of Trust is filed
as Exhibit 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 wilful 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 filed as Exhibits 5(a) through 5(g);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997 and Section 7 of the Transfer Agency Agreement between the
Registrant and Goldman, Sachs & Co. dated July 15, 1991 each provides that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of such Agreements were filed as Exhibits 6 and 9(a), respectively, to the
Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity
Portfolios, Inc., Trust for Credit Unions, The Benchmark Funds, Goldman Sachs
Variable Insurance Trust and The Commerce Funds and Goldman, Sachs & Co. insure
such persons and their respective trustees, partners, officers and employees,
subject to the policies' coverage limits and exclusions and varying deductibles,
against loss resulting from claims by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty.
12
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the text of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently
serves as investment adviser and distributor of the units of 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 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
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The 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
13
<PAGE>
documents required to be maintained under Section 31(a) of the Investment
Company Act of 1940 and the Rule promulgated thereunder are in the physical
possession of State Street Bank and Trust Company, P.O. Box 1713, Boston,
Massachusetts 02105 except for certain transfer agency records which are
maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 32. UNDERTAKINGS
------------
(a) The Portfolios undertake to furnish each person to whom a prospectus is
delivered with the latest Annual Report.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registration Statement has duly caused this Post-
Effective Amendment No. 43 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and State of
New York on the 2nd day of March, 1998.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: Michael J. Richman
------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the 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 March 2, 1998
Douglas C. Grip
*Scott M. Gilman Principal Accounting
--------------- Officer And Principal
Scott M. Gilman Financial Officer March 2, 1998
*David B. Ford Trustee March 2, 1998
-------------
David B. Ford
*Mary Patterson McPherson Trustee March 2, 1998
------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Trustee March 2, 1998
---------------
Ashok N. Bakhru
*Alan A. Shuch Trustee March 2, 1998
-------------
Alan A. Shuch
*Jackson W. Smart Trustee March 2, 1998
----------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee March 2, 1998
---------------
John P. McNulty
*William H. Springer Trustee March 2, 1998
-------------------
William H. Springer
*Richard P. Strubel Trustee March 2, 1998
------------------
Richard P. Strubel
Richard P. Strubel March 2, 1998
</TABLE>
*By:Michael J. Richman
------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
15
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
5(b). Advisory Agreement between Registrant and Goldman, Sachs & Co.,
filed as Exhibit A.
5(d). Consent dated June 20, 1987 to change in duties under the Advisory
Agreement and Distribution Agreement between Registrant and Goldman,
Sachs & Co.
5(i). Consent pursuant to paragraph 1 of each Advisory Agreement and
Distribution Agreement regarding Treasury Instruments, Tax-Exempt
New Jersey and Tax-Exempt New York Portfolio
8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company, filed as Exhibit 1(e)
8(b). Letter-agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company pertaining to the fees payable
by Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(c) .
8(c). Amendment dated May 28, 1981 to the Custodian Agreement referred to
above as Exhibit 8(a)
8(d). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire charges
under the Custodian Agreement, filed as Exhibit 8(f)
8(f). Letter Agreement dated March 28, 1983 between Registrant and State
Street Bank and Trust Company pertaining to the latter's designation
of Bank of America, N.T. and S.A. as its subcustodian and certain
other matters, filed as Exhibit 8(d)
8(g). Letter Agreement dated March 21, 1985 between Registrant and State
Street Bank and Trust Company pertaining to the creation of a joint
repurchase agreement account, filed as Exhibit 8(g)
8(h). Letter Agreement dated November 7, 1985, with attachments, between
Registrant and State Street Bank and Trust Company authorizing State
Street Bank and Trust Company to permit redemption of units by
check, filed as Exhibit 8(h)
8(i). Money Transfer Services Agreement dated November 14, 1985, including
attachment, between Registrant and State Street Bank and Trust
Company pertaining to transfers of funds on deposit with State
Street Bank and Trust Company, filed as Exhibit 8(i)
16
<PAGE>
8(j). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company amending the Custodian Agreement
Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company pertaining to a change in wire charges
8(k). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust Company
8(l). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company amending the Custodian Agreement
8(m). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company
8(n). Letter Agreement between Registrant and State Street Bank and Trust
Company pertaining to the latter's designation of Security Pacific
National Bank as its sub-custodian and certain other matters
8(o). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company .
8(p). Amendment dated September 15, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company
15(d). Form of Distribution Plan Pursuant to Rule 12b-1 for Cash Management
Shares.
15(e). Form of Service Plan for Cash Management Shares .
17(k). Letter Agreement dated May 1, 1998 between Registrant and State
Street Bank and Trust Company amending the Custodian Agreement.
17
<PAGE>
Exhibit 5(b)
INSTITUTIONAL LIQUID ASSETS
Written Action of
the sole Holder of Tax-Exempt Diversified
and Tax-Exempt California Units
---------------------------------------------
The undersigned, being the sole holder of Tax-Exempt Diversified and
Tax-Exempt California Units of Institutional Liquid Assets, a Massachusetts
business trust (the "Trust"), hereby consents to and takes the following action
in writing in lieu of a meeting:
RESOLVED, that the form, terms and provisions of the attached
letter dated April 30th, 1990, from the Trust to the undersigned with
respect to the Advisory Agreement and the Distribution Agreement, each
dated April 30th, 1990, between the Trust and the undersigned are in
all respects approved;
RESOLVED, that the form, terms and provision of such Agreements,
copies of which have been presented to the undersigned, be, and the
same hereby are, in all respects approved.
RESOLVED, that the selection of Arthur Andersen & Co. to act as
independent public accountants for the Trust for the fiscal year
ending December 31, 1990, be, and it hereby is, ratified and approved.
Dated: April 30th, 1990
GOLDMAN SACHS - INSTITUTIONAL TAX-EXEMPT ASSETS
By: Stephen B. Wells
_______________________________________________
Title:
<PAGE>
EXHIBIT 5(d)
June 20, 1987
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Gentlemen:
Reference is made to the Advisory Agreement (the "Advisory Agreement")
dated May 28, 1981 between Goldman, Sachs & Co. and Institutional Liquid Assets
(the "Fund") and to the Distribution Agreement (the "Distribution Agreement")
dated May 28, 1981 between Goldman, Sachs & Co. and the Fund. Reference is
particularly made to paragraph 3(c)(ii) of the Advisory Agreement and to
paragraph 2(d) of the Distribution Agreement. As you know, the Fund has, as of
the date hereof, amended its Agency Agreement with DST, Inc. ("DST") dated
December 27, 1978 and previously amended on May 28, 1981, December 31, 1982 and
December 6, 1985 (such Agreement, as amended to date and as it may be further
amended from to time, is hereinafter referred to as the "Agency Agreement"). As
a consequence of so amending the Agency Agreement, DST no longer performs
certain functions on the Fund's behalf. In addition, Goldman, Sachs & Co. has,
as of the date hereof, entered into a Wiring Agreement with State Street Bank
and Trust Company and The Northern Trust Company with respect to the Fund (the
"Wiring Agreement").
In connection with this reduction in the scope of the functions performed
by DST on the Fund's behalf and in connection with the Wiring Agreement,
Goldman, Sachs & Co. has expanded its duties under the Advisory Agreement and
the Distribution Agreement. The Trustees of the Fund have considered certain of
the procedures which they wish Goldman, Sachs & Co. to follow in connection with
the performance of such duties. Those procedures, which Goldman, Sachs & Co. is
directed to follow, are set forth below:
1. Goldman, Sachs & Co. shall make arrangements with The Northern Trust
Company ("Northern Trust") as sub-custodian (the "Sub-Custodian") for
State Street Bank and Trust Company as custodian for the Fund (the
"Custodian") to receive details of incoming wire transfers of funds for
the purchase of the Fund's Units on such a basis as is necessary for the
timely processing of purchase orders. Goldman, Sachs & Co. shall make
arrangements with the Custodian to receive details of the conversion to
federal funds of checks for the purchase of Units on such a basis as is
necessary for the timely processing of purchase orders.
2. Upon receipt of redemption requests, Goldman, Sachs & Co. shall
determine whether or not such requests comply with the standards for
redemption approved by the Fund, as such standards are evidenced by the
Fund's then current Prospectus. If such redemption requests comply with
the standards for redemption approved by the Fund, Goldman, Sachs & Co.
shall compute in accordance with the fund's then current Prospectus the
amount of redemption proceeds payable to each Unitholder. If any such
request for redemption does not
<PAGE>
comply with the standards for redemption approved by the Fund, Goldman,
Sachs & Co. shall take such actions as it reasonably deems appropriate
under the circumstances and shall effect such redemptions at the price
applicable to the date and time of a receipt of a redemption request
(including any necessary documents) complying with such standards. At
such times as may be agreed upon by Goldman, Sachs & Co. and the
Custodian so as to provide for the timely payment of redemptions in
accordance with the Fund's then current Prospectus, Goldman, Sachs & Co.
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 & Co. 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 Northern Trust in accordance with Section 17(f) of the
Investment Company Act of 1940 (the "1940 Act"). At such times as may be
agreed upon by Goldman, Sachs & Co. and the Sub-Custodian so as to
provide for the timely payment of redemptions in accordance with the
provisions of the Fund's then current Prospectus, Goldman, Sachs & Co.
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 then current Prospectus and with the terms of
this letter, Goldman, Sachs & Co. 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 & Co.
shall promptly advise the Custodian as to whether there are a sufficient
number of Units in a Unitholder's account to cover redemption check
drawn on the Custodian by such Unitholder. In so advising the Custodian,
Goldman, Sachs & Co. shall take into account any limits on the
availability of some or all of such Unitholder's Units to cover such
redemption check due to (i) the fact that such Units were purchased
other than by Federal funds wire within 15 calendar days immediately
prior to the date of presentment of such redemption check or (ii) the
fact that certificates have been issued for such Units.
3. At such times as may be agreed upon by Goldman, Sachs & Co. 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 then current Prospectus, Goldman, Sachs & Co. shall advise the
Custodian of the aggregate amount of dividends or distributions payable
to Unitholders and shall advise the Custodian 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 & Co. 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 Trust in accordance with Section
17(f) of the 1940 Act. At such times as may be agreed upon by Goldman,
Sachs & Co. and the
<PAGE>
Sub-Custodian so as to provide for the timely payment of dividends and
distributions in accordance with the provisions of the Fund's then
current Prospectus, Goldman, Sachs & Co. 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 provisions of the resolutions of the Fund's Trustees and
the Fund's then current Prospectus and with the terms of this letter,
Goldman, Sachs & Co. shall prepare and mail checks for dividends or
distributions to Unitholders who requested payment thereof by check.
5. Goldman, Sachs & Co. 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 Trust in
accordance with Section 17(f) of the 1940 Act. At the end of each
calendar month, Goldman, Sachs & Co. 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 & Co. shall establish and maintain
procedures reasonably designed to assure the safekeeping of checks
delivered to Goldman, Sachs & Co. by Northern Trust for signature by
employees of Goldman, Sachs & Co. and the security and integrity of the
signing of such checks. Goldman, Sachs & Co. shall cause its employees
not 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.
5. Goldman, Sachs & Co. 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 then current Prospectus. Goldman, Sachs & Co. shall apply such
instructions as necessary to effect dividends, distributions,
redemptions and other transactions in accordance with the provisions of
the Fund's then current Prospectus. Goldman, Sachs & Co. shall be
responsible to the Fund for the accuracy and security of records of
expedited redemption and dividend instructions maintained by it and for
the proper application of such instructions in accordance with the
provisions of the Fund's then current Prospectus; provided, that the
--------
provisions of this sentence shall not impose on Goldman, Sachs & Co. a
greater standard of care than that imposed by Section 3(c)(i) of the
Advisory Agreement.
6. Goldman, Sachs & Co. shall inform DST of purchases, redemptions
dividends and other information so as to enable DST to maintain the
information and records and perform its other duties required by the
Agency Agreement. Goldman, Sachs & Co. shall review such information and
records maintained by
<PAGE>
DST to determine whether they accurately reflect purchases, redemptions,
dividends and distributions. Goldman, Sachs & Co. shall be responsible
to the Fund for the accuracy of the information so provided to DST;
provided, that the provisions of this sentence shall not impose on
--------
Goldman, Sachs & Co. a greater standard of care than that imposed by
Section 3(c)(i) of the Advisory Agreement.
7. It is understood that, except as otherwise provided in this letter, DST
shall be responsible for maintaining complete and accurate records for
the Fund. In addition to the records maintained by DST, Goldman, Sachs &
Co. shall maintain such records as are necessary to make any
determinations or calculations or to perform any other functions
pursuant to the terms of this letter; provided, that such records shall
--------
include for each Unitholders's account: (a) names, addresses, tax
identifying numbers and number of Units held; (b) necessary historical
information regarding the account, including dividends paid and date and
price for all transactions; (c) any stop or restraining order placed
against the account; (d) necessary information with respect to
withholdings; (e) any dividend reinvestment order, dividend address and
the contents of correspondence relating to the current maintenance of
the account; and (f) expedited redemption and dividend instructions. In
accordance with the provisions of the Fund's then current Prospectus and
as of the time contemplated thereby, Goldman, Sachs & Co. shall, on the
basis of any necessary calculations, credit or debit its records of
Unitholder accounts so as to reflect purchases, redemptions and
dividends.
This letter shall become effective five days after receipt of written
notice by Goldman, Sachs & Co. from the Fund to such effect.
Please acknowledge receipt of this letter as indicated below and confirm
the understandings referred to herein by signing and returning the enclosed copy
of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By /s/ Paul Nagel
--------------------------------
Chairman of the Trustees
Goldman, Sachs & Co. acknowledges receipt of this letter and that it is an
instruction and direction of the Trustees of Institutional Liquid Assets
pursuant to paragraph 3(c)(ii) of the Advisory Agreement and paragraph 2(d) of
the Distribution Agreement and confirms the understandings referred to herein,
all as of the 20th day of June, 1987.
GOLDMAN, SACHS & CO.
By /s/ Robert P. Fischer
----------------------------
General Partner
<PAGE>
EXHIBIT 5(i)
GOLDMAN SACHS--INSTITUTIONAL LIQUID ASSETS
Written Action of the Sole Holder
of Units of Treasury Instruments Portfolio,
Tax Exempt New Jersey Portfolio and
Tax-Exempt New York Portfolio
-----------------------------
The undersigned, being the sole holder of Units of Treasury Instruments
Portfolio, Tax-Exempt New Jersey Portfolio and Tax-Exempt New York Portfolio
(the "Portfolios") of Goldman Sachs--Institutional Liquid Assets, a
Massachusetts business trust (the "Trust"), hereby consents to and takes the
following action in writing in lieu of a meeting:
RESOLVED, that the form, terms and provisions of the attached letter
agreement dated December 13, 1990 from the Trust to the undersigned with
respect to the Advisory Agreement and the Distribution Agreement, each
dated April 30, 1990, between the Trust on behalf of the Portfolios and the
undersigned are in all respects approved;
RESOLVED, that the form, terms and provisions of such Agreements,
copies of which have been presented to the undersigned, be, and the same
hereby are, in all respects approved;
RESOLVED, that the form, terms and provisions of the attached Service
Plan and Administration Plan, each dated April 30, 1990 and amended
December 13, 1990 between the Trust and the Trust on behalf of the GS-ILA
Administration Class and Service Class of each Portfolio are in all
respects, approved;
RESOLVED, that the form, terms and provisions of such Plans, copies of
which have been presented to the undersigned, be, and the same hereby are,
in all respects approved.
Dated: December 13, 1990
GOLDMAN, SACHS & CO.
By: /s/ Alan A. Shuch
---------------------------
Alan A. Shuch
Partner
<PAGE>
Exhibit 8(a)
CUSTODIAN AGREEMENT
-------------------
Agreement dated December 27, 1978 between Institutional Liquid Assets, a
Massachusetts business trust (the "Fund"), and State Street Bank and Trust
Company, a Massachusetts banking corporation ("State Street").
1. APPOINTMENT OF CUSTODIAN. The Fund hereby appoints State Street custodian
------------------------
of all securities and cash now owned or hereafter acquired by the Fund, and
State Street hereby accepts such appointment, upon the terms and conditions set
forth in this Agreement. The Fund agrees promptly to deliver and pay, or cause
to be delivered and paid, to State Street, as custodian, all securities and cash
now owned or hereafter acquired by the Fund. The Fund further agrees to deliver
to State Street a certified or authenticated copy of its Agreement and
Declaration of Trust (the "Trust Agreement"), a copy of which is also on file
with the Secretary of the Commonwealth of Massachusetts, -and By-laws and all
amendments thereto, a certified copy of the resolution of the Trustees of the
Fund appointing State Street to act in the capacity provided in this Agreement
and authorizing the execution and delivery of this Agreement, and copies of such
resolutions, contracts and other documents of the Fund as may be required by
State Street in the performance of its duties hereunder. It is understood that
(a) the Fund is an open end, diversified management investment company
registered under the Investment Company Act of 1940 ("1940 Act") as 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 (b) pursuant to section 18(f) (2) of the 1940 Act each
series of the Fund's Units (as defined in the Trust Agreement), representing the
interest in a Portfolio, is preferred over all other series in respect of the
assets specifically allocated to such Portfolio.
2. CUSTODY OF CASH; BANK ACCOUNTS. State Street will hold all cash of each
------------------------------
Portfolio, other than cash held by such Portfolio in an account established and
maintained in accordance with Rule 17f-3 under the 1940 Act, in the banking
department of State Street in a separate account or accounts in the name of such
Portfolio, subject only to
1
<PAGE>
draft or order by State Street in accordance with the terms of this Agreement.
If and when authorized by proper instructions in accordance with a vote of the
majority of the Trustees of the Fund, State Street shall open and maintain an
additional account or accounts in such other banks or trust companies as may be
designated by such instructions, provided that each account or accounts shall be
in the name of the State Street in its capacity as custodian and subject only to
its draft or order in accordance with the terms of this Agreement. If requested
by the Fund, State Street shall furnish to the Fund, not later than (a) 20
calendar days after the last business day of each month, a statement reflecting
the current status of its internal reconciliation of the closing balance as of
that day in all bank accounts described in this (S)2 to the balance shown on the
daily cash report for that day rendered to the Fund, and (b) within 5 calendar
days after receipt thereof the bank statement for such month with respect to the
additional account or accounts referred to in the preceding sentence. State
Street is hereby authorized to endorse and collect all checks, drafts or other
orders for the payment of money received by it for the account of any Portfolio.
State Street will make such arrangements with the transfer agent of the
Fund as will enable State Street to make certain it receives the cash
consideration due to the Fund for Units of the Fund as may be issued or sold
from time to time by the Fund. In connection with such issuance of Units, State
Street shall make such arrangements with the transfer agent as shall insure the
timely notification to the transfer agent and to the Fund of the receipt of
Federal funds by State Street by means of the Federal Reserve Wire System or of
the receipt of funds by other bank wire transfers in payment for the issuance of
such Units..
At 9:00 a.m. on the second business day after the deposit of a check into
any of the Fund's accounts, State Street agrees to make Federal funds available
to the Fund in the amount of the check.
3. CUSTODY OF SECURITIES.
---------------------
A. RECEIPT OF SECURITIES. State Street will hold in a separate
---------------------
account, and physically segregated at all times from those of any persons,
firms, corporations or other Portfolios, pursuant to the provisions hereof, all
securities received by it for or for
2
<PAGE>
the account of a Portfolio. All such securities shall be held or disposed of by
State Street for, and subject at all times to the instructions of, the Fund
pursuant to the terms of this Agreement. State Street shall have no power or
authority to assign, hypothecate, pledge or otherwise dispose of any such
securities, except pursuant to proper instructions and only for the account of
the Fund as set forth in (S)5. Any securities delivered to State Street other
than in bearer form shall be properly endorsed and in form for transfer or shall
be in the name of State Street, the Fund or a nominee of State Street or the
Fund.
B. REGISTERED NAME; NOMINEES. State Street shall register securities
-------------------------
of the Fund held by it under this Agreement, other than those in bearer form, in
the name of the Fund or State Street or a nominee of the Fund or State Street.
Securities of the Fund held by an agent appointed pursuant to (S)8A or a sub-
custodian appointed pursuant to (S)8B may be registered in the name of such
agent or sub-custodian or a nominee of such agent or sub-custodian.
C. RECORD KEEPING AND INVENTORY. State Street shall maintain records
-----------------------------
of all receipts, deliveries and locations of securities held by it under this
Agreement, together with a current inventory thereof, and shall conduct periodic
physical inspections of certificates representing such securities in such manner
as State Street shall determine to be advisable or the Fund may reasonably
request from time to time in order to verify the accuracy of such inventory.
With respect to securities held by any agent appointed pursuant to (S)8A or any
sub-custodian appointed pursuant to (S)8B, State Street may rely upon
certificates of the agent or sub-custodian as to its holdings, it being
understood that such reliance in a no way relieves State Street of its
responsibilities under this Agreement. State Street will promptly report to the
Fund the results of such inspections, indicating any shortages or discrepancies
uncovered thereby, and will take appropriate action to remedy any such shortages
or discrepancies.
D. USE OF FEDERAL BOOK - ENTRY SYSTEM. State Street may deposit all
----------------------------------
or any part of the securities held by it hereunder and eligible therefore in the
book entry system covered by Rule 17f4(b)(2) under the 1940 Act; provided,
however, that (a) State Street, each agent appointed pursuant to (S)8A and each
sub-custodian appointed pursuant to (S)8B shall comply in all respects with
clauses (d)(1) through (d) (4) of Rule 17f4 under
3
<PAGE>
the 1940 Act, (b) all books and records maintained by State Street and each such
agent and sub-custodian which relate to the Fund's participation in such system
will at all times during regular business hours be open to inspection by the
Fund's duly authorized officers, employees, agents and auditors, and the Fund
will be furnished with all the information in respect of the services rendered
to it as it may require, and (c) in connection with the use of such system,
State Street will be liable to the Fund for any losses or damages relating to
the failure to effectively enforce such rights as may exist against such system,
agent or subcustodian.
4. DISBURSEMENT OF CASH. Upon the receipt of proper instructions, State
--------------------
Street shall make payments or disbursements of cash of each Portfolio held by it
or subject to its draft or order under this Agreement, insofar as such cash is
available, only for the following purposes:
A. PURCHASES GENERALLY. To pay for and receive securities purchased for the
-------------------
account of such Portfolio, payment being made only upon receipt of the
securities by State Street (or any bank, banking firm, responsible commercial
agent or trust company doing business in the United States and/or any foreign
country and appointed by State Street pursuant to (S)8A as State Street's agent
for this purpose or appointed as sub-custodian pursuant to (S)8B), registered as
provided in (S)3B or in form for transfer satisfactory to State Street. All
securities accepted by State Street shall be accompanied by payment of, or a
"due bill" for, any dividends, interest or other distributions of the issuer,
due the purchaser.
B. REPURCHASE AGREEMENTS. In the case of repurchase agreements entered
---------------------
into between the Fund and a bank or other financial institutional located in
Boston, Massachusetts, payment will be made on delivery of the receipt
evidencing purchase by such Portfolio of securities owned by State Street or
such other bank or financial institution and written evidence of the agreement
by State Street or such other bank or financial institution to repurchase such
securities from such Portfolio. In the case of repurchase agreements extending
not more than seven days entered into between the Fund and a bank or other
financial institution not located in Boston, Massachusetts:
4
<PAGE>
(i) State Street is specifically authorized to treat such bank or
other financial institution as though State Street had appointed it as agent
pursuant to (S)8A for the limited purpose of receiving and holding documents
evidencing such repurchase agreements and evidencing the segregation on the
books and records of the bank or financial institutional of the specific
securities purchased under or collateralizing such repurchase agreements;
(ii) State Street shall not be liable for the failure of such bank or
financial institution to fulfill any representations that it has effected such
segregation; and
(iii) State and the Fund agree to use their best efforts to insure
receipt by State Street of copies of such documentation for each such
transaction as promptly as possible.
Except as otherwise provided with respect to repurchase agreements in this
(S)4B, in any and every case of a purchase of securities for the account of such
Portfolio where payment is made by State Street in advance of receipt of the
securities purchased, State Street shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received by
State Street.
C. DIVIDENDS AND DISTRIBUTIONS. To release or otherwise apply cash for the
----------------------------
payment of dividends or other distributions to Unitholders of such Portfolio
which are payable in cash.
D. DISBURSEMENTS AND LIABILITIES. To make or cause to be made disbursements
------------------------------
for the payment on behalf of the Fund with respect to such Portfolio of
interest, taxes, investment advisory and administration fees and operating
expenses, including registration and qualification costs and other expenses of
issuing and selling Units of such Portfolio or changing its capital structure,
whether or not such expenses shall be in whole or in part capitalized or treated
as deferred expenses.
E. REDEMPTIONS OF FUND UNITS. Subject to the Declaration of Trust, the
-------------------------
Fund's then current Prospectus and applicable resolutions of the Fund's
Trustees, to make funds available for payment to Unitholders who have delivered
to the Fund's transfer agent a request for redemption of their Units by the Fund
pursuant to such Prospectus. In connection with any such redemption, State
Street is authorized and directed upon receipt
5
<PAGE>
of instructions from the transfer agent for the Fund, to make funds available
for transfer through the Federal Reserve Wire System or by other bank wire to a
commercial bank account designated by the redeeming Unitholder.
F. OTHER PURPOSES. To make or cause to be made disbursements for any other
--------------
purpose which is declared in such instructions to be a proper trust purpose;
provided, however, that before making any such disbursement State Street shall
have received a copy of a resolution of the Trustees certified by the Secretary
of the Fund specifying the amount of such disbursement, setting forth the
purpose for which such disbursement is to be made, declaring such purpose to be
a proper trust purpose and naming the person(s) to whom the disbursement is to
be made.
5. RELEASE AND DELIVERY OF SECURITIES. State Street shall have sole power to
-----------------------------------
release or deliver any securities of a Portfolio held by it pursuant to this
Agreement. Upon receipt of proper instructions, State Street will transfer,
exchange, or deliver securities held by it hereunder only for the following
purposes:
A. SALES. Upon receipt of payment therefore, to deliver securities which
-----
have been sold for the account of such Portfolio. All such payments shall be
made in Federal funds except in extraordinary circumstances in which event
payment shall be made in clearing house funds.
B. REDEMPTION OR MATURITY. To deliver securities owned for the account of
----------------------
such Portfolio 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 payable in respect thereof is to be
delivered to State Street.
C. CHANGES OF NAME AND DENOMINATION. To deliver securities owned for the
--------------------------------
account of such Portfolio to the issuer thereof or its agent for transfer into
the name of the Fund or State Street or a nominee of either, or for exchange of
a different number of bonds, certificates, or other evidence representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity dates and call provisions, if any; provided, that in any such case, the
new securities are to be delivered to State Street.
6
<PAGE>
D. STREET DELIVERY. To deliver securities owned for the account of such
---------------
Portfolio to the broker or dealer selling the same for examination in accordance
with the then current "street delivery" custom.
E. SECURITIES AS COLLATERAL. To deliver securities owned for the account of
------------------------
such Portfolio to any bank or trust company for the purpose of pledge or
hypothecation to secure any loan incurred by the Fund; provided that securities
shall be released only upon payment to State Street of the monies borrowed,
except that in cases where additional collateral is required to secure a
borrowing already made, subject to proper prior authorization, further
securities may be delivered for that purpose. Upon receipt of proper
instructions, State Street shall pay such loan upon redelivery to it of the
securities pledged or hypothecated therefore and upon surrender of the note or
notes evidencing the loan.
F. EXCHANGES, DEPOSITS, TENDERS, ETC. To exchange securities or interim
---------------------------------
receipts or temporary securities held by it or by any agent appointed pursuant
to (S)8A or any sub-custodian appointed pursuant to (S)8B for the account of
such Portfolio for other securities alone or for other securities and cash, and
to expend cash, insofar as cash is available, in connection with any merger,
consolidation, reorganization, recapitalization, conversion or in connection
with the exercise of subscription or purchase rights, or otherwise; to deposit
any such securities and cash in accordance with the terms of any reorganization
or protective plan or otherwise, and to deliver securities to the designated
depository or other receiving agent in response to tender offers or similar
offers to purchase received in writing; provided that:
(i) except as directed by proper instructions received in timely enough
fashion for State Street to act thereon prior to any expiration date (which
shall be presumed to be three business days prior to such date unless State
Street has advised the Fund of a different period) and giving full details of
the time and method of submitting securities in response to any tender or
similar offer, exercising any subscription or purchase right or making any
exchange pursuant to this (S)5F and subject to State Street having fulfilled its
obligations under (S)7C pertaining to notices or announcements, State
7
<PAGE>
Street shall be under no obligation regarding any tender or similar offer,
subscription or purchased right or exchange except to exercise its best efforts;
(ii) when such securities are in the possession of an agent appointed
pursuant to (S)8A, the proper instructions referred to in the preceding clause
(i) must be received by State Street in timely enough fashion (which shall be
presumed to be four business days unless State Street has advised the Fund of a
different period) for State Street to notify the agent in sufficient time to
permit such agent to act prior to any expiration date; and
(iii) when the securities are in the possession of a sub-custodian
appointed pursuant to (S)8B, the proper instructions must be received by the
sub-custodian in timely enough fashion (which shall be presumed to be three
business days unless the sub-custodian has advised the Fund of a different
period) to permit the sub-custodian to act prior to any expiration date.
G. OTHER PURPOSES. To release or deliver any securities held by it for the
--------------
account of such Portfolio for any other purpose which such instructions declare
to be a proper trust purpose; provided, however, that before making any such
release or delivery State Street shall have received a copy of a resolution of
the Trustees certified by the Secretary of the Fund specifying the securities to
be delivered, setting forth the purpose for which such release or delivery is to
be made, declaring such purpose to be a proper trust purpose and naming the
person(s) to whom such release or delivery is to be made.
6. RECORDS; ACCOUNTS AND REPORTING.
--------------------------------
A. RECORDS. State Street shall create, maintain and retain all
--------
records relating to its activities and obligations under this Agreement in such
manner as will enable the Fund and State Street to meet their respective
obligations under: (i) the 1940 Act, particularly Sections 30 and 31 thereof,
and the rules and regulations thereunder, including the preparation and filing
of all required periodic and other reports, (ii) applicable Federal and State
tax laws, and (iii) any other law or administrative rule or procedure which may
be applicable to the Fund or State Street. All records maintained by State
Street in connection with the performance of its duties under this Agreement
will
8
<PAGE>
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 delivered in
accordance with (S)14.
B. ACCOUNTS AND REPORTING. State Street shall keep books of account and
----------------------
render statements or copies thereof, form time to time as requested by the
President, the Treasurer or the administrator of the Fund, including interim
monthly and complete quarterly, semi-annual and annual financial statements,
which contain, among other things, a list of the securities for which State
Street is accountable to the Fund under this Agreement as of the end of each
month, and a list of all security transactions that remain unsettled at such
time. It is understood and agreed that the Fund may request and State Street
shall provide each business day a list of the securities for which State Street
is accountable to the Fund under this Agreement as of the end of such day. In
addition, State Street shall promptly notify the Fund's investment adviser by
telephone on each day when there has been a failure to timely settle any
security transaction on that day.
C. ACCESS TO RECORDS. Without limiting (S)3D hereof, subject to security
------------------
requirements of State Street applicable to its own employees having access to
similar records within State Street and such regulations as to the conduct of
such matters as may be reasonably imposed by State Street after prior
consultation with an officer of the Fund or its administrator, the books and
records of State Street pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by the Trustees of, attorneys
for, and auditors employed by, the Fund.
D. COOPERATION WITH THE FUND AND ITS AUDITORS. State Street shall cooperate
------------------------------------------
with the Fund and the Fund's independent public accountants in connection with:
(i) the preparation of reports to Unitholders of the Fund, to the Securities and
Exchange Commission (including all required periodic and other reports), to
state "Blue Sky" authorities, and to others, (ii) annual and other audits of the
books and records of the Fund, and (iii) in other matters of a like nature.
State Street shall take all reasonable action necessary for the Fund to obtain
from year to year unqualified opinions from the Fund's independent public
accountants with respect to State Street's activities hereunder in connection
with the preparation of the aforementioned reports and audits.
9
<PAGE>
7. ADDITIONAL DUTIES OF STATE STREET.
---------------------------------
A. COLLECTIONS. Unless otherwise directed by proper instructions,
-----------
State Street shall collect, receive and deposit in the bank account or accounts
maintained pursuant to (S)2 all income, principal and other payments in respect
of the securities held by it under this Agreement and do all other things
necessary or proper in connection with the collection of such income, principal
and other payments. Without limiting the generality of the foregoing, State
Street shall:
(i) present for payment on the date payment all payment all coupons
and other income items requiring presentation;
(ii) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such securities become
payable;
(iii) endorse and deposit for collection, in the name of the Fund,
checks, drafts or other negotiable instruments on the same day as received;
(iiiv) execute ownership and other certificates and affidavits for all
Federal and State tax purposes in connection with the collection of income; and
(v) notify the Fund as soon as reasonably practicable whenever income,
principal or other payments due on securities are not collected in due course.
In any case in which State Street does not receive any such due and
unpaid income, principal or other payment within a reasonable time after it has
made proper demands for the same (which shall be presumed to consist of at least
three demand letters and at least one telephonic demand), it shall so notify the
Fund in writing, including copies of all demand letters, any written responses
thereto, and memoranda of telephonic demands and oral responses to written and
telephonic demands, and await proper instructions. State Street shall not be
obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. State Street, in addition, notify the Fund as
soon as reasonably practicable whenever income due on securities is not
collected in due course.
10
<PAGE>
B. DISTRIBUTIONS, RIGHTS, ETC.. State Street shall receive and collect all
----------------------------
distributions, rights and other items of like nature in respect of securities
held by it under this Agreement and deal with the same pursuant to proper
instructions relative thereto.
C. PROXIES, NOTICES, VOTING, ETC. State Street shall promptly deliver or mail
-----------------------------
to the Fund all forms of proxies and all notices of meetings, calls, maturities,
tender offers, exchange offers and expirations of rights and any other notices,
consents, or announcements affecting or relating to securities held by State
Street, its agents appointed pursuant to (S)8A and all sub-custodians appointed
pursuant to (S)8b, and upon receipt of proper instructions, State Street shall
execute and deliver or cause its nominee to execute and deliver such proxies or
other authorizations as may be required. Neither State Street, such agents or
sub-custodians, nor their respective nominees shall vote upon any of the
securities or execute any proxy to vote thereon or give any consent or take any
other action with respect thereto (except as otherwise herein provided) unless
directed so to do by proper instructions.
D. VALUATIONS; NET INCOME COMPUTATION. Unless otherwise directed by proper
----------------------------------
instructions, State Street shall compute and determine, as of 12:00 Noon, Boston
time, and as of the close of trading on the New York Stock Exchange in each case
on each day such Exchange is open for trading, the net asset value of a Unit of
each Portfolio, such computation and determination to be made in accordance with
the Fund's then current prospectus by a vice president, assistant vice president
or assistant secretary of State Street, and shall promptly notify the Fund of
the result of such computation and determination. In computing such net asset
value State Street shall rely upon security quotations received by telephone or
otherwise through the Fund's investment adviser or in a manner otherwise
designated by the Fund by proper instructions and may further rely upon
information or directions furnished to it by the Trustees, any officer or the
administrator of the Fund relative to: (i) liabilities, expense accruals and
reserves of the Fund and (ii) the fair value of any security, right or other
property of the Fund. State Street's liability to the Fund for the accuracy of
quotations received from any source designated by the Fund will be no greater
than the liability which such source, or its provider, has to State Street.
11
<PAGE>
Unless advised otherwise by proper instructions, State Street shall also
calculate each day the net income of each Portfolio for such day and shall
advise the Fund and its transfer agent daily of the results of such calculation.
Such calculation shall be made in accordance with the Fund's then current
Prospectus.
E. NON-DISCRETIONARY DETAILS. In general, State Street shall attend to all
-------------------------
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealing with securities or property of the Fund
except as otherwise from time to time directed by proper instructions.
F. PROCEEDS OF SALE OF UNITS OF FUND. Upon receipt from the Fund or its
---------------------------------
transfer agent of funds, checks or drafts for the purchase of Units of any
portfolio, State Street shall promptly deposit the purchase price in the account
or accounts maintained pursuant to (S)2 for conversion into Federal funds and
notify the Fund and its transfer agent when such action has been completed.
8. APPOINTMENT OF AGENTS AND SUB-CUSTODIANS.
----------------------------------------
A. APPOINTMENT OF AGENTS. State Street, as custodian, may at any time or
---------------------
times appoint (and may at any time remove) any other bank, trust company or
responsible commercial agent as its agent to carry out such of the provisions of
this Agreement as State Street may from time to time direct, provided that the
appointment of such agent shall not relieve State Street of any of its
responsibilities under this Agreement, except that with respect to repurchase
agreements entered into with banks or other financial institutions located
outside of Boston, Massachusetts, (i) the responsibility of State Street shall
be governed by (S)4B, and (ii) State Street shall have no more responsibility or
liability to the Fund on account of any actions or omissions of any agent so
employed than any such agent has to State Street.
B. APPOINTMENT OF SUB-CUSTODIAN. State Street, as custodian, may from time
----------------------------
to time employ one or more sub-custodians, but only in accordance with the terms
and conditions set forth in a resolution of the Trustees of the Fund authorizing
the appointment of each particular sub-custodian, it being understood and agreed
that: (i) State Street shall have no more responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian so employed
than such sub-custodian has to
12
<PAGE>
State Street; and (ii) the responsibility or liability of the sub-custodian to
State Street shall conform to the resolution of the Trustees of the Fund
authorizing the appointment of the particular sub-custodian.
9. PROPER INSTRUCTIONS; RELIANCE ON DOCUMENTS.
------------------------------------------
A. PROPER WRITTEN INSTRUCTIONS. State Street shall be deemed to have
----------------------------
received proper instructions upon receipt of written instructions (including
receipt by telecopier, tested telegram, cable or Telex), which may be continuing
instructions, signed by a majority of the Trustees of the Fund or by not less
than two of the persons 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 State Street
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.
B. PROPER ORAL INSTRUCTIONS. The Fund may authorize one or more designated
------------------------
persons to issue oral (such term as used herein including, without limitation,
telephoned) instructions, specifying the class or classes of instructions that
may be so issued, in which case the Fund shall deliver to State Street
resolutions of the Trustees to such effect. Such instructions when given in
accordance with the provisions hereof and such resolutions shall be deemed
proper instructions. Two or more of the persons designated by the Trustees to
give oral instructions shall promptly confirm such oral instructions in writing
to State Street; but State Street shall be under no obligation to insist upon
delivery to it of any such written confirmation or to investigate the reason for
its nonreceipt of any such written confirmation. In case of conflict between
oral instructions given by a person designated in the resolution of the Trustees
referred to in the first sentence hereof and any written proper instructions or
any written confirmation or purported confirmation of oral instructions, such
written instructions or written confirmation or purported confirmation, as the
case may be, shall prevail, provided that any transaction initiated by State
Street pursuant to such oral instructions, may, but need
13
<PAGE>
not, be completed by State Street notwithstanding State Street's receipt of
conflicting written proper instructions or written confirmation or purported
confirmation subsequent to State Street's initiation of such transaction.
C. COMPLIANCE WITH TRUST AGREEMENT. In performing its duties generally, and
-------------------------------
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, State Street may take cognizance of the
provisions of the Trust Agreement and By-laws of the Fund as from time to time
amended; however, except as otherwise expressly provided herein, it may assume
unless and until notified in writing to the contrary that instructions
purporting to be proper instructions received by it are not in conflict with or
in any way contrary to any position of the Trust Agreement and By-laws of the
Fund, as from time to time amended, or resolutions or proceedings of the
Trustees of the Fund.
D. RELIANCE ON DOCUMENTS. So long as and to the extent that it is in the
---------------------
exercise of reasonable care, State Street, as custodian: (i) shall not be
responsible for the title, validity or genuineness of any security or property
or evidence of title thereto received by it or delivered by it pursuant to this
Agreement, (ii) shall be protected in acting upon any instruction, notice,
request, consent, certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed in accordance with (S)9A,
and (iii) shall, except as otherwise specifically provided in this Agreement, be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by any officer of the Fund or
its administrator or any other person authorized by the Trustees of the Fund.
10. RELIANCE ON ADVICE OF COUNSEL; INDEMNITY.
-----------------------------------------
A. RELIANCE ON THE ADVICE OF COUNSEL. State Street, as custodian, shall be
----------------------------------
entitled to receive, and act upon, advice of counsel (which counsel shall be
selected by State Street with reasonable care based on such counsel's
professional competence and reputation or shall be counsel for the Fund) and
shall be without liability for any action reasonably taken or thing reasonably
done pursuant to such advice, provided that such action taken or thing done is
not in violation of applicable Federal or State laws or regulations and is taken
or done in good faith and without negligence.
14
<PAGE>
B. INDEMNITY. State Street shall be indemnified and held harmless by the
---------
Fund for any action taken or thing done by it in carrying out the terms and
provisions of this Agreement if taken or done in good faith and without
negligence or misconduct on State Street's part; provided that: (i) State Street
shall not be entitled to indemnification in those situations where State Street
is liable to the Fund pursuant to (S)3D(c), (ii) State Street will use all
reasonable care to identify and notify the Fund promptly concerning any
situation which presents, or appears likely to present, the probability of such
a claim for indemnification against the Fund, and (iii) in any case in which the
Fund may be asked to so indemnify and hold harmless State Street, the Fund shall
have been fully and promptly advised of all pertinent facts concerning the
situation in question. The Fund, using counsel of its choice, shall have the
option to defend State Street against any claim which may be a subject of this
indemnification and shall be given timely notice by State Street to permit it to
exercise that option as early as possible with respect to such claim. In the
event the Fund so elects to defend State Street, the Fund will notify State
Street, and thereupon the Fund shall take over complete defense of the claim,
and, after it does so, State Street shall incur no further legal or other
expenses for which it shall be entitled to indemnification from the Fund.
State Street shall in no case confess any claim or make any compromise in any
case in which the Fund will be asked to indemnify State Street, except with the
Fund's prior written consent.
11. COMPENSATION; REIMBURSEMENT. The Fund shall pay to State Street, as
---------------------------
custodian, the compensation and expense reimbursement set forth in the schedule
of even date herewith delivered by State Street to the Fund until a different
compensation and expense reimbursement schedule shall be agreed upon in writing
between the parties.
12. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT. This Agreement shall become
-------------------------------------------
effective as of the date 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 120 days after the date
of such delivery or mailing; provided that the Fund shall not amend or terminate
this Agreement in contravention of any applicable
15
<PAGE>
Federal or State laws or regulations, or any provision of the Trust Agreement or
the Fund's By-Laws, as the same may from time to time be amended. The Fund may
at any time by action of its Trustees substitute another bank or trust company
for State Street by giving notice as specified above to State Street. Upon
termination of this Agreement the Fund shall pay to State Street such
compensation as may be due as of the date of such termination in accordance with
(S)11.
13. INTERPRETATIVE AND ADDITIONAL PROVISIONS. In connection with the
-----------------------------------------
operation of this Agreement, State Street 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,
provided that no such interpretative or additional provisions shall contravene
any applicable Federal or State laws or regulations, or any provision of the
Trust Agreement or the Fund's By-Laws, as the same may from time to time to be
amended. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Agreement.
14. SUCCESSOR CUSTODIAN.
--------------------
A. APPOINTMENT OF SUCCESSOR BY FUND. If a successor custodian is appointed
--------------------------------
by resolution of the Trustees of the Fund and a certified copy of such
resolution is delivered to State Street, State Street shall, upon termination of
this Agreement or substitution of such successor for State Street, deliver to
such successor custodian at the office of State Street, duly endorsed and in
proper form for transfer, all securities then held by State Street hereunder (or
any agent or sub-custodian of State Street) and all funds or other property of
the Fund deposited with or held by State Street hereunder (or any agent or sub-
custodian of State Street).
B. DELIVERY PURSUANT TO UNITHOLDER RESOLUTION.
------------------------------------------
In the event that this Agreement is to be terminated but no new custodian
can be found by the Fund, the Fund shall, before authorizing the delivery of
such securities, funds and other property to anyone other than a successor
custodian, submit to its Unitholders the question of whether the Fund shall be
liquidated or shall function without a custodian. Upon approval by the
Unitholders for the Fund to liquidate or function
16
<PAGE>
without a custodian State Street shall, in like manner at its office, upon
receipt of a certified copy of a resolution of the Unitholders of the Fund
deliver such securities, funds and other property in accordance with such
resolution.
C. SELECTION OF SUCCESSOR BY STATE STREET. In the event that this Agreement
--------------------------------------
is terminated and no certified resolution of the Trustees of the Fund appointing
a successor custodian or certified copy of a resolution of the Unitholders shall
have been delivered to State Street on or before the date when such termination
shall become effective, then State Street shall have the right to deliver to a
bank or trust company 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 $25,000,000, all securities,
funds, property and instruments of the Fund held by State Street under this
Agreement (or any agent or sub-custodian of State Street) and all instruments
held by State Street (or such agent or sub-custodian) relative thereto.
Thereafter, such bank or trust company shall be the successor custodian to State
Street under this Agreement.
D. CONTINUATION AFTER TERMINATION. In the event that securities, funds, and
------------------------------
other property of the Fund remain in the possession of State Street after the
date of termination hereof owing to failure of the Fund to procure the certified
copy of a resolution of its Unitholders above referred to or of the Trustees to
appoint a successor custodian, State Street shall be entitled to fair
compensation for its services during such period and the provisions of this
Agreement relating to the duties and obligations of State Street shall remain in
full force and effect.
15. CIRCULATION OF PRINTED MATTER. The Fund shall not circulate any printed
-----------------------------
matter which contains any reference to State Street without the prior written
approval of State Street, excepting solely such printed matter as merely
identifies State Street as custodian. The Fund will submit printed matter
requiring approval to State Street in draft form, allowing sufficient time for
review by State Street and its counsel prior to any deadline for printing.
16. COMMUNICATIONS. Notices and other writings delivered or mailed postage
--------------
prepaid to the Fund in care of Institutional Liquid Assets, 8700 Sears Tower,
Chicago, Illinois 60606, Attention; Mr. Frederick T. Kelsey, or to State Street
may hereafter
17
<PAGE>
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.
17. GENERAL. This Agreement shall be binding on and shall inure to the
-------
benefit of the Fund and State Street and their respective successors, shall be
construed according to the laws of the Commonwealth 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 State Street without the written consent
of the Fund authorized and approved by a resolution of the Trustees. The
headings in this Agreement have been inserted for convenience of reference only
and shall not affect the meaning or interpretation of this Agreement.
18. UNITHOLDER LIABILITY. 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 Unitholders of the Trust individually but are binding only upon the
Trust and its assets and property.
ATTEST: INSTITUTIONAL LIQUID ASSETS
By Signature illegible By Robert S. Brooker
________________________ _________________________
as its Secretary as its President
____________________ _____________________
ATTEST: STATE STREET BANK AND
TRUST COMPANY
By Signature illegible By Signature illegible
________________________ _________________________
as its Asst. Secretary as its Vice President
____________________ _____________________
18
<PAGE>
Exhibit 8 (b)
December 27, 1978
Institutional Liquid Assets
Suite 8700
233 S. Wacker Drive
Chicago, Illinois 60606
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian
Agreement") of even date between Institutional Liquid Assets ("ILA") and State
Street Bank and Trust Company ("State Street"). Particular reference is made to
(S)11 of the Custodian Agreement which provides that ILA shall pay to State
Street, as custodian, the compensation and expense reimbursement set forth in
the schedule of even date therewith delivered by State Street to ILA (the
"Initial Schedule") until a different compensation and expense reimbursement
schedule shall be agreed upon in writing between the parties. Term used herein
which are defined in the Custodian Agreement have the same meaning herein as in
the Custodian Agreement.
This letter constitutes the Initial Schedule and the compensation and
expense reimbursement thereunder is set forth below:
A. Basic Fee
---------
Percent of Average
Prime Obligations Portfolio Daily Net Assets
--------------------------- ----------------
First $20 million of average 1/20th of 1%
daily net assets
Next $80 million of average 1/40th of 1%
daily net assets
Average daily net assets in 1/100th of 1%
excess of $80 million
<PAGE>
Each Additional Portfolio Fee
------------------------- ---
First $100 million of average
daily net assets $18,000 (flat fee)
Average daily net assets in excess 1/100th of 1% of
of $100 million average daily net assets
The Basic Fee is an annual fee which will be billed and payable monthly. If the
total number of portfolios exceeds 4, the Basic Fee with respect to the
Portfolios in excess of 4 will be negotiated between the parties.
B. Transaction Fee For Portfolio Trades
------------------------------------
Transaction Fee
----------- ---
Repurchase Agreements with State Street $ 5.00
All other trades
Nonbook entry $12.00
Book entry $10.00
C. Wire Fees
---------
Type of Wire Fee
------------ ---
Wire Out $2.00
Wire In $1.50
D. Balance Credit Against The Foregoing Fees
-----------------------------------------
A balance credit will be applied monthly against the above fees equal to
83-1/3% of the 90 day Treasury Bill rate in effect on the last Monday of each
month, adjusted to a monthly basis, times the average collected balance for the
month in question in all accounts maintained under or pursuant to the Custodian
Agreement.
<PAGE>
E. Out-of-Pocket Expenses Reimbursable by ILA
ILA will reimburse State Street monthly for the following out-of-pocket
expenses incurred by State Street during such month in the performance of its
duties under the Custodian Agreement:
telephone;
postage;
courier fees of independent courier services;
office supplies used in maintaining ILA's records;
and
duplicating.
STATE STREET BANK AND TRUST COMPANY
By Signature illegible
_________________________________
as its_____________________________
Accepted and agreed to:
INSTITUTIONAL LIQUID ASSETS
By /s/ Robert S. Brooker
------------------------------
as its President
--------------------
<PAGE>
Exhibit 8(c)
INSTITUTIONAL LIQUID ASSETS
(312) 876-8888
8700 SEARS TOWER CHICAGO, ILLINOIS 60606
May 28, 1981
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian
Agreement") dated December 27, 1978 between Institutional Liquid Assets ("ILA")
and State Street Bank and Trust Company.
The purpose of this letter is to advise you that, effective today,
Goldman, Sachs & Co. has become ILA's investment adviser and administrator as
well as the distributor of its units. In this regard, we enclose herewith copies
of the Investment Advisory and Distribution Agreements of even date herewith
between ILA and Goldman, Sachs & Co. Also enclosed is a certified resolution of
ILA's Trustees setting forth the names of those persons now authorized to give
or confirm instructions under the Custodian Agreement as well as the specimen
signatures of such persons. Finally, there is enclosed a document captioned
"Exhibit B" setting forth certain of Goldman, Sachs & Co.'s portfolio trading
practices with respect to ILA.
Please acknowledge receipt of this letter and the enclosures and your
agreement to comply with your obligations under Exhibit B by executing and
returning the enclosed copy of this letter.
Very truly yours
INSTITUTIONAL LIQUID ASSETS
By: /s/ Robert S. Brooker
-------------------------------
as its Chairman of Trustees
----------------------
Please acknowledge receipt of this letter and the enclosures and agree to comply
with our obligations under Exhibit B, all as of this 28th day of May, 1981.
STATE STREET BANK AND TRUST COMPANY
By:
------------------------------
as its
----------------------
1
<PAGE>
AMENDMENT TO THE CUSTODIAN AGREEMENT
AGREEMENT made by and between State Street Bank and Trust Company (the
"Custodian") and Institutional Liquid Assets (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a Custodian Agreement
dated December 27, 1978 (as amended, the "Custodian Agreement") governing the
terms and conditions under which the Custodian maintains custody of the
securities and other assets of the Fund;
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940 ("1940 Act") with authority to operate
as a series company with multiple portfolios, and pursuant to section 18 (f) (2)
of the 1940 Act each series of the Fund's Units, representing the interest in a
portfolio, is preferred over all other series in respect of the assets
specifically allocated to such portfolio; and
WHEREAS, the Custodian and the Fund desire to amend the Custodian Agreement
to provide for the maintenance of the Fund's foreign securities, and cash
incidental to transactions in such securities, in the custody of certain foreign
organizations acting as sub-custodians in conformity with the requirements of
Rule 17f-5 under the 1940 Act;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Agreement by the
addition of the following terms and conditions;
1. Appointment of Foreign Sub-Custodians
-------------------------------------
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained outside the
United States the foreign banking institutions, foreign trust companies, foreign
securities depositories and foreign clearing agencies designated on Schedule A
hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 9 of the Custodian Agreement, together with a certified
resolution of the Fund's Board of Trustees, the Custodian and the Fund may agree
to amend Schedule A hereto from time to time to designate additional foreign
banking institutions, foreign trust companies, foreign securities depositories
and foreign clearing agencies to act as sub-custodians. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment of any
one or more of such sub-custodians for maintaining custody of the Fund's assets.
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 1940 Act, and (b) cash and
cash equivalents in such amounts as the Custodian or the Fund may determine to
be reasonably necessary to effect the Fund's foreign securities transactions.
3. Foreign Securities Depositories and Clearing Agencies
-----------------------------------------------------
Except as may otherwise be agreed upon in writing by the Custodian and
the Fund, assets of the Fund shall be maintained in foreign securities
depositories and clearing agencies only through arrangements implemented by the
foreign banking institutions and foreign trust companies 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 5 hereof.
4. Segregation of Securities
-------------------------
The Custodian shall identify on its books as belonging to the Fund
(designating the particular portfolio thereof), the foreign securities and
related cash and cash equivalents of such portfolio held by each foreign sub-
2
<PAGE>
custodian. Each agreement pursuant to which the Custodian employs a foreign
banking institution or foreign trust company shall require that such institution
establish a custody account for the Custodian on behalf of the Fund (designating
the particular portfolio thereof) and physically segregate in that account the
securities and other assets of such portfolio, and, in the event that such
institution deposits the portfolio's securities in a foreign securities
depository, that it shall identify on its books as belonging to the Custodian,
as agent for the Fund (designating the particular portfolio thereof), the
securities so deposited.
5. Agreements with Foreign Banking Institutions
--------------------------------------------
Each agreement with a foreign banking institution and foreign trust
company shall be substantially in the form set forth in Exhibit 1 hereto and
shall provide that: (a) the assets of a Fund's 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 foreign trust company or its creditors or agents,
except a claim of payment for their safe custody or administration; (b)
beneficial ownership for the Fund's assets 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 such
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 or foreign trust company relating
to its actions under its agreement with the Custodian; and (e) assets of the
Fund held by the foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
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 or foreign trust company
employed as a foreign sub-custodian insofar as such books and records relate to
the performance of such foreign banking institution or foreign trust company
under its agreement with the Custodian.
7. Reports by Custodian
--------------------
The Custodian will supply to the Fund from time to time, as reasonably
requested by the Fund, statements in respect of the securities and other assets
of the Fund held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's securities and other
assets and advices or notifications of any transfers of securities to or from
such custodial account maintained by a foreign banking institution or foreign
trust company for the Custodian on behalf of the Fund indicating, as to
securities acquired for the Fund, the identity of the entity having physical
possession of such securities.
8. Transactions in Foreign Custody Account
---------------------------------------
(a) Except as otherwise provided in paragraph (b) of this Section 8, the
provisions of Section 4, 5, and 7A, B, C and E of the Custodian Agreement
shall apply, mutatis mutandis to the foreign securities, cash and cash
------- --------
equivalents of the Fund held outside the United States by foreign sub-
custodians.
(b) Notwithstanding any provision of the Custodian Agreement to the
contrary, settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund 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 3B of the Custodian Agreement.
3
<PAGE>
9. Liability of Foreign Sub-Custodians
-----------------------------------
Each agreement pursuant to which the Custodian employs a foreign
banking institution or foreign trust company as a foreign sub-custodian shall
require the sub-custodian to exercise reasonable care in the performance of its
duties and to indemnify, and hold harmless, the Custodian and the 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 or
foreign trust company 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.
10. Liability of Custodian
----------------------
The Custodian shall be liable for the acts or omissions of a foreign
banking institution or foreign trust company to the same extent as set forth
with respect to sub-custodians generally in the Custodian Agreement and,
regardless or whether assets are maintained in the custody of a foreign banking
institution, a foreign trust company, a foreign securities depository, a foreign
clearing agency or a branch of a U.S. bank as contemplated by paragraph 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 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 incident or the like under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
11. Reimbursement for Advances
--------------------------
If a portfolio of the Fund requires the Custodian to advance cash or
securities for any purpose 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 amendment to
the Custodian Agreement, 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 such 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 the Fund's assets to the
extent necessary to obtain reimbursement but in no event to exceed the assets of
such portfolio of the Fund.
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 amendment
to the Custodian Agreement. 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 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 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).
4
<PAGE>
13. Branches of U.S. Banks
----------------------
(a) Except as otherwise set forth in this amendment to the Custodian
Agreement, the provisions hereof shall not apply where the custody of Fund
assets is maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the 1940 Act 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 8B of the Custodian Agreement.
(b) Cash held for a portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for such portfolio with
the Custodian's London Branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
14. Applicability of Custodian Agreement
------------------------------------
Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Agreement shall continue to apply with full force
and effect.
15. Unitholder Liability
--------------------
This amendment to the Custodian 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 is on file
with the Secretary of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
4th day of October, 1988.
INSTITUTIONAL LIQUID ASSETS
ATTEST:
By: Nancy Mucker By: E. J. Whitman
----------------------------- --------------------------------
as its Vice President as its President
--------------------- -----------------------------
STATE STREET BANK AND TRUST COMPANY
ATTEST:
Signature illegible By: J. E. Swedland
- -------------------------------- --------------------------------
as its Asst. Secretary as its Vice President
--------------------- -----------------------------
5
<PAGE>
SCHEDULE A
-----------
The following foreign banking institutions, foreign trust companies,
foreign securities depositories and foreign clearing agencies have been approved
by the Trustees of Institutional Liquid Assets for use as sub-custodians for
such fund's securities and other assets.
State Street London Limited
6
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
-------------------
To: State Street London Limited
State Street House
12 Nicholas Lane
London EC4N 7BN
Great Britain
Gentlemen:
The undersigned State Street Bank and Trust Company ("State Street") hereby
requests that State Street London Limited (the "Trust Company") establish a cash
account at State Street's licensed London branch (or at such other deposit-
taking institution in the United Kingdom as State Street may designate) and a
custody account for each custody customer and employee benefit plan account
identified in the Schedule attached to this Agreement and each additional
account which is or may hereafter be identified to this Agreement. Such
customers and accounts are referred to herein as the "Customer" or "Customers."
Each such cash account and each such custody account so established will be
referred to herein as the "Cash Account" and "Custody Account," respectively,
and will be subject to the following terms and conditions:
1. The Trust Company shall hold in trust as agent for State Street and
shall physically segregate in the Cash Account and Custody Account,
respectively, such cash, bullion, coin, stocks, shares, bonds, debentures, notes
and other securities and other property which is delivered to the Bank for those
State Street Accounts (the "Property").
2. a. Upon the prior approval of State Street the Trust Company may
deposit Securities, as hereafter defined, in a securities depository
or utilize a clearing agency, incorporated or organized under the
laws of a country other than the United States;
b. When securities held for a Customer are deposited in a securities
depository or clearing agency by the Trust Company, the Trust
Company shall identify on its books as belonging to State Street as
agent for the Customer, the securities so deposited.
3. Upon the written instructions of State Street, in accordance with
Paragraph 7, the Trust Company is authorized to direct the payment of
cash from the Cash Account and to sell, assign, transfer, deliver or
exchange, or to purchase for the Custody Account, any and all stocks,
shares, bonds, debentures, notes and other securities ("Securities"),
bullion, coin and any other property, but only as provided in such
written instructions. So long as and to the extent that it exercises
reasonable care, the Trust Company 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 and shall be held harmless in
acting upon any written instruction reasonably believed by it to be
genuine and to be signed by the proper party or parties.
4. Unless the Trust Company receives written instructions of State Street
to the contrary, the Trust Company is authorized;
a. To promptly receive and collect all income and principal with
respect to the Property and to deposit cash receipts in the Cash
Account;
b. To promptly exchange securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for
the securities themselves);
7
<PAGE>
c. To promptly surrender securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for securities in the Custody Account and such
rights entitlement or fractional interest bears an expiration date,
the Trust Company will endeavor to obtain State Street Bank's
instructions, but should these not be received in time for the Trust
Company to take timely action, the Trust Company is authorized to
sell such rights entitlement or fractional interest and to credit
the Custody Account;
e. To hold registered in the name of the nominee of the Trust Company
or its agents such Securities as are ordinarily held in registered
form;
f. To execute in State Street's name for the Customer, whenever the
Trust Company deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from
the Property; and
g. To pay or cause to be paid, from the Cash Account any and all taxes
and levies in the nature of taxes imposed on such assets by any
governmental authority and shall use reasonable efforts, to promptly
reclaim any foreign withholding tax relating to the Cash Account.
5. If the Trust Company shall receive any proxies, notices, reports or
other communications relative to any of the Securities of the Custody
Account in connection with tender offers, reorganization, mergers,
consolidations, or similar events which may have an impact upon the
issuer thereof, the Trust Company shall promptly transmit any such
communication to State Street by means as will permit State Street to
take timely action with respect thereto.
6. The Trust Company is authorized in its discretion to appoint brokers and
agents in connection with the Trust Company's handling of transactions
relating to the Property provided that any such appointment shall not
relieve the Trust Company of any of its responsibilities or liabilities
hereunder.
7. Written instructions shall include (i) instructions in writing signed by
such persons as are designated in writing by State Street; (ii) telex or
tested telex instructions of State Street; (iii) other forms of
instruction in computer readable form as shall be customarily utilized
for the transmission of like information; and (iv) such other forms of
communication as from time to time shall be agreed upon by State Street
and the Trust Company.
8. The Trust Company shall supply periodic reports with respect to the
safekeeping of assets held by it under this Agreement. The content of
such reports shall include but not be limited to any transfer to or from
any account held by the Trust Company hereunder and such other
information as State Street may reasonably request.
9. In addition to its obligations under Section 2b hereof, the Trust
Company shall maintain such other records as may be necessary to
identify the assets hereunder as belonging to each Customer.
10. The Trust company agrees that its books and records relating to its
actions under this Agreement shall be opened to the physical, on-
premises inspection and audit at reasonable ties by officers of,
auditors employed by or other representatives of State Street (including
to the extent permitted under applicable law the independent public
accountants for any Customer) and shall be retained for such period as
shall be agreed by State Street and the Trust Company.
11. The Trust Company shall be entitled to reasonable compensation for its
services and expenses as custodian under this Agreement, as agreed upon
from time to time by the Trust Company and State Street.
8
<PAGE>
12. a. The Trust Company shall exercise reasonable care in carrying out the
provisions of this Agreement, but shall be kept indemnified by and
shall be without liability for any action taken or omitted by it in
good faith without negligence. It shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trust
Company, State Street or both) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice.
b. If State Street requires the Trust Company to take action with
respect to the Securities, which action involves the payment of money
or which action may, in the opinion of the Trust Company, result in
the Trust Company being liable for the payment of money or incurring
liability of some other form, State Street, as a prerequisite to
requiring the Trust Company to take action, shall provide indemnity
to the Trust Company in an amount and form satisfactory to it.
13. The Trust Company shall not be liable for any loss resulting from
political risks such as exchange control restrictions, expropriation,
nationalization, insurrection, civil strife, armed hostilities or other
similar events or any loss resulting from Acts of God, nuclear incident
and the like under circumstances where the Trust Company has exercised
reasonable care.
14. The Trust Company agrees (i) the property held hereunder is not subject
to any right, charge, security interest, lien or claim of any kind in
favor of the Trust Company or any of its agents or its creditors except
a claim of payment for their safe custody and administration and (ii)
the beneficial ownership of the Property shall be freely transferable
without the payment of money or other value other than for safe custody
or administration.
15. This Agreement may be terminated by the Trust Company or State Street by
60 days' written notice to the other, sent by registered mail or express
courier. The Trust Company, upon the date this Agreement terminates
pursuant to notice which has been given in a timely fashion, shall
deliver the Property to the Customer unless the Trust Company has
received written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered.
16. The Trust Company and State Street shall each use its best efforts to
maintain the confidentiality of the Property in each Cash Account and
Custody Account, subject, however, to the provisions of any laws
requiring the disclosure of the Property.
17. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given
when received in writing or by confirmed telex by the Trust Company or
State Street at their respective addresses set forth below, or at such
other address as be specified in each case in a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Trust Company ATTN:
---------------------------------
STATE STREET LONDON LIMITED
State Street House
12 Nicholas Lane
London EC4N 7BN
Great Britain
9
<PAGE>
18. This Agreement shall be governed by and construed in accordance with the
laws of the United Kingdom except to the extent that such laws are prompted
by the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy of this
letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By: Signature illegible
--------------------------------
Vice President
Date: November 13, 1985
--------------------------------
Agreed to by: STATE STREET LONDON LIMITED
By: Signature illegible
--------------------------------------
Date: 13th November, 1985
------------------------------------
10
<PAGE>
AMENDMENT TO THE
CUSTODIAN AGREEMENT
-------------------
AGREEMENT made this 12th day of May, 1992 by and between STATE STREET BANK
AND TRUST COMPANY ("State Street") and Institutional Liquid Assets (the "Fund").
WITNESSETH THAT:
----------------
WHEREAS, State Street and the Fund are parties to a Custodian Agreement
dated December 27, 1978 (as amended to date, the "Agreement") which governs the
terms and conditions under which State Street maintains custody of the
securities and other assets of the Fund:
NOW THEREFORE, State Street and the Fund hereby amend the terms of the
Custodian Agreement and mutually agree to the following:
Insert as the final paragraph under Responsibility of Custodian:
---------------------------
If the Fund requires State Street to advance cash or securities for any
purpose or in the event that State Street or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Agreement, 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 Fund shall be security therefor and should the Fund fail to repay State
Street promptly, State Street shall be entitled to utilize available cash
and to dispose of Fund assets to the extent necessary to obtain
reimbursement.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and on its behalf by a duly authorized officer as of the
day and year first above written.
ATTEST: GOLDMAN SACHS
INSTITUTIONAL LIQUID ASSETS
/s/ Steve Hopkins /s/ Scott M. Gilman
- ------------------------- ---------------------------------
Treasurer
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ N. Stokes /s/ Al Mead
- ------------------------- ---------------------------------
Assistant Secretary Vice President
11
<PAGE>
EXHIBIT 8(d)
------------
June 14, 1984
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978 between Institutional Liquid Assets (the "Fund") and
State Street Bank and Trust Company ("State Street"). Particular reference is
made to (S)11 of the Custodian Agreement which provides that the Fund shall pay
to State Street, as custodian, the compensation and expense reimbursement set
forth in the schedule of even date therewith delivered by State Street to the
Fund (the "Initial Schedule") until a different compensation and expense
reimbursement schedule shall be agreed upon in writing between the parties.
Terms used herein which are defined in the Custodian Agreement have the same
meaning herein as in the Custodian Agreement.
The purpose of this letter is to confirm our understanding that the Initial
Schedule is amended effective May 1, 1984 so that paragraph C shall read as
follows:
"C. Wire Fees
Type of Wire Fee
------------ ---
Wire Out......................................... $3.60
Wire In.......................................... $3.75"
Please confirm your agreement to the foregoing by executing and returning
the enclosed copy of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By Signature illegible
------------------------------
As its President
------------------------------
STATE STREET BANK AND TRUST COMPANY
By B. Weidlich
---------------------------
As its Vice President
----------------------------
<PAGE>
EXHIBIT 8(f)
SUBCUSTODIAN AGREEMENT
AGREEMENT dated as of March 29, 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 interest 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 ($2,000,000);
1
<PAGE>
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.
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) Not withstanding 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
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
2
<PAGE>
Federal funds or, in extraordinary circumstances, in clearing
house funds;
(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, in any such case, 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 form the Custodian of instructions directing
disposition of securities in a manner other
3
<PAGE>
than or for purposes other than the manners and purposes
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
Subscustodian acting pursuant to the terms of this Agreement. The
Subscustodian shall hold in such account or accounts, subject to the
provision hereof, all cash received by it for the account of the
Custodian as custodian for such Portfolio.
B. Upon receipt of instruction 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 the
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);
(2) in connection with the subscription, conversion, exchange, tender
or surrender of securities owned by
4
<PAGE>
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 or
written notice 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;
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
5
<PAGE>
for the Subcustodian to perform any or several of its obligations arising
under the provision 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
remover) 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 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
6
<PAGE>
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 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
7
<PAGE>
any agent all accrued fees and unreimbursed expenses the payment for which
is contemplated by paragraph X hereof upon receipt by the Custodian of a
final statement setting for the 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 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
XV. This Agreement constitutes the entire understanding and agreement of the
parties hereto, and neither this Agreement nor any provisions hereof may be
change, 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.
8
<PAGE>
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.
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")
B. Weidlich
------------------------------------
Vice President
BANK OF AMERICAS NATIONAL TRUST
AND SAVINGS ASSOCIATION
(The "Subcustodian")
Signature illegible
------------------------------------
Asst. Vice President
9
<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
--------------
10
<PAGE>
EXHIBIT 8(g)
------------
March 21, 1985
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978, between Institutional Liquid Assets (the "Fund") and
State Street Bank and Trust Company ("State Street"). Terms herein which are
defined in the Custodian Agreement have the same meaning herein as in the
Custodian agreement.
The purpose of this letter is to confirm our understanding that the
Custodian Agreement is amended as follows:
1. The first sentence of (S)2 is deleted and the following two sentences
are inserted in its place:
"State Street will hold all cash of each Portfolio, other than
cash held by such Portfolio in an account established and maintained in
accordance with Rule 17f-3 under the 1940 Act and under other than cash
held in the "GSFG Joint Account" [which consists of a cash account and
securities account established for the purchase of certain repurchase
agreements by the Fund and certain other funds advised by Goldman, Sachs &
Co. which have amended their respective custodian agreements with State
Street to provide for the establishment of such an account (collectively,
the Funds")], in the banking department of State Street in a separate
account or accounts in the name of such Portfolio, subject only to draft or
order by State Street in accordance with the terms of this Agreement. The
cash in the GSFG Joint Account will also be held in a separate account by
the banking department of State Street on behalf of the
<PAGE>
Funds under the name "GSFG joint Account", subject only to draft or
order by State Street in accordance with the terms of this
Agreement."
2. The first sentence of (S)3A is amended to read in full as follows:
"State Street will hold in a separate account, and physically
separated at all times from those of any other persons, firms,
corporations or other Portfolios, pursuant to the provisions hereof,
all securities received by State Street for or for the account of a
Portfolio, except those securities received (either in certificate
form or through an entry crediting State Street's account at the
Federal Reserve Bank with such securities) in connection with
repurchase agreements to be held in the GSFG Joint Account and, if
applicable, written evidence of such repurchase agreements, which
Account shall also be separate and physically separated at all times
from those of any other person, firms, corporations or other
Portfolios."
3. A new (S)3E is added, reading in full as follows:
"E. State Street acknowledges that each Fund will participate
in the income earned or accrued in the GSFG Joint Account and in the
custodial fees incurred in the operation of the Account on the basis
of the percentage of the total amount in the Account on any day
represented by its share of the Account and that each Fund will have
an undivided interest in the repurchase agreements in the Account
equal to such percentage."
4. (S)4A is amended by adding the following sentence at the end of
(S)4A:
"Repurchase agreements purchased by the GSFG Joint Account
shall also be governed by the provisions of this (S)4A.:
5. (S)4F is redesignated as (S)4G and a new (S)4F is added, reading
in full as follows:
"F. GSFG Joint Account. To transfer cash to the GSFG Joint
------------------
Account."
6. The lead-in paragraph of (S)5 shall be amended to read in full as
follows:
"State Street shall have the sole power to release or deliver
any securities of a Portfolio held by it pursuant to this Agreement, including
securities held in the GSFG Joint Account. The term "account
<PAGE>
of such Portfolio" as used in this (S)5 shall also be deemed to
include the GSFG Joint Account. Upon receipt of proper instructions,
State Street will transfer, exchange, or deliver securities held by it
hereunder only for the following purposes:"
7. (S)11 is amended by adding at the end of the first sentence after
the world "parties" the follow parenthetical:
"(including the fund's ratable share of the compensation and
expense reimbursement with regard to the GSFG Joint Account based on
the percentage of the total amount in the Account on any day
represented by its share of the Account.)"
Please confirm your agreement to the foregoing by executing and
returning the enclosed copy of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By: Signature illegible
-------------------------------
As its President
----------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ B. Weidlich
----------------------------
As its Vice President
----------------------
<PAGE>
Exhibit 8(h)
November 7, 1985
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02102
Attention: Fiduciary Control
Gentlemen:
Pursuant to the Custodian Agreement dated December 27, 1978 between State
Street Bank and Trust Company (the "Bank") and Institutional Liquid Assets (the
"Fund"), the Fund hereby advises, authorizes and instructs the Bank to permit
redemption of Fund units by check as follows:
1. A unitholder requesting the checkwriting privilege must complete
and furnish an authorization form (Exhibit A) and a signature card (Exhibit B).
2. Upon receipt of the appropriate signature card properly completed
and executed, the Bank will establish a checking account for the unitholder and
the Transfer Agent will send to the unitholder Fund checks (the "Checks")
bearing the name of the Bank and the Fund and the account number of such
unitholder.
3. Upon the presentment of a Check to the Bank for payment, the Bank
shall accept such Check as a proper redemption request, arrange for the
redemption of sufficient units in the unitholder's account to cover such Check,
deposit the proceeds of such redemption into the unitholder's checking account
and pay such Check if:
(a) The Check meets the Bank's normal standards, rules and regulations
for honoring checks presented to it, provided, however, with respect to an
account with a signature card signed by more than one person, the Bank may
accept less than all the signatures on the Check if so authorized by such
persons on such signature card and may accept a signature differing from that
appearing on such signature card by having an abbreviated first name or by
lacking or adding a middle initial provided the signature otherwise is
acceptable.
(b) The amount of the Check is within the minimum and maximum
limitations set forth in the Fund's current prospectus, but in no event, to
exceed $5 million.
<PAGE>
(c) There are sufficient units in the unitholder's account to cover the
amount of such Check not including (i) units which have been purchased by other
-----
than Federal Funds wire within 15 calendar days immediately prior to the
- ----
presentment of such Check and (ii) units for which stock certificates have been
issued.
4. The bank agrees to provide reimbursement for any payment of a Check
which is not "properly payable" within the meaning of Section 4-401 of the
Uniform Commercial Code and the provisions hereunder.
5. The Bank will return through normal check collection channels any Check
which is not acceptable as a proper redemption request and will promptly provide
a copy of such Check to Goldman, Sachs & Co. along with an explanation of the
reason for not accepting such Check.
6. Within a reasonable time after a Check redemption is made, the Transfer
Agent will send a confirmation of such redemption to the unitholder and the Bank
will separately return the Check to the unitholder.
The Bank will notify Goldman, Sachs & Co. on a daily basis of the drafts
received and paid.
We agree to pay any additional fees including bank service charges and
out-of-pocket expenses resulting from the foregoing instructions.
In order to properly identify the forms to be used in connection with the
checkwriting privilege, we have dated and initialed the enclosed Exhibits.
Please indicate your agreement to the foregoing by executing and returning
the enclosed copy of this letter.
Sincerely,
Institutional Liquid Assets
By: /s/ E. Whitman, Jr.
----------------------------------
Its: President
--------------------------
State Street Bank and Trust Co.
By: /s/ B. Weidlich
---------------------------
Its: Vice President
--------------------
<PAGE>
EXHIBIT A
AUTHORIZATION FOR REDEMPTION BY CHECK 10/85
INSTRUCTIONS:
INDIVIDUAL ACCOUNT: Complete Steps 1, 3, and 4.
INSTITUTIONAL ACCOUNT: Complete all Steps.
STEP 1 -- Fill in account title and address. (This information must be identical
to the registration of the unitholder account in Institutional Liquid
Assets) Also fill in your Institutional Liquid Assets unitholder
account number.
STEP 2 -- Institutions should enter type of organization.
STEP 3 -- Print name(s) in section (a) and sign in section (b). Officers of
organizations should give their titles.
STEP 4 -- Have your signature(s) guaranteed by a commercial bank or by a
brokerage firm that is a member of a recognized securities exchange.
Retain the ACCOUNT COPY for your records and forward the BANK COPY and FUND
COPY together with the signature card to:
Goldman, Sachs & Co., 5050 Sears Tower, Chicago, IL 60606
Goldman, Sachs & Co. will forward this form and the signature card to State
Street Bank & Trust Co.
- --------------------------------------------------------------------------------
STEP 1 At the undersigned's request, State Street Bank and Trust
Insert Account Company ("the Bank") has established a personal checking account
Number If Known for the undersigned. When a check is presented on the
undersigned's personal checking account for payment, the Bank
will present the check to Institutional Liquid Assets as
authority to redeem a sufficient number of units in the
undersigned's unitholder account with Institutional Liquid
Assets to cover the amount of the check. Checks may not be for
less than $500. Institutional Liquid Assets is hereby authorized
and directed to accept and act upon checks presented to it by
the Bank and to redeem a sufficient number of units in the
undersigned's unitholder account with Institutional Liquid
Assets and forward the proceeds of such redemption to the Bank.
The undersigned understands and agrees that units for which
certificates have been issued or which have been in his
Institutional Liquid Assets account for fifteen (15) calendar
days or less and which were purchased by other than a Federal
Funds wire will not be redeemed without the express
authorization of Goldman, Sachs & Co. Any checks written for
amounts which include such units will be returned marked "Non-
Sufficient Funds". The undersigned further understands and
agrees that Institutional Liquid Assets and/or its agents will
not be liable for any loss, expense or cost arising out of check
redemptions. The undersigned will be subject to the Bank's
rules expense or cost arising out of check redemptions. The
undersigned will be subject to the Bank's rules and regulations
governing such checking accounts, including the right of the
Bank not to honor checks in amounts exceeding the value of the
undersigned's unitholder account at the time the check is
presented for payment. The Bank has reserved the right to
change, modify or terminate this checking account privilege at
any time.
Account Names(s):
------------------------------------------------
Address:
--------------------------------------------------------
Portfolio/Account No.:
------------------------------------------
- --------------------------------------------------------------------------------
STEP 2 We hereby certify that each of the persons listed in STEP 3
If other than has been duly elected and is now legally holding the office set
an individual, opposite his name.
insert type of We further certify that the said
organization, ---------------------------
(corporation, is duly organized and existing and has the power to take the
trust, etc.) action called for by this Continuing Redemption Authorization.
We further certify that the signatures on the signature card
which is submitted with this Application and is incorporated
into this Agreement as if set forth herein, are authentic and
represent individuals with legal capacity to sign on behalf of
the above.
- --------------------------------------------------------------------------------
STEP 3
Names and We further certify and agree that the above certifications,
Signatures authorizations and appointments in this document will continue
until State Street Bank and Trust Company receives actual
written notice of any change thereof.
<TABLE>
<S> <C>
(a) Please print or type full names and titles: (b) Sign below:
----------------------------------------------- --------------------------------
(Individual, President, Trustee, (Signature)
General Partner or Representative)
----------------------------------------------- --------------------------------
(If joint account, insert the name (Signature)
of joint account holder)
----------------------------------------------- --------------------------------
(Secretary of Corporation) (Signature)
</TABLE>
(The President or Vice President and Secretary Treasurer or Assistant Secretary
of a Corporation must sign)
- --------------------------------------------------------------------------------
STEP 4
Banker or Signatures(s) Guaranteed:
Broker signs -------------------------------------
(Name of Bank or Broker)
By:
----------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
This authorization must be completed and received by State Street Bank and Trust
Company before redemption requests by check will be honored. Retain your copy
for your records. Any amendment or modification of the above information will
require that a new Authorization form be completed and submitted and may require
the execution of new signature cards.
BANK COPY
<PAGE>
EXHIBIT B
SIGNATURE CARD
INSTITUTIONAL LIQUID ASSETS
Account Number State Street Bank and Trust Company Name of Portfolio
- ------------------------------------------------------------------------------
Account Names(s) as Registered
- ------------------------------------------------------------------------------
Authorized Signature(s)
1
- -------------------------------------------------------------------------------
2
- -------------------------------------------------------------------------------
3
- -------------------------------------------------------------------------------
4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[_] Check if all signatures are required
_________________________
[_] Check if only one signature is required DATE
[_] Check if combination of signatures is required and specify number_______
SUBJECT TO CONDITIONS ON REVERSE SIDE
The payment of funds is authorized by the signature(s) appearing on the reverse
side.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated. If
no indication is given, all checks will require all signatures. Each signatory
guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) [the "Depositor(s)"] signing
this card and, as agent, is authorized and directed to present checks drawn on
this checking account to the Fund or its transfer agent as request to redeem
units of the Fund registered in the name of the Depositor(s) in the amounts of
such checks and to deposit the proceeds of such redemptions in this checking
account. The Bank will be liable only for its own negligence.
The Depositor(s) agrees to be subject to the rules and regulations of the Bank
pertaining to this checking account as amended from time to time. The Bank
reserves the right to change, modify, or terminate this checking account and
authorization at any time.
REV.8/85
<PAGE>
Exhibit 8(i)
MONEY TRANSFER SERVICES AGREEMENT
The undersigned has been duly empowered to take all necessary steps on
behalf of Institutional Liquid Assets (the "Fund"), including the execution of
this Agreement, to implement procedures for the transfer of any of the Fund's
funds on deposit with State Street Bank and Trust Company (the "Bank") in the
manner described below. The following provisions shall govern such transfers:
1. The Fund has listed on Exhibit A those persons who are authorized to order
such transfers ("Authorized Representatives"). Such transfers will be effected,
in accordance with this Agreement, upon the receipt by the Bank of any
telephonic, telegraphic, oral or written instruction other than a check, draft
or similar negotiable instrument (an "Order") from any Authorized
Representative.
2. The Fund shall specify in Exhibit A any desired instructions relating to
Orders, including any limitations the accounts to be charged or on the authority
of the Authorized Representatives ("Instructions"). Failure to specify any
Instructions shall mean that there are no such Instructions. The Authorized
Representatives and the Instructions may be amended in writing by the Fund from
time to time effective upon receipt by the Bank of a certified copy of a
resolution or action of the Trustees of the Fund, provided such notice is
received in a timely manner so as to afford the Bank a reasonable opportunity to
act on such notice.
3. Upon the receipt of any Order, the Bank shall charge the account
designated. The Bank reserves the right to charge any other account of the fund
in the event no account is designated, or if designated, such account contains
insufficient collected balances.
4. In performing the transfer services which are the subject of this
Agreement, the Bank shall exercise reasonable care and shall be liable to the
Fund only for losses which are caused directly by the Bank's failure to exercise
such care and not for incidental or consequential losses.
5. Either party may terminate this Agreement by giving written notice by
regular mail to the other party, such notice not affecting rights and duties
prior to such time.
INSTITUTIONAL LIQUID ASSETS
AUTHORIZED BY: E. J. Whitman, Jr. President
--------------------------------
(PRINTED NAME) (TITLE)
/s/ E. J. Whitman, Jr.
--------------------------------
(AUTHORIZED SIGNATURE)
Accepted:
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
By: /s/ B. Weidlich Date: 11-14-85
------------------ -----------
<PAGE>
EXHIBIT A
AUTHORIZED REPRESENTATIVES INSTRUCTIONS
E.J. Whitman, Jr.
Gerald Van Lith
John Mosior None
Nancy McLaughlin
Nancy Mucker
Doris Dawson
Jodi Brown Only authorized to
Kerry Daniels release by oral
Annette Boland confirmation standard
batched redemptions.
<PAGE>
Exhibit 8(j)
July 22, 1986
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978 between Institutional Liquid Assets (the "Fund") and
State Street Bank and Trust Company ("State Street"). Particular reference is
made to (S)11 of the Custodian Agreement which provides that the Fund shall
pay to State Street, as custodian, the compensation and expense reimbursement
set forth in the schedule of even date therewith delivered by State Street to
the Fund (the "Initial Schedule") until a different compensation and expense
reimbursement schedule shall be agreed upon in writing between the parties.
Terms used herein which are defined in the Custodian Agreement have the same
meaning herein as in the Custodian Agreement.
The purpose of this letter is to confirm our understanding that the Initial
Schedule is amended effective April 1, 1986 so that paragraph C shall read as
follows:
"C. Wire Fees
Type of Wire Fee
------------ ---
Wire Out...................... $4.55
Wire In....................... $4.70"
Please confirm your agreement of the foregoing executing and returning the
enclosed copy of this letter.
Very truly yours,
Institutional Liquid Assets
By: /s/ E. J. Whitman, Jr.
-------------------------
As Its President
STATE STREET BANK AND
TRUST COMPANY
By: /s/ Peter R. O'Donnell
----------------------------
As Its Vice President
--------------
<PAGE>
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
(617) 786-6268
STATE STREET
November 27, 1985
Institutional Liquid Assets
6060 Sears Tower
Chicago, Illinois 60606
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978, between Institutional Liquid Assets and State Street
Bank and Trust Company. The purpose of this letter is to confirm our agreement
that the Custodian Agreement is amended as follows:
(S) 4E is amended by adding the following sentence at the end of (S) 4E:
In connection with the redemption or repurchase of Units of the Fund,
-----
the Custodian shall honor checks drawn on the Custodian by a holder of
Units, which checks have been furnished by the Transfer Agent to the
holder of Units, 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.
Please confirm your agreement to the foregoing by executing and returning
the enclosed copy of this letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By /s/ B. Weidlich
---------------------------------
as its Vice President
-----------------------------
Agreed, this 27th day of November, 1985
INSTITUTIONAL LIQUID ASSETS
By /s/ E. J. Whitman, Jr.
-----------------------
as its President
------------------
<PAGE>
EXHIBIT 8 (K)
WIRING AGREEMENT
THIS AGREEMENT, dated as of June 20, 1987 (the "date of this Agreement"),
among STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation
("State Street"), GOLDMAN, SACHS & CO., a New York limited partnership
("Goldman"), and THE NORTHERN TRUST COMPANY, an Illinois banking corporation
("Northern").
WHEREAS, State Street has been appointed custodian for Institutional Liquid
Assets, a Massachusetts business trust ("ILA");
WHEREAS, State Street desires Northern to act as its sub-custodian pursuant
to the Custodian Agreement (the "Custodian Agreement") dated December 27, 1978,
as amended, between State Street and ILA and to perform the services hereinafter
provided relating to maintaining the accounts referred to herein, the receipt
and transmission of funds by Federal Reserve wire in connection with the
purchase and redemption of units of ILA and the distribution of dividends to
unitholders of ILA;
WHEREAS, Goldman is the investment adviser and distributor for ILA and will
be providing certain Instructions (as such term is defined in Articles 4 and 5
hereof) in such capacities to Northern and State Street in connection with such
wires;
WHEREAS, although Goldman will be giving Instructions to Northern and State
Street pursuant to this agreement, it is understood that Goldman shall be giving
such Instructions to Northern and State Street in its capacities as investment
adviser and distributor and that neither Northern nor State Street shall be
deemed to be the agent of Goldman; and
WHEREAS, Northern is willing to perform the services referred to above upon
the terms and conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto do hereby agree as follows:
1.00 FUNDS RECEIVED IN PURCHASE OF UNITS.
-----------------------------------
1
<PAGE>
1.01 Transfer of Remittances Received in Collected Federal Funds to State
--------------------------------------------------------------------
Street.
------
Northern will receive remittances in purchase of units of ILA by
Federal Reserve wire from existing and prospective unitholders of ILA.
Remittances for ILA received by Northern in collected federal funds before
4:45 p.m, Chicago time, or such other time as may be agreed upon, on each
"Business Day" (as such term is defined in Article 7 hereof) will be
transferred periodically during such Day to State Street by Federal Reserve
wire for crediting to ILA's custodial account pursuant to and in accordance
with Instructions from Goldman. Remittances received by Northern in
collected federal funds on any Business Day that are not transferred to
State Street by Federal Reserve wire on the same Business Day will be so
transferred as early as practicable on the following Business Day upon
Instructions from Goldman. Northern shall make available to Goldman by
9:00 a.m., Chicago time, on each Business Day information concerning the
amount of any federal funds received by Northern on the preceding Business
Day that were not transferred to State Street on such preceding Business
Day. The phrase "received by Northern", or its equivalent, wherever
appearing in this Agreement means received by Northern in Chicago unless
otherwise indicated.
1.02 Delayed Transfers. Remittances in purchase of units of ILA available
-----------------
for transfer to State Street by Northern as hereinbefore provided which are
being held pending transfer by Northern as described in Section 1.01 will
be deposited in an account in the name of State Street as custodian for ILA
as described below (the "Purchase Account"). If all of the funds in the
Purchase Account are not transferred to State Street on the same day such
funds that were not so transferred pending transfer of such funds to State
Street on the same day such funds are received by Northern, Northern shall
be penalized and shall be liable to State Street for a penalty with respect
to all or such portion of such funds that were not so transferred pending
transfer of such funds to State Street and Northern shall be responsible
for the safekeeping of such funds. Such penalty shall be computed using the
Federal Funds rate Less Reserves (as such term is defined in Article 7)
applicable to each day of the period for which such penalty shall be
payable as such Rate may change from day to day during such period.
Northern will transfer such funds as soon as practicable upon receipt of
Instructions from Goldman and such penalty as soon as practicable upon
receipt of Instructions from State Street.
1.03 Advice to Goldman, Sachs & Co. Regarding Remittances. Periodically
----------------------------------------------------
during each Business Day, Northern will make available to Goldman
information concerning all remittances received on that same day or, at
Goldman's request only, on the immediately preceding Business Day.
Computer-generated written advice of remittances will be provided to
Goldman upon request on the next Business Day. Where such information is
made available on the same day on which the transaction occurs, the
information is subject to verification by Northern's overnight balancing
activities. Northern shall make available to Goldman the particulars of any
changes made to such
2
<PAGE>
information as a consequence of such verification process at or before 9:00
a.m. Chicago time on the next Business Day.
1.04 Handling of Remittances. In handling remittances for purchases of
-----------------------
units of ILA and in dispositions thereof, Northern will act solely as a
sub-custodian for State Street and will observe normal and customary
banking practices to such end. Except as provided in Section 1.02,
Northern will suffer no liability to any person or party whatsoever in
connection with handling such remittances and dispositions provided that it
has performed its function with respect thereto without negligence or
misconduct and in good faith. Without limiting the generality of Section
1.02, if due to negligence or other misconduct, equipment or power failure,
Acts of God, labor problems, or acts or omissions of third parties,
Northern has failed to transfer funds in the correct amount by the time
specified in this article 1 and if collected federal funds were received by
Northern by the times specified in this Article 1, Northern shall be liable
to State Street for the penalty described in Section 1.02 and for
safekeeping such funds as described in such Section, but Northern shall
suffer no further liability under this Agreement (including but not limited
to sections 7.06 and 7.12), including consequential damages.
1.05 Request for Instructions. Northern may, when in doubt as to the
------------------------
disposition of any remittance, ask Goldman for Instructions as to proper
disposition thereof, and Goldman shall use its best efforts to promptly
provide such Instructions.
2.00 REDEMPTIONS AND CASH DIVIDENDS - REMITTANCE OF PROCEEDS BY WIRE.
---------------------------------------------------------------
2.01 Redemption Advice. It is contemplated that unitholders of ILA will
-----------------
request from time to time to the redemption of all or a portion of their
units and that certain of such unitholders will request the payment of
dividend to them in cash rather than additional units of ILA. The funds
required for such redemptions or dividend payments will be remitted to each
unitholder so requesting by Federal Reserve wire (unless unavailable) to
such unitholder's designated bank account. Such redemptions and dividend
payments will be governed by this Article.
2.02 Processing of Redemption Requests and Cash Dividend Payments. Goldman
------------------------------------------------------------
will aggregate information concerning individual redemption requests
advised to it and will provide Northern with Instructions concerning such
requests periodically during each Business Day. In addition, Goldman will
provide Northern with Instructions concerning the amount of cash dividends
payable to unitholders of ILA at such times during the year as provided in
ILA's then current Prospectus and Statement of Additional Information. The
Instructions concerning redemption requests and cash dividends described
above are hereinafter referred collectively as "Wiring Instructions". If
Northern receives electronic Wiring Instructions (including an Approval
with respect thereto, as such term is defined in Section 4.02) or
telephonic Wiring Instructions from Goldman by 3:30 p.m., Chicago time
3
<PAGE>
(in the case of electronic Instructions), or 3:45 p.m., Chicago time (in
the case of telephonic Instructions) on a given Business Day with respect
to redemption requests and the corresponding funds from State Street by the
time specified in Section 2.03, Northern shall transmit the funds referred
to in such Instructions as early as practicable on such Day. If Northern
receives written Wiring Instructions with respect to redemption request and
the corresponding funds from State Street by the time specified in Section
2.03, Northern shall use its best efforts to transmit the funds referred to
in such Instructions as early as practicable on such Day. If Northern
receives electronic Wiring Instructions (including an Approval with respect
thereto) or telephonic Wiring Instructions from Goldman by 9:00 a.m.,
Chicago time, on a given Business Day with respect to cash dividends and
the corresponding funds from State Street by the time specified in Section
2.03, Northern shall transmit the funds referred to in such Instructions as
early as practicable on such Day. If Northern receives written Wiring
Instructions on a given Business Day with respect to cash dividends and the
corresponding funds from State Street by the time specified in Section
2.03, Northern shall use its best efforts to transmit the funds referred to
in such Instructions as early as practicable on such Day. For purposes of
the preceding four sentences, Northern shall be deemed to have received
"the corresponding funds from State Street by the time specified in Section
2.03" if Northern receives Instructions pursuant to Section 2.06 to
transfer such funds from the Purchase Account to the Disbursement Account
(as such term is defined in Section 2.03) by such time. If Northern
receives Wiring Instructions (including, where applicable, an Approval with
respect thereto) and funds on a given Business Day but does not either
transmit such funds in the correct amounts on such Day or, pursuant to
Instructions from Goldman, transmit such funds to State Street, then
Northern shall be penalized and shall be liable to the intended recipients
of such funds for a penalty with respect to all or such portion of such
funds that were not so transmitted from the date on which they should have
been transmitted until the date they are transmitted or until the
Instructions to transmit the funds have been withdrawn. Such penalty shall
be computed using the Federal Funds Rate Less Reserves applicable to each
day of the period for which such penalty shall be payable as such Rate may
change from day to day during such period.
2.03 Redemption and Dividend Funds. Not later than Northern's receipt or
-----------------------------
Wiring Instructions, or within a reasonable time thereafter, Goldman will
provide Instructions to State Street as to the amount of funds required to
pay the redemptions and/or dividends stated in such Wiring Instructions.
State Street will promptly thereafter transfer such amount of funds in a
collected federal funds by Federal Reserve wire to Northern for credit to
the disbursement account in the name of State Street as custodian for ILA
at Northern (the "Disbursement Account"). If State Street receives
Instructions by 2:00 p.m., Chicago time, on a given Business Day, State
Street shall transfer the amount of funds
4
<PAGE>
specified in such Instructions by 3:30 p.m., Chicago time, on such Day. If
State Street so timely receives Instructions but does not either (i)
transmit such amount of funds by such time or (ii) assuming there is such
amount of funds in the Purchase Account, instruct Northern to transfer such
amount of funds from the Purchase Account to the Disbursement Account by
such time, then State Street shall, except to the extent ILA did not have
adequate funds to be so transmitted or transferred, be liable (iii) in the
case where State Street as custodian for ILA borrows such funds pursuant to
Section 2.07, to ILA for compensation with respect to the amount of such
borrowed funds from the date on which they were borrowed until the date on
which they should have been repaid pursuant to Section 2.07 or (iv) in all
other cases, to the intended recipients of such funds who do not receive
them on such Business Day for compensation with respect to all or such
portion of such funds that were not so transmitted from the date on which
they should have been timely transmitted until the date they are
transmitted or until the Instructions to transmit the funds have been
withdrawn. Such compensation shall be computed using the Federal Funds Rate
Less Reserves applicable to each day of the period for which such
compensation shall be payable as such Rate may change from day to day
during such period. Upon receipt of such funds by Northern in the
Disbursement Account, Northern will promptly transfer by Federal Reserve
wire in collected federal funds the redemption or dividends amounts, as the
case may be, to the designated bank accounts of the respective unitholders
stated in the applicable Wiring Instructions. If Northern does not receive
a sufficient amount of funds to pay all of the redemptions and/or dividends
specified in the Wiring Instructions, it shall use its best efforts to
promptly so inform Goldman and State Street.
2.04 Handling Wire Redemptions and Dividend Payments. In making transfers
-----------------------------------------------
of redemption or cash dividend funds by wire pursuant to wiring
Instructions from Goldman, Northern will act solely as a sub-custodian for
State Street and will observe normal and customary banking practices to
such end. Except as provided in Section 2.02 and in this Section, Northern
will suffer no liability to any person or party whatsoever in connection
with such transfers provided that it has performed its function with
respect thereto without negligence or misconduct and in good faith. In the
event that Northern fails to transfer funds or transfers them in a less
than correct amount by the time specified in this Article 2 and if
collected federal funds were received by Northern by the time specified in
this Article, Northern shall be penalized and shall be liable to the
intended recipient of such funds for the penalty as described in Section
2.02 and Northern shall be responsible for the safekeeping of such funds,
but Northern shall suffer no further liability under this Agreement
(including but not limited to Sections 7.06 and 7.12), including
consequential damages. In the event that Northern transfers funds pursuant
to this Article 2 in a greater than correct amount or to an
5
<PAGE>
incorrect party, Northern shall be liable for the amount of such funds
transferred in a greater than correct amount or to an incorrect party if
Northern is unable to recover such funds by the next Business Day, but
Northern shall no further liability under this Agreement (including but not
limited to Sections 7.06 and 7.12), including any consequential damages
resulting from making such transfer.
2.05 Late Transfers. In the event Northern or State Street does not
--------------
transfer funds by the times specified in Sections 2.02 and 2.03,
respectively, they shall transfer such funds as soon as practicable
thereafter.
2.06 Transfers from Purchase Account. In the event State Street does not
-------------------------------
transfer an amount of funds to Northern that is sufficient to complete the
Wiring Instructions by the time provided in Section 2.03, Goldman may give
Instructions to Northern or State Street may give Instructions (as such
term is defined in Article 6 hereof) to Northern to transfer funds then
credited to the Purchase Account to the Disbursement Account.
2.07 Loans By Northern. In the event State Street does not transfer an
-----------------
amount of funds to Northern that is sufficient to complete the Wiring
Instructions by the time provided in Section 2.03, upon Instructions from
both Goldman and State Street, Northern shall have the option, but not the
obligation, to lend to State Street as custodian for ILA all or part of the
funds that would be sufficient to complete such Wiring Instructions. The
interest rate on the loan shall be the Federal Funds Rate Less Reserves and
such interest shall accrue each day based on the principal amount of the
loan outstanding. The accrued interest and the principal amount of the
loan shall be repaid to Northern on the next Business Day. State Street as
custodian for ILA (and not in an individual capacity) agrees to borrow such
amounts on behalf of ILA upon instructions from ILA at the interest rate
and other terms specified in this Section.
2.08 Returned Wires. Redemption or dividend funds wired by Northern to
--------------
the designated bank account of any unitholder which are returned to
Northern will be held by Northern in the Disbursement Account pending
further Instructions from Goldman. Northern shall use its best efforts to
promptly advise Goldman of the existence of any such returned funds.
3.00 FEES
----
3.01 Fees to be Received by Northern. For the services performed by
-------------------------------
Northern as provided by this Agreement, State Street agrees to pay Northern
such fees on a transaction basis at such times and in such manner as may
from time to time be agreed upon by and between State Street and Northern.
Such fees as currently in effect are set forth on Exhibit A.
4.00 INSTRUCTIONS FROM GOLDMAN, SACHS & CO. TO NORTHERN.
--------------------------------------------------
6
<PAGE>
4.01 Service Specifications. Instructions and the procedures followed by
----------------------
Northern and Goldman in connection with such instructions shall conform to
the written service specifications ("Specifications") as established
between Northern and Goldman except to the extent that such Specifications
are inconsistent with this Agreement.
4.02 Electronic Instructions. Northern shall be deemed to have received
-----------------------
instructions ("Instructions") from Goldman upon receipt of electronic
Instructions as described in this Section 4.02 Northern may assume that
electronic Instructions received from Goldman are genuine electronic
Instructions if received in accordance with the terms of this Agreement and
the Specifications, including security identification sequences.
Electronic Instructions shall be deemed to be received by Northern when the
message to be sent has been entirely received and acknowledge in accordance
with the Specifications. Goldman may issue additional electronic
Instructions approving such Instructions as initially received. Such
additional Instructions approving such Instructions as initially received
are hereinafter referred to as the "Approval." The Approval may be issued
by Goldman either with respect to single Instruction as initially received
or as to a group of such Instructions. An electronic Instruction will not
be executed by Northern until an Approval is received with respect to such
Instruction.
4.03 Telephonic Instructions. Northern shall be deemed to have received
-----------------------
instructions ("Instructions") from Goldman upon receipt of telephonic
Instructions given by one or more persons who have been authorized pursuant
to Section 4.06 by a general partner of Goldman to give the particular
class of Instructions in question. Northern shall verify all telephonic
Instructions by telephoning as practicable a person that is so authorized
to give such Instructions other than the authorized person who initiated
such Instructions, except in the case of so-called "repetitive transfers"
where the identity of the transferor and the identity and bank account of
the transferee shall have been communicated to Northern in an Instruction
given by one or more persons who have been authorized by a general partner
of Goldman to give such class of Instructions. In cases where verification
is required (i.e., those situations not involving such "repetitive
transfers") Northern shall not be deemed to have received a telephonic
Instruction until such Instruction has been so verified.
4.04 Written Instructions. Northern shall be deemed to have received
--------------------
instructions ("Instructions") from Goldman upon receipt of written
instructions (including receipt by telecopier), provided that such written
instructions are signed by at least two of the persons who have been
authorized pursuant to Section 4.06 by a general partner of Goldman to give
the particular class of Instructions in question.
4.05 Security. Northern will assign unique security information to Goldman
---------
and unique security information to each person who has been authorized
pursuant to Section 4.06 by a general partner or
7
<PAGE>
an authorized employee (as such term is defined in such Section) of Goldman
to give Instructions. Such security information shall be kept confidential
by Northern and by Goldman. Without limiting the generality of the
foregoing, such security information shall be disclosed by Northern only to
the person authorized pursuant to Section 4.06 by a general partner or an
authorized employee of Goldman to receive such security information and
such security information shall be forwarded by Northern to such person in
a sealed envelope marked "Confidential." If Goldman gives a telephonic or
written Instruction to Northern to delete specified security information
assigned to a given person or persons, Northern will immediately delete
such security information so such information is no longer able to be used
for issuing Instructions and, upon receipt of authorization pursuant to
Section 4.06, Northern will promptly issue new security information to the
affected person or persons in accordance with the Specifications. Any such
telephonic Instruction will be confirmed by Goldman in writing within five
Business Days. If such Instruction is not so confirmed, the validity of the
Instruction shall not be affected and Northern shall use its best efforts
to promptly request that such Instruction be so confirmed.
4.06 Instructions Generally. All Instructions from Goldman to Northern
----------------------
shall conform to the procedures in general use by Northern, provided that
(i) Northern shall have informed Goldman of such procedures in writing
prior to the date of this Agreement; (ii) Northern shall inform Goldman in
writing at least ten Business Days in advance of any changes in such
procedures; and (iii) such procedures are not inconsistent with the terms
of this Agreement. Different persons may be authorized by Goldman to give
Instructions for different purposes, and Instructions may be general or
specific in terms. Written advice signed by a general partner of Goldman
may be received and accepted by Northern as conclusive evidence of the
authority of an employee of Goldman (an "authorized employee") to (iv) give
Instructions of the class or classes so designated, (v) receive security
information of the type or types so designated or (vi) advise Northern as
to additional persons who are authorized to (A) give Instructions of the
class or classes so designated or (B) receive security information of the
type or types so designated. Written advice signed by an employee of
Goldman given the authority described in clause (vi) of the preceding
sentence may be received and accepted by Northern as conclusive evidence of
the authority of any additional persons to (vii) give Instructions of the
class or classes so designated or (viii) receive security information of
the type or types so designated. The written advice described in the two
preceding may be considered by Northern to be in full force and effect
until receipt or written or telephonic Instructions to the contrary.
Any such telephonic Instruction will be confirmed by Goldman in writing
within five Business Days. If such Instruction is not so confirmed, the
validity of the
8
<PAGE>
Instruction shall not be affected and Northern shall use its best efforts
to promptly request that such Instruction be so confirmed.
5.00 INSTRUCTIONS FROM GOLDMAN, SACHS & CO. TO STATE STREET
------------------------------------------------------
5.01 Written Instructions. State Street shall be deemed to have received
--------------------
instructions ("Instructions") from Goldman upon receipt of written
instructions (including receipt by telecopier), provided that such
instructions are signed by at least two of the persons who have been
authorized by a general partner of Goldman to give the particular class of
Instructions in question.
5.02 Telephonic Instructions. State Street shall be deemed to have
-----------------------
received instructions ("Instructions") from Goldman upon receipt of
telephonic Instructions given by one or more persons who have been
authorized by a general partner of Goldman to give the particular class of
Instructions in question. Two or more of the persons designated by Goldman
to give telephonic Instructions shall promptly confirm such telephonic in
writing to State Street. If State Street receives an Instruction that it
has reason to believe conflicts with another Instruction, it shall use its
best efforts to seek clarification from Goldman and State Street shall halt
such affected transaction to the extent possible if Goldman agrees to hold
State Street harmless for any costs or liabilities incurred as a result of
halting such transaction.
5.03 Instructions Generally. Different employees of Goldman may be
----------------------
authorized by Goldman to give Instructions for different purposes, and
Instructions may be general or specific in terms. Written advice signed by
a general partner of Goldman may be received and accepted by State Street
as conclusive evidence of the authority of any such persons to give
Instructions and may be considered to be in full force and effect until
receipt of written notice to the contrary.
6.00 INSTRUCTIONS FROM STATE STREET TO NORTHERN.
------------------------------------------
6.01 Written Instructions. Northern shall be deemed to have received
--------------------
instructions ("Instructions") from State Street upon receipt of written
instructions (including receipt by telecopier) provided that such
Instructions are signed by at least two of the persons who have been
authorized by an officer of State Street to five the particular class of
Instructions in question.
6.02 Telephonic Instructions. Northern shall be deemed to have received
-----------------------
instructions ("Instructions") from State Street upon receipt of telephonic
Instructions given by one or more persons who have been authorized by an
officer of State Street to give the particular class of Instructions in
question. Northern shall verify all telephonic Instructions by telephoning
as soon as practicable a person that is so authorized to give such
Instructions other than the authorized person
9
<PAGE>
who initiated such Instructions. In such case, Northern shall not be
deemed to have received a telephonic Instruction until such Instruction has
been so verified.
6.03 Instructions Generally. All Instructions from State Street to
----------------------
Northern shall conform to the procedures in general use by Northern,
provided that (i) Northern shall have informed State Street of such
procedures in writing prior to the date of this Agreement; (ii) Northern
shall inform State Street in writing at least ten Business Days in advance
of any changes in such procedures; and (iii) such procedures are not
inconsistent with the terms of this Agreement. Different persons may be
authorized by State Street to give Instructions for different purposes, and
Instructions may be general or specific in terms. Written advice signed by
an officer of State Street may be received and accepted by Northern as
conclusive evidence of the authority of any such persons to give
Instructions and may be considered to be in full force and effect until
receipt of written notice to the contrary.
7.00 GENERAL PROVISIONS
------------------
7.01 Federal Reserve Deadlines and Policies. Notwithstanding that
--------------------------------------
Northern and State Street have committed in Articles 1 and 2 that if funds
and Instructions (including an Approval with respect thereto, where
applicable) are received by certain specified times, then they shall
transmit funds by certain specified times, it is understood that it may at
times not be possible for them to transmit the funds by the specified time
because of Federal Reserve system failures, Federal Reserve policies, as
such policies may be in effect from time to time, and changes in Federal
Reserve deadlines regarding the Federal Reserve wire transfer system.
Nonetheless, Northern and State Street shall be liable for paying a penalty
or compensation, whichever the case may be, with respect to such funds as
contemplated by Articles 1 and 2.
7.02 Best Efforts. If a party to this Agreement does not receive funds or
------------
Instructions (Including an Approval with respect thereto, where applicable)
on a timely basis, it is nonetheless understood that such party shall use
its best efforts to transfer the funds or make available information by the
time of the applicable deadline or as soon thereafter as practicable. If
Goldman has reason to believe that it may not be able to issue Instructions
on a timely basis, it will use its best efforts to alert Northern or State
Street, as applicable, concerning this inability.
7.03 Remedies Cumulative. Except where expressly provided to the contrary
-------------------
in this Agreement, all remedies herein specified are cumulative and
additional to all remedies provided by applicable law.
7.04 Duration and Termination. Any party hereto may terminate this
------------------------
Agreement at any time provided that (i) such termination does not become
effective until on or after the first anniversary of
10
<PAGE>
the date of this Agreement and (ii) written notice of such termination is
given a least 120 days before the effective date of such termination.
Prior to the first anniversary of the date of this Agreement, if another
party (iii) has breached its representations and warranties under this
Agreement, (iv) has been given written notice of such breach and (v) is not
in compliance with its representations and warranties under this Agreement
within 30 days after receipt of such notice, then the party giving such
notice may terminate this Agreement effective 30 days after the giving of
written notice to such effect to the other parties hereto. Notwithstanding
the foregoing, State Street may at any time terminate this Agreement if it
no longer serves as custodian for ILA, and Goldman may at any time
terminate this Agreement if it no longer serves as both investment adviser
and distributor for ILA, provided that written notice of termination is
given by the terminating party to the other parties hereto as soon as
possible after it is determined that such party will no longer so serve
ILA, such termination to become effective as of the date on which such
party will no longer serve ILA. Any written notice given pursuant to this
Section 7.04 shall be by mail or by any means of electronic transmission
resulting in a written text, directed to the addresses provided in Section
7.05. Upon the commencement of the liquidation of, receivership for, or
filing of any voluntary or involuntary petition in bankruptcy or similar
insolvency proceeding with respect to, any other party hereto, then in any
such event, any party hereto may terminate this Agreement immediately
effective upon the giving of written notice to such effect in the manner
provided in the preceding sentence to all of the other parties hereto at
the addresses specified in Section 7.05 below. No termination of this
Agreement as provided in this Section will affect the rights or remedies of
the parties hereto with respect to any conduct, event or occurrence taking
place prior to the time such termination becomes effective.
7.05 Addresses. All written Instructions, notices and other
---------
communications shall be addressed as follows or to such other address as a
party may hereafter specify:
(a) If to Northern:
The Northern Trust Company
50 South Lasalle Street
Chicago, Illinois 60675
Attention: Electronic Banking Services Division-
Wire Transfer Services
N-3
(b) If to State Street:
State Street Bank and Trust Company
Mutual Fund Services
P.O. Box 1713
11
<PAGE>
Boston, Massachusetts 02105
Attention: John Ricciuti
(c) If to Goldman, Sachs & Co.:
Goldman, Sachs & Co.
Funds Group
4900 Sears Tower
Chicago, Illinois 60606
Attention: Nancy L. Mucker
7.06 Representations and Warranties. Goldman and State Street each
------------------------------
represents and warrants that all functions to be performed by each of them,
respectively, in this Agreement are fully authorized by the agreements
governing the functions of each of them as investment adviser and
distributor, on the one hand, and as custodian, on the other hand, for ILA.
Northern represents and warrants that it has, and agrees to maintain,
sufficient systems and equipment in good working order and capable of
performing its obligations under this Agreement. Each of State Street and
Northern represents and warrants that it has the corporate authority, and
each of Goldman, State Street and Northern represents and warrants that it
has the authority under its organizational documents, to enter into this
Agreement and to perform its obligations hereunder.
7.07 "Business Day". The term "Business Day" as used in this Agreement
---------------
refers to those days when all of Goldman, State Street, Northern and the
Federal Reserve Bank of New York are open for business, which is Monday
through Fridays except for holidays on which one or more of such
organizations is closed.
7.08 "Federal Funds Rate Less Reserves." The term "Federal Funds Rate
-----------------------------------
Less Reserves" for a given day shall mean the effective federal funds rate
for such day as determined by the Federal Reserve Bank of New York and
published in H.15 Federal Reserve Statistical Release Selected Interest
--------------------------------------------------------------
Rates multiplied by the difference between 1 and the reserve requirement as
-----
defined and set by the Federal Reserve Board for transaction accounts and
expressed in decimal form for such day applicable to the bank paying a
penalty or compensation, whichever the case may be, pursuant to this
Agreement. For example, if such effective federal funds rate for a given
day is 5.00%, and the percentage reserve requirement for such day
applicable to the bank paying a penalty or compensation, whichever the case
may be, pursuant to this Agreement is 0.12, the applicable Federal Funds
Rate Less Reserves is 5.00% times (1 - 0.12), which equals 5.00% times .88
which equals 4.40%. The numbers used in computing the Federal Funds Rate
Less Reserves shall be expressed out to, and the federal Funds Rate Less
Reserves shall be computed out to, four decimal places.
12
<PAGE>
7.09 Amendments. This Agreement may be amended at any time upon the
----------
written consent and approval of each of the parties hereto.
7.10 Captions. The captions employed with respect to Articles and
--------
sections in this Agreement are for convenient reference solely and will not
affect the construction or interpretation hereof.
7.11 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto, their respective
successors and assigns.
7.12 Third Party Beneficiaries. It is understood and agreed that the
-------------------------
entities referred to as the "intended recipients of such funds" in Sections
2.02, 2.03 and 2.04 shall be third party beneficiaries of this Agreement
and that they shall be entitled to enforce the obligation of Northern (in
the case of Sections 2.02 and 2.04) or State Street (in the case of Section
2.03), as applicable, to pay the penalty or compensation, whichever the
case may be, referred to in such Sections.
7.13 Exclusivity. State Street agrees that, during the term of this
-----------
Agreement, it shall not appoint an agent or another sub-custodian to
perform the duties Northern is assuming hereunder concerning the receipt
and transmission of funds by Federal Reserve wire in connection with the
purchase and redemption of units of ILA and the distribution of dividends
to unitholders of ILA. State Street further agrees that, during the term
of this Agreement, it will not perform such duties itself except where
individual circumstances warrant on a case-by-case basis in order to
effectively serve the interest of ILA or its unitholders.
7.14 Governing Law. The laws of the State of Illinois shall govern the
-------------
construction and interpretation hereof.
7.15 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.16 Effectiveness. This Agreement shall become effective five days after
-------------
receipt by both Northern and State Street of written notice from Goldman to
such effect.
* * *
13
<PAGE>
EXHIBIT A
----------
AUTOMATED WIRE TRANSFER SERVICES
<TABLE>
<CAPTION>
SERVICE UNIT FEE
- ------- ---- ---
Outgoing Wire Transfer
- ----------------------
<S> <C> <C>
Cashline Repetitive Transfer $ 3.00
Automated Debit Transfer 1.50
Highspeed Confirmation Transfer .25
----
TOTAL $ 4.75
Cashline Nonrepetitive Transfer $ 3.00
Automated Debit Transfer 1.50
Highspeed Confirmation Transfer .25
----
TOTAL $ 4.75
Cashline Internal Transfer $ 3.00
Automatic Debit Transfer 1.50
Highspeed Confirmation Transfer .25
----
TOTAL $ 4.75
Incoming WireTransfer
- ---------------------
Incoming Transfer Transfer $ 3.00
Automatic Credit Transfer 1.50
Highspeed Notification Transfer .25
----
TOTAL $ 4.75
</TABLE>
14
<PAGE>
ADDITIONAL CASH MANAGEMENT SERVICE FEES
<TABLE>
<CAPTION>
SERVICE UNIT FEE
- ------- ---- ---
MANUAL WIRE TRANSFER (TELEPHONE, WRITTEN REQUEST)
- -------------------------------------------------
<S> <C> <C>
Manual Repetitive Transfer $ 8.50
Automatic Debit Transfer 1.50
Highspeed Confirmation Transfer .25
-----
Total: $ 10.25
Manual Nonrepetitive Transfer $ 11.50
Automatic Debit Transfer 1.50
Highspeed Confirmation Transfer .25
-----
Total: $ 13.25
Internal Transfer Debit Transfer 4.00
Automatic Debit Transfer 1.50
Highspeed Confirmation Transfer .25
-----
Total: $ 5.75
Internal Transfer Credit Transfer $ 4.00
Automatic Credit Transfer 1.50
Highspeed Notification Transfer .25
-----
Total: $ 5.75
Cashline Information Reporting
- ---------------------------------------------
Timeshare Notification - Previous Day Notif. 4.00
Timeshare Line - Previous Day Line .50
Detail Base Charge Month 45.00
</TABLE>
15
<PAGE>
EXHIBIT 1
September 1, 1989
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Ladies and Gentlemen;
Reference is made to the Wiring Agreement (the "Wiring Agreement") dated as of
June 20, 1987 among The Northern Trust Company ("Northern"), State Street Bank
and Trust Company ("State Street") and Goldman, Sachs & Co. ("Goldman") relating
to Institutional Liquid Assets (the "Fund). Terms used herein which are defined
in the Wiring Agreement have the same meaning herein as in the wiring Agreement.
It is understood that Northern has requested to be indemnified for certain
claims and that State Street is willing to do so, provided certain terms and
conditions are met. Accordingly, the purpose of this letter is to confirm our
understanding that the wiring Agreement is amended by the addition of a new
Section 7.17 as follows:
"7.17 Indemnification of Northern. Northern shall be indemnified and
---------------------------
held harmless by State Street for any action taken by Northern in
carrying out the terms and provisions of this Agreement if done in good
faith and without negligence or misconduct on Northern's part and if
done in accordance with normal and customary banking practices;
provided that: (i) Northern shall not be entitled to be indemnified or
held harmless to the extent Northern is liable to the intended
recipients of funds pursuant to Section 2.02 or 2.04 hereof; (ii)
Northern will use all reasonable care to identify and notify State
Street and the Fund promptly concerning any situation which presents,
or appears likely to present, the probability of a claim for
indemnification against State Street under this Section; and (iii) in
any case in which State Street may be asked to so indemnify and hold
harmless Northern, State Street and the fund shall have been fully and
promptly advised of all pertinent facts known to Northern concerning
the situation in question. State Street or the Fund, using counsel of
its choice, shall have the option to defend Northern in any claims,
actions, suits or other proceedings which may be a subject of a claim
for
16
<PAGE>
The Northern Trust Company
State Street Bank and Trust Company
September 1, 1989
Page 2
indemnification against State Street under this Section and both State
Street and the Fund shall be given timely notice by Northern to permit
exercise of that option as early as possible with respect to such
proceeding. In the event State Street or the Fund elects to defend
Northern, State Street or the Fund will so notify Northern, and
thereupon State Street or the Fund shall take over complete defense of
the proceeding, and thereafter Northern shall incur no further legal
or other expenses for which it shall be entitled to be indemnified and
held harmless by State Street. Northern shall not confess any claim
or make any compromise in any case in which State Street will be asked
to indemnify and hold harmless Northern, except with State Street's
and the Fund's prior written consent. It is understood that the Fund
has agreed to indemnify and hold harmless State Street for any amount
that it pays to Northern in accordance with this Section 7.17,
provided certain terms and conditions are met. Notwithstanding
anything herein to the contrary, this Section 7.17 shall not confer
the right upon Northern to be indemnified or held harmless with
respect to any claims, actions, suite or other proceedings made or
brought by State Street (including claims under Sections 1.02 and 1.04
hereof), Goldman or the Fund."
Please confirm your agreement to the foregoing by executing and
returning the enclosed copy of this letter.
Very truly yours,
GOLDMAN, SACHS & CO.
By:
------------------------------
Its: General Partner
THE NORTHERN TRUST COMPANY
By:
-----------------------------
Its:
-----------------------------
STATE STREET BANK AND TRUST COMPANY
By:
-----------------------------
Its:
-----------------------------
17
<PAGE>
September 1, 1989
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Ladies and Gentlemen:
Reference is made to the Custodian Agreement (as amended, the
"Custodian Agreement") dated December 27, 1978 between Institutional Liquid
Assets (the "Fund") and State Street Bank and Trust Company ("State Street").
Terms used herein which are defined in the Custodian Agreement have the same
meaning herein as in the Custodian Agreement. Reference is also made to the
Wiring Agreement (the "Wiring Agreement") dated as of June 20, 1987 among State
Street, the Northern Trust Company ("Northern") and Goldman, Sachs & Co.
pursuant to which State Street has employed Northern as its sub-custodian to
perform certain services relating to the receipt and transmission of funds by
Federal Reserve wire in connection with the purchase and redemption of units of
the Fund and the distribution of dividends to the Fund's unitholders.
The Fund understands that the Wiring Agreement has today been amended
to provide Northern with certain indemnification rights against State Street,
provided Northern complies with certain terms and conditions. A copy of such
amendment is attached hereto as Exhibit 1.
The purpose of this letter is to confirm our understanding that, in connection
with the above-referenced amendment of the wiring Agreement, the Custodian
Agreement is amended by the addition of a new (S)10C as follows:
"C. Indemnity Regarding Northern. State Street shall be
----------------------------
indemnified and held harmless by the Fund for any amount which State
Street pays to The Northern Trust Company (`Northern") as
indemnification in accordance with Section 7.17 of the Wiring
Agreement the "Wiring Agreement") dated as of June 20, 1987, as
amended, among State street, Northern and Goldman, Sachs & Co.;
provided that in any case in which the Fund may be asked to indemnify
and hold harmless State Street pursuant to this 10C, the Fund shall
have been fully and promptly advised of all pertinent facts known to
State Street concerning the situation in question. In any case in
which State Street or the Fund have the option to defend Northern in
any claim, action, suit or other proceeding which
18
<PAGE>
State Street Bank and Trust Company
September 1, 1989
Page 2
may be a subject of State Street's indemnification and hold harmless
of Northern under Section 7.17 of the Wiring Agreement, the Fund may
elect to take over the complete defense of the proceeding using
counsel of its choice. In the event that the Fund notifies State
Street that the Fund is electing to take over such defense, State
Street shall immediately give notice to Northern to such effect and,
unless otherwise requested by the Fund, State street shall not
participate in the defense of such proceeding or incur further legal
or other expenses in connection therewith. In the event that the Fund
notifies State Street that the Fund notifies State Street that the
Fund believes it is advisable to consent to Northern's confessing a
claim or making a compromise in a case which may be a subject of State
Street's indemnification and hold harmless of Northern under Section
7.17 of the Wiring Agreement, State Street shall immediately so
consent. (S)10B shall be inapplicable to any matter covered by this
(S)10C. In addition, (S)10B shall be inapplicable to the matters
referred to in Sections 2.03(iii) and (iv) of the Wiring Agreement."
This letter agreement is executed by or on behalf of the Fund and the
obligations hereunder or referred to herein 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.
Please confirm your agreement to the foregoing by executing and
returning the enclosed copy of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By: /s/ Nancy Mucker
------------------------
Its: Vice President
------------------------
STATE STREET BANK
AND TRUST COMPANY
By: /s/ Thomas E. Swedelund
-----------------------
Its: Vice President
-----------------------
19
<PAGE>
EXHIBIT 8(1)
June 20, 1987
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978, between Institutional Liquid Assets (the "Fund") and
State Street Bank and Trust Company ("State Street"), as amended. Terms herein
which are defined in the Custodian Agreement have the same meaning herein as in
the Custodian Agreement.
The purpose of this letter is to confirm our understanding that the
Custodian Agreement is amended as follows:
1. The first sentence of (S)2 is deleted and the following sentence is
inserted in its place:
"State Street will hold all cash of each Portfolio, other than (i)
cash held by such Portfolio in an account established and maintained in
accordance with Rule 17f-3 under the 1940 Act; (ii) cash held by such Portfolio
in the account established and maintained in accordance with Release No. 6863
dated December 6, 1971 under the 1940 Act for the purpose of paying redemptions,
dividends and distributions to Unitholders of the Portfolios by check (the
"Permitted Checking Account") and (iii) cash held in the "GSFG Joint Account"
[which consists of a cash account and a securities account established for the
purchase of certain repurchase agreements by the Fund and certain other funds
advised by Goldman, Sachs & Co. which have amended their respective custodian
agreements with State Street to provide for the establishment of such an account
(collectively, the "Funds")], in the banking department of State Street in a
separate account or accounts in the name of such Portfolio, subject only to
draft or order by State Street in accordance with the terms of this Agreement.
2. The seventh sentence of (S)2 is amended by inserting "the investment
adviser of the Fund and" after the fourteenth word thereof.
3. (S)4C is amended by inserting "and to transfer cash by wire or other
means to the Permitted Checking Account for the purpose of effecting
payment of dividends or other distributions to Unitholders of such
Portfolio by check"" after the last word thereof.
<PAGE>
4. The first sentence of (S)4E is amended by inserting "(including by wire
or other transfer to the Permitted Checking Account for the purpose of
effecting payment of such redemptions by check)" after the last word
thereof.
5. The second sentence of (S)4E is amended by substitution "investment
adviser" in place of the nineteenth and twentieth words thereof (such
nineteenth and twentieth words being "transfer agent").
The provisions of this letter shall become effective five days after
receipt by State Street of written notice from the Fund to such effect.
Please confirm your agreement to the foregoing by executing and returning
the enclosed copy of this letter.
Very truly yours
INSTITUTIONAL LIQUID ASSETS
By: /s/ Paul Nagel
-------------------------
As its Chairman of the Trustees
STATE STREET BANK AND TRUST COMPANY
By: /s/ Peter R. O'Connell
--------------------------------
As its Vice President
-------------------------
<PAGE>
EXHIBIT 8(m)
June 20, 1987
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60675
Ladies and Gentlemen:
Institutional Liquid Assets (the "Fund") has established on the date of
this letter a checking account at The Northern Trust Company. As you know, the
Fund is subject to provisions of the Investment Company Act of 1940 (the "1940
Act") and the regulations thereunder. Section 17(f) of the 1940 Act and
Investment Company Release No.6863 dated December 6, 1971 (the "Release") govern
the maintenance of this checking account. In accordance with the provisions of
the Release, the Fund hereby notifies you of the requirements set forth therein.
A copy of the Release is attached to this letter as Exhibit A and the contents
of the Release are hereby incorporated in this letter by reference.
Without limiting the generality of the above, the Fund hereby instructs
you, in accordance with the Release, that although it is intended that no checks
will be presented to you in connection with this account, if any should be,
checks presented to you made out to "Cash" or to the order of the Fund or any
named petty cashier of the Fund or endorsed in favor of the Fund may be accepted
for deposit only and may not be cashed.
- ----------------
It is our understanding that you shall be responsible for safeguarding
forms of checks in your possession or control from unauthorized use. It is also
our understanding that you currently maintain insurance in scope and amount as
set forth in Exhibit B hereto and will advise the Fund of any changes which
occur in the scope or amount of such insurance as soon as practicable but no
more than 10 days after any such change occurs.
You understand that this letter is executed by the Fund and than any
obligations under this letter are not binding upon any of the Trustees, officers
or unitholders of the Fund individually, or upon Goldman, Sachs & Co., the
Fund's investment adviser and distributor, but are binding only upon the Fund
and its assets and property. The Declaration of Trust of the Fund, as amended,
is on file with the Secretary of the Commonwealth of Massachusetts.
This letter will become effective five days after receipt by you of written
notice from the Fund to such effect.
<PAGE>
Please acknowledge receipt of this letter as indicated below, indicate your
agreement to follow the instructions referred to herein and confirm the
understandings referred to herein by signing and returning the enclosed copy of
this letter.
INSTITUTIONAL LIQUID ASSETS
By /s/ Paul Nagel
------------------------------
Its Chairman of the Trustees
------------------------------
The Northern Trust Company acknowledges receipt of this letter, agrees to follow
the instructions referred to herein and confirms the understandings referred to
herein, all as of the 20th day of June, 1987.
THE NORTHERN TRUST COMPANY
By /s/ Mildred C. Venden Bergl
----------------------------
Its Vice President
----------------------------
Attachments
<PAGE>
EXHIBIT B
---------
NORTHERN TRUST COMPANY
BANKERS BLANKET BOND
<TABLE>
<CAPTION>
LIMIT INSURED WITH: EXPIRATION DATE
- ----- ------------- ---------------
<S> <C> <C>
$50,000,000 National Union June 1, 1988
Aetna Casualty & Surety
Reliance Insurance Company
Lloyds of London
</TABLE>
Coverage: Robbery, theft, fidelity, and mysterious disappearance.
<PAGE>
GUIDELINES RELATING TO CHECKING ACCOUNTS ESTABLISHED PURSUANT TO SECTION 17(1)
OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED,
BY INVESTMENT COMPANIES HAVING BANK CUSTODIANS
Securities and Exchange Commission
Washington, D.C. 20549
Investment Company Act of 1940
Release No. 6863
This is the seventh in a series of releases 1/relating to the Investment
-
Company Amendments Act of 1970 ("1970 Act"), Public Law 91-547, enacted December
14, 1970. The purpose of this release is to call to the attention of registered
investment companies and other interested persons some important provisions of
the 1970 Act which will take effect on December 14, 1971 relating to checking
accounts maintained by registered investment companies having bank custodians
and also to establish guidelines in the use of such accounts.
Checking Accounts Maintained by Investment Companies
- ----------------------------------------------------
Under Section 17(f) of the Investment Company Act of 1940 ("Act"), a
registered management investment company must place and maintain its securities
and similar investments in the custody of (1) a bank, or (2) a member firm of a
national stock exchange subject to rules and regulations prescribed by the
Commission, or (3) itself, subject to rules, regulations or orders prescribed by
the Commission. Section 17(f) was amended by the 1970 Act to provide that if an
investment company employs a bank as custodian for securities and similar
investments then all of its "cash assets", including proceeds from the sale of
its portfolio securities, shall likewise be held by a bank or banks. It should
be noted that the term "cash assets" encompasses all cash of the investment
company, including, for example, interest and dividends derived from portfolio
securities of the registered investment company, cash proceeds from the sale of
the investment company's own securities, and cash derived from realization of a
legal judgment.
A self-operating exception from bank custodianship is provided in new
Section 17(f), however, for cash maintained in checking accounts in banks,
meeting certain qualifications. The statute requires that the aggregate
balances in such checking accounts cannot exceed the fidelity bond maintained by
the registered investment company covering the officers and employees authorized
to draw on the checking accounts. These checking accounts are maintained by
registered investment companies to meet current expenses and sometimes as
dividend distribution accounts, and, of course, should not be used to such an
extent that they constitute a substitution for bank custodianship.
The Act, as amended, does not require a registered investment company to
employ a bank as custodian. If, however, a company chooses to use a bank as
custodian, its shareholders are entitled to expect that the cash held by the
company is afforded a degree of protection similar to that given to its
portfolio securities. The Commission has authority to allow specified amounts
of petty cash to be held apart from bank custodianship. That exception will be
subject of a separate rule not discussed herein.
Section 17(f) states, in pertinent part: ...If a registered company
maintain its securities and similar investments in the custody of a qualified
bank or banks, the cash proceeds from the sale of such securities and similar
investments and other cash assets of the company shall likewise be kept in the
custody of such a bank or banks, ...except that such a registered company may
maintain a checking account in a bank or banks having the qualification
prescribed in paragraph (1) of Section 26(a) of this title for the trustees of
unit investment trusts with the balances of such account or the aggregate
balance of such accounts at no time in excess of the amount of the fidelity
bond, maintained pursuant to Section 17(g) of this title, covering the officers
or employees authorized to draw on such account or accounts."
The Commission believes the following guidelines should be considered and
utilized by registered investment companies establishing and maintaining
checking accounts pursuant to Section 17(f) of the Act, as amended. 2/
-
(1) Any checking account or accounts created under Section 17(f) of the Act,
as amended, should be created and funded with monies drawn from the bank
custodian account pursuant to a resolution of the board of directors of the
registered investment company. The resolution should specify the purposes for
which monies placed in the checking account may be disbursed.
(2) The balance maintained in such accounts should not exceed that amount
which is necessary to meet current recurring expenses and distributions declared
and payable to shareholders. Pursuant to the statute, such amounts should not in
the aggregate exceed fidelity bond coverage.
(3) Checks written on such an account should be prenumbered by a printer and
limited to a specified reasonable maximum dollar amount established by a
resolution of the board of directors.
(4) Checks written on such an account should require the signatures of at
least two persons designated by resolution of the board of directors.
(5) All persons who handle cash or are involved in cash transactions must be
covered by the fidelity bond maintained pursuant to Section 17(g) of the Act.
(6) The depository bank should be notified in writing of the above
requirements, and also should be instructed that checks presented to the bank
made out to "Cash" or to the order of the investment company may be accepted for
---
deposit only and may not be cashed. All check disbursements made out of the
- ------- ----
account of the investment company should be made payable to a designated payee.
No checks should be cashed except that checks of specified maximum amount
limited to the amount of authorized petty cash and made out to the order of
"(Named Person), Petty Cashier" may be cashed.
(7) All checks when presented for signature should be accompanied by adequate
documentation supporting the disbursement. Supporting documentation should be
effectively noted to show the item has been paid immediately following the
signing of the check.
(8) A person other than a person who receives, records, deposits, disburses,
or authorizes disbursements of cash should be designated by the board of
directors to receive the bank statement and supporting data by mail, unopened,
and shall reconcile the bank statement monthly.
(9) Cash receipt should be deposited within a reasonable time after receipt.
Usually this would require that they be transmitted to the bank on the same day
received.
(10) Other controls as are necessary in the circumstances of the particular
company should be established.
By the Commission.
Ronald F. Hunt
Secretary
- - - - -
1/ See Investment Company Act Release Nos. 6336, 6392, 6430, 6440, 6506 and
6568 (1971).
- - - - - -
2/ These guidelines are consistent with existing accounting procedures. See,
Holmes, Auditing Principles and Procedure, Business Publications, Inc. (1966);
Statements on Auditing Procedure, No. 33, Chapter 5, issued by the Committee on
Auditing Procedure of the American Institute of Certified Public Accountants
(1963); Case Studies in Auditing Procedure, No. 6, "A Management Investment
Company of the Open-End Type", issued by American Institute of Certified Public
Accountants (1949).
<PAGE>
EXHIBIT 8(N)
October 5, 1988
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement, as amended (the "Custodian
Agreement"), between each of the undersigned investment companies (a "Fund") and
State Street Bank and Trust Company ("State Street"). We are aware that you are
appointing Security Pacific National Bank ("Security Pacific") to act in the
capacities indicated below. This appointment requires that certain arrangements
between us be altered, as set forth below:
1. Each Fund sometimes invests in money market securities calling for
same date settlement in the Twelfth Federal Reserve District (the "Twelfth
District"). In this regard, Security Pacific has advised that it is willing
to act as State Street's subcustodian for the purpose of taking delivery of
such securities, effecting payment therefore, collecting the income on such
securities, collecting the proceeds of such securities upon the maturity
thereof and remitting such income and proceeds to State Street for the
account of the relevant Fund Portfolio;
2. Among the money market securities which may to a limited extent be
purchased by a Fund under the circumstances described above are overnight
or weekend repurchase agreements with banks pertaining to marketable
securities issued or guaranteed as to principal and interest by the United
States Government or by agencies or instrumentalities thereof held in the
Federal book entry system ("Bank Overnight Repurchase Agreements"). Since
these Bank Overnight Repurchase Agreements will not be entered into until
later in the day, after the Twelfth District's Federal book entry system
("System") has closed, the issuing bank (which may be Security Pacific) is
to deliver to State Street (a) prior to entering into any such Agreements
with respect to a Fund a written undertaking pertaining to such Fund to the
effect that (i) such bank will, on the date each such Agreement is entered
into, transmit to State Street by telecopier and by mail a written
confirmation of such Agreement (identifying, among other things, the
securities to which such Agreement pertains), which confirmation shall
constitute affirmation of compliance with the undertakings referred to in
(ii) and (iii) below insofar as such Agreement is concerned, (ii) such bank
will, on the date each such Agreement is entered into, transfer on its
books the securities underlying such Agreement (which shall consist only of
securities theretofore deposited and then held in that System account
maintained by such bank which consists only of
<PAGE>
securities held by it for customers and not for its own account) from such
bank's other accounts to a separate account to be held for the sole and
exclusive benefit of, and as agent for, State Street as custodian of the
relevant Fund Portfolio in connection with such Agreement, and (iii) such
bank, promptly upon State Street's request, will transfer registration of
such securities in the System from such bank to State Street's Federal book
entry system account in which it holds customer securities, and (b) on the
date each such Agreement is entered into such bank will transmit to State
Street by telecopier and by mail the written confirmation referred to in
(a) (i) above. Upon maturity of the Bank Overnight Repurchase Agreement,
State Street will release the issuing bank from its undertaking referred to
in (b) above upon receipt of the related proceeds.
With respect to the transactions contemplated by (a) clause 1 above, each
Fund hereby severally authorizes State Street to appoint Security Pacific as
State Street's subcustodian pursuant to (S)8B of such Fund's Custodian Agreement
provided that Security Pacific shall be liable to State Street for Security
Pacific's acts or omissions not in good faith or with negligence or misconduct
on Security Pacific's part, and (b) clause 2 above, each Fund hereby severally
authorizes State Street to appoint Security Pacific as State Street's agent on
the condition that at the time of such appointment Security Pacific delivers to
State Street the written undertaking referred to in clause 2 (a) above.
Please confirm your agreement to the foregoing and your intention to make
the appointments described herein by executing and returning the enclosed copy
of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
ASSET MANAGEMENT PORTFOLIOS
INSTITUTIONAL INCOME FUND
INSTITUTIONAL SECURITIZED ASSETS
CENTERLAND FUND
By: E. J. Whitman, Jr.
----------------------------
As its President
------------------
Confirmed, this 21/st/
day of November, 1988
STATE STREET BANK AND TRUST COMPANY
By: [Signature illegible]
-------------------------------------------
As its Vice President
---------------------------------
<PAGE>
EXHIBIT 8(o)
AMENDMENT TO CUSTODIAN AGREEMENT
AGREEMENT made this 19th day of July , 1988 by and between STATE STREET
BANK AND TRUST COMPANY (the "Custodian") and INSTITUTIONAL LIQUID ASSETS (the
"Fund").
WHEREAS, the Custodian and the Fund are parties to a Custodian Agreement
dated December 27, 1978, as amended (the "Custodian Agreement"), which governs
the terms and conditions under which the Custodian maintains custody of the
securities and other assets of the Fund;
WHEREAS, the Fund engages in the trading of time deposits in connection
with its investment activity;
NOW THEREFORE, the Custodian and Fund hereby amend the terms of the
Custodian Agreement as follows:
1) Delete from Section 4.A(b) the last word "or" in that clause and
replace it with a comma.
2) Delete the period at the end of Section 4.A(c) and substitute therefor
"or".
3) Insert a new clause 4.A(d) immediately following clause 4.A(c) as
follows:
"(d) for transfer to a time deposit account of such Portfolio in
any bank, whether domestic or foreign, representing the security
purchased (which transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank provided that
the Custodian uses its best efforts to obtain such confirmation as
soon as possible following such transfer and notifies the Fund in
the event such confirmation is not promptly received)."
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by a duly authorized representative as of
the aforementioned day and year.
ATTEST INSTITUTIONAL LIQUID ASSETS
John J. Scott Nancy L. Mucker
- -------------------------- -------------------------------------
Assistant Secretary Vice President & Assistant Treasurer
ATTEST STATE STREET BANK TRUST
COMPANY
[Signature illegible] Thomas E. Swedlund
- ------------------------- -------------------------------------
Assistant Secretary Vice President
<PAGE>
EXHIBIT 8(p)
September 15, 1988
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement dated December 27, 1978, as
amended (the "Custodian Agreement"), between Institutional Liquid Assets (the
"Fund") and State Street Bank and Trust Company ("State Street"). Terms used
herein which are defined in the Custodian Agreement have the same meaning herein
as in the Custodian Agreement.
The purpose of this letter is to confirm our understanding that the
Custodian Agreement is amended as of the date first written above by adding a
new sentence to the end of (S)3D, reading in full as follows:
"State Street, each agent appointed pursuant to (S)8A hereof and each
sub-custodian appointed pursuant to (S)8B hereof may deposit all or
any part of the securities held by it hereunder and eligible therefor
in a clearing agency covered by Rule 17f-4(b) under the 1940 Act;
provided that (y) clauses (a), (b), (c), (d) and (e) of this (S)3D
shall be deemed applicable to the same extent as if such clearing
agency was a book entry system as referred to in the preceeding
sentence and (z) no such deposit in a clearing agency may be made
prior to the express written approval by the Fund of such clearing
agency which approval may be subject to such conditions as the fund
may from time to time determine."
Please confirm your agreement to the foregoing by executing and
returning the enclosed copy of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By: E. J. Whitman
-----------------------------
As its: President
--------------------------
Agreed, this 19th, day of December, 1988
----
STATE STREET BANK AND TRUST COMPANY
By: John Ricciuti T. E. Swedlund
----------------------- --------------------------
As its: Assistant Vice President Vice President
------------------------ --------------------------
<PAGE>
EXHIBIT 99.15(d)
022098 Draft
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
_____________, 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 __________, 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
<PAGE>
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 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.
(a) Distribution services and expenses for which the Distributor may be
compensated pursuant to this Plan include, without limitation:
compensation to (including sales commissions) 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 (including sales
commissions) 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.
(b) 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
-2-
<PAGE>
the purpose of voting on the Plan and such related agreement.
3. This Plan shall remain in effect until ____________, 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 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. 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.
-3-
<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:_______________________
GOLDMAN, SACHS & CO.
By:________________________
-4-
<PAGE>
EXHIBIT 99.15(e)
022098 Draft
GOLDMAN SACHS TRUST
(Cash Management Shares)
SERVICE PLAN
___________, 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 [thirty-six] 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 six
separate classes: 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 the Cash Management Shares of each Portfolio,
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 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 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
<PAGE>
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 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 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; (vi) responding to
investor requests for prospectuses; (vii) displaying and making prospectuses
available on the Service Organization's premises; (viii) assisting Customers in
completing application forms, selecting dividend and other account options and
opening custody accounts with the Service Organization; (ix) providing services
to Customers intended to facilitate or improve their understanding of the
benefits and risks of a Portfolio; (x) 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; (xi) facilitating electronic or computer trading and/or
processing in a Portfolio or providing electronic, computer or other database
information regarding a Portfolio to Customers; (xii) developing, maintaining
and supporting systems necessary to support accounts for Cash Management Shares,
and (xiii) performing any other services which constitute "personal and account
maintenance services" within the meaning of the National Association of
Securities Dealers, Inc.'s Conduct Rules.
-2-
<PAGE>
(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; and
(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.
(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 ____________, 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.
-3-
<PAGE>
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 of the
outstanding voting securities of the Cash Management Class of such Portfolio.
No material amendment to this 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.
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 ________________________
-4-
<PAGE>
Exhibit 17(k)
May 1, 1988
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
Reference is made to the Custodian Agreement (the "Custodian Agreement")
dated December 27, 1978, between Institutional Liquid Assets (the "Fund") and
State Street Bank and Trust Company ("State Street"), as amended. Terms herein
which are defined in the Custodian Agreement have the same meaning herein as in
the Custodian Agreement.
The purpose of this letter is confirm our understanding that the Custodian
Agreement is amended as follows: the first sentence of (S)7f is amended by
inserting "or from purchasers of Units of any Portfolio" after the ninth word
thereof.
Please confirm your agreement to the foregoing by executing and returning
the enclosed copy of this letter.
Very truly yours,
INSTITUTIONAL LIQUID ASSETS
By:
---------------------------------
As its
-------------------------
STATE STREET BANK & TRUST COMPANY
By: Thomas E. Swedland
--------------------------------------
As its Vice President
-----------------------------
