<PAGE>
As filed with the Securities and Exchange Commission on
February 13, 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. 41 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 43 ( 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)
( ) on ( ) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On May 1, 1997 pursuant to paragraph (a)(1)
(X) 75 days after filing pursuant to paragraph (a)(2)
( ) On ( ) pursuant to paragraph (a)(2) of rule 485.
This registration statement is being filed solely to include two new funds of
the Registrant - Goldman Sachs Japanese Equity Fund and Goldman Sachs
International Small Cap Fund.
Title of Securities Being Registered:
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2. On March 31, 1997, Registrant
filed a Rule 24f-2 notice for its fiscal year ended January 31, 1997.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs International Equity Funds
Class A, Class B and Class C Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Policies;
Description of Securities; Risk Factors;
Investment Techniques; Investment Restrictions;
Portfolio Turnover; Reports to Shareholders;
Shares of the Trust; Additional Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation; Additional Information
7. Purchase of Securities How to Invest; Net Asset Value; Services
Being Offered Available to Shareholders; Distribution and
Authorized Dealer Service Plans;
Additional Information
8. Redemption or How to sell Shares of Fund; Services
Repurchase Available to Shareholders; Distribution and
Authorized Dealer Service Plans;
Additional Information
9. Pending Legal Not Applicable
Proceedings
<PAGE>
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Introduction
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value; Other Information;
and Pricing of Other Information Regarding
Securities Being Purchases, Redemptions, Ex-
Offered changes and Dividends.
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance 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 TRUST
Goldman Sachs International Equity Funds
Institutional Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights; of Registrant
Investment Objective and Policies; Description
of Securities; Risk Factors; Investment
Techniques; Investment Restrictions; Portfolio
Turn over; Reports to Shareholders; Shares of
the Trust; Additional Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation; Additional Information
7. Purchase of Securities Purchase of Institutional Shares; Net Asset
Being Offered Value; Additional Information
8. Redemption or Redemption of Institutional Shares;
Repurchase Additional Information
9. Pending Legal Not Applicable
Proceedings
<PAGE>
PART B CAPTION
- ------ -------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Introduction
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value;
and Pricing of Other Information
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance 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 TRUST
Goldman Sachs International Equity Funds
Service Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 481)
PART A CAPTION
- ------ -------
Goldman Sachs International Equity Funds
- ----------------------------------------
Goldman Sachs CORE International Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth
Fund.
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Policies;
Description of Securities; Risk Factors;
Investment Techniques; Investment Restrictions;
Portfolio Turnover; Reports to Shareholders;
Shares of the Trust; Additional Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation; Additional Information
7. Purchase of Securities How to Purchase Service Shares; Net Asset Value;
Being Offered Additional Information
8. Redemption or Repurchase Redemption of Service Shares;
Additional Information
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 Introduction
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management; Service Plans
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value;
and Pricing of Other Information
Securities Being
Offered
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
- ------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION--FEBRUARY 13, 1998
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
CLASS A, B AND C SHARES
May 1, 1998
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.
GOLDMAN SACHS JAPANESE EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of Japanese companies.
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies with public stock market capitalizations of $1 billion or
less at the time of investment that are organized outside the U.S. or whose
securities are principally traded outside the U.S.
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE International Equity Fund. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to the International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds.
GSAM and GSAMI are each referred to in this Prospectus as the "Investment
Adviser." Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS
OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF
ITS ASSETS AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS
LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN
EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING
COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE REGISTRATION
AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH INVESTMENT IN MORE
DEVELOPED COUNTRIES. FUNDS THAT INVEST IN FOREIGN SECURITIES AND EMERGING
MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH
THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION
OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 3
Fees and Expenses................... 7
Financial Highlights................ 11
Investment Objectives and Policies.. 13
Description of Securities........... 18
Investment Techniques............... 21
Risk Factors........................ 25
Investment Restrictions............. 27
Portfolio Turnover.................. 28
Management.......................... 28
Expenses ........................... 32
Reports to Shareholders............. 32
How to Invest....................... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders.................................... 39
Distribution and Authorized Dealer Service Plans...................... 41
How to Sell Shares of the Funds....................................... 43
Dividends............................................................. 44
Net Asset Value....................................................... 45
Performance Information............................................... 45
Shares of the Trust................................................... 46
Taxation.............................................................. 47
Additional Information................................................ 48
Appendix ............................................................. A-1
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
<S> <C> <C> <C>
CORE Long-term growth of At least 90% of total assets EAFE Index (unhedged)
INTERNATIONAL capital. in equity securities of
EQUITY FUND companies organized outside
the United States or whose
securities are principally
traded outside the United
States. The Fund seeks broad
representation of large cap
issuers across major countries
and sectors of the
international economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
unhedged Morgan Stanley
Capital International (MSCI)
Europe, Australia and Far East
Index (the "EAFE Index"). The
Fund may employ certain
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at FT/S&P Actuaries
EQUITY FUND appreciation. least 65%, of total assets in Europe & Pacific
equity securities of companies Index (unhedged)
organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
</TABLE>
3
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ------------------------------ ---------------------
<S> <C> <C> <C>
JAPANESE Long-term capital Substantially all, and at Tokyo Price Index
EQUITY FUND appreciation least 65%, of total assets in ("TOPIX")
equity securities of Japanese
companies. The Fund may employ
currency management
techniques.
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at Morgan Stanley
SMALL CAP appreciation least 65%, of total assets in Capital International
FUND equity securities of companies World Small Cap Index
with public stock market
capitalizations of $1 billion
or less at the time of
investment that are organized
outside the United States or
whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and at Morgan Stanley
MARKETS appreciation. least 65%, of total assets in Capital International
EQUITY FUND equity securities of emerging Emerging Markets Free
country issuers. The Fund may Index
employ certain currency
management techniques.
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and at Morgan Stanley
FUND appreciation. least 65%, of total assets in Capital International
equity securities of companies All Country Asia Free
in China, Hong Kong, India, ex Japan Index
Indonesia, Malaysia, Pakistan,
the Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan and Thailand.
The Fund may employ certain
currency management
techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment
in any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility . Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers
and issuers. A Fund's investments in emerging markets and countries
("Emerging Countries") involves greater risks than investments in the
developed countries of Western Europe, the United States, Canada,
Australia, New Zealand and Japan. In addition, because the Funds invest
primarily outside the United States, they may involve greater risks,
since the securities markets of foreign countries are
4
<PAGE>
generally less liquid and subject to greater price volatility. The securities
markets of emerging countries, including those in Asia, Latin America, Eastern
Europe and Africa are marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including derivatives,
forward contracts, options and futures, will subject the Fund to greater risk
than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International serves
as Investment Adviser to each other Fund. As of , 1998, the Investment
Advisers, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $ billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases.......................................... $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA Purchases..... $ 250 $50
Automatic Investment Plan.................................. $ 50 $50
403(b) Plans............................................... $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page .
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of shares ("Authorized
Dealers"). See "How to Invest" on page .
5
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of shares through this Prospectus. These shares
may be purchased at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A shares"), (ii) with a contingent deferred sales
charge imposed on redemptions within six years of purchase ("Class B shares")
or (iii) without any initial or contingent deferred sales charge, as long as
shares are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A shares will be sold without an initial sales charge
and will be subject to a contingent deferred sales charge at the time of
certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B or Class C shares will exceed the initial sales charge and the
distribution fees attributable to Class A shares. Class B shares convert to
Class A shares, which are subject to lower distribution fees, eight years after
initial purchase. Class C shares, which are subject to the same distribution
fees as Class B shares, do not convert to Class A shares and are subject to the
higher distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page .
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after receipt
of such request in proper form, subject to any applicable contingent deferred
sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
You may receive dividends in additional shares of the same class of the Fund
in which you have invested or you may elect to receive dividends in cash,
shares of the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Funds") or ILA Service Units of the Prime Obligations Portfolio
or the Tax-Exempt Diversified Portfolio, if you hold Class A shares of a Fund,
or ILA Class B or Class C Units of the Prime Obligations Portfolio, if you hold
Class B or Class C shares of a Fund (the "ILA Portfolios"). For further
information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
CORE INT'L JAPANESE
INTERNATIONAL EQUITY EQUITY
EQUITY FUND/5/ FUND FUND/5/
----------------------------- -------------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees (after
applicable
limitations)/6/........ 0.75% 0.75% 0.75% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/7/........ 0.25% 0.75% 0.75% 0.21% 0.75% 0.75% 0.25% 0.75% 0.75%
Other Expenses:
Authorized Dealer
Service Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/8/........ 0.25% 0.25% 0.25% 0.33% 0.33% 0.33% 0.10% 0.10% 0.10%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/9/. 1.50% 2.00% 2.00% 1.69% 2.23% 2.23% 1.50% 2.00% 2.00%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
INT'L EMERGING ASIA
SMALL CAP MARKETS GROWTH
FUND/5/ EQUITY FUND/5/ FUND
----------------------------- ----------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. none none none none none none none none none
Maximum Deferred Sales
Charge................. none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption Fees/4/...... none none none none none none none none none
Exchange Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
net assets)
Management Fees (after
applicable
limitations)/6/........ 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 0.86% 0.86% 0.86%
Distribution (Rule
12b-1) Fees (after
applicable
limitations)/7/........ 0.25% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized Dealer
Service Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
applicable
limitations)/8/........ 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.35% 0.35% 0.35%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITATIONS)/9/. 1.90% 2.40% 2.40% 1.90% 2.40% 2.40% 1.67% 2.21% 2.21%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
7
<PAGE>
- --------
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest--Offering Price--Class A Shares."
/2/ A contingent deferred sales charge is imposed upon shares redeemed within
six years of purchase at a rate of 5% in the first year, declining to 1% in
the sixth year, and eliminated thereafter. See "How to Invest--Offering
Price--Class B Shares."
/3/ A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
/6/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds equal to .10%, .10%, .10%, .10%, .10%
and .14%, respectively. Without such limitations, management fees would be
.85%, 1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average daily net
assets, respectively.
/7/ Goldman Sachs is imposing the entire distribution fee attributable to Class
A shares of the CORE International Equity, Japanese Equity, International
Small Cap and Emerging Markets Equity Funds. Goldman Sachs voluntarily has
agreed not to impose a portion of the distribution fee attributable to
Class A shares of International Equity and Asia Growth Funds equal to .04%
of each such Fund. Distribution fees for Class A shares would otherwise be
payable at the rate of .25% of average daily net assets.
/8/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of each Fund other than the CORE International Equity, Japanese
Equity and International Small Cap Funds) for the following funds to the
extent such expenses exceed the following percentage of average daily net
assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.25%
International Equity............................................. 0.20%
Japanese Equity.................................................. 0.10%
International Small Cap.......................................... 0.30%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/9/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for Class A and Class B shares of the International Equity and
Asia Growth Funds is shown for the fiscal year ended January 31, 1998.
Information for the Class A and B shares of the CORE International Equity,
Japanese Equity, International Small Cap and Emerging Markets Equity Funds,
and Class C shares of each Fund are estimated for the current fiscal year.
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity
Class A............................................. 0.86% 2.21%
Class B............................................. 0.86% 2.71%
Class C............................................. 0.86% 2.71%
International Equity
Class A............................................. 0.38% 1.88%
Class B............................................. 0.38% 2.38%
Class C............................................. 0.38% 2.38%
Japanese Equity
Class A............................................. 1.47% 2.97%
Class B............................................. 1.47% 3.47%
Class C............................................. 1.47% 3.47%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Small Cap
Class A.............................................. 0.52% 2.22%
Class B.............................................. 0.52% 2.72%
Class C.............................................. 0.52% 2.72%
Emerging Markets Equity
Class A.............................................. 0.92% 2.62%
Class B.............................................. 0.92% 3.12%
Class C.............................................. 0.92% 3.12%
Asia Growth
Class A.............................................. 0.37% 1.87%
Class B.............................................. 0.37% 2.37%
Class C.............................................. 0.37% 2.37%
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
CORE International Equity Fund
Class A Shares................................ $69 $100 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 93 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 30 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
International Equity Fund
Class A Shares................................ 71 105 $142 $244
Class B Shares
--Assuming complete redemption at end of
period....................................... 73 100 139 234
--Assuming no redemption...................... 23 70 119 234
Class C Shares
--Assuming complete redemption at end of
period....................................... 33 70 119 256
--Assuming no redemption...................... 23 70 119 256
Japanese Equity Fund
Class A Shares................................ 69 100 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 70 93 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 30 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
International Small Cap Fund
Class A Shares................................ 73 111 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 74 105 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 34 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Equity Fund
Class A Shares................................ 73 111 N/A N/A
Class B Shares
--Assuming complete redemption at end of
period....................................... 74 105 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of
period....................................... 34 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Asia Growth Fund
Class A Shares................................ 71 105 141 242
Class B Shares
--Assuming complete redemption at end of
period....................................... 72 99 138 233
--Assuming no redemption...................... 22 69 118 233
Class C Shares
--Assuming complete redemption at end of
period....................................... 32 69 118 254
--Assuming no redemption...................... 22 69 118 254
</TABLE>
The hypothetical example assumes that a contingent deferred sales charge
will not apply to redemptions of Class A shares within the first 18 months.
Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight.
The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information set forth in the
foregoing table and hypothetical example relates only to Class A, B and C
shares. Each Fund also offers Institutional and Service Shares, which are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services than Class A, Class B and Class C shares. Information regarding
Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A, Class B and Class C shares of the
Funds or for services to the Funds. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
10
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by
, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1998 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer Class A, Class B
or Class C shares of the Japanese Equity or International Small Cap Funds.
Accordingly, there are no financial highlights for these Funds or Classes.
[INSERT UPDATED FINANCIALS]
11
<PAGE>
[INSERT UPDATED FINANCIALS]
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that the
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. The Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks, are described below under
"Description of Securities," "Risk Factors" and "Investment Techniques."
Growth Style Funds. The International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds are managed using a
growth oriented approach. Equity securities for these Funds are selected based
on their prospects for above average growth. The Investment Adviser will
select securities of growth companies trading, in the Investment Adviser's
opinion, at a reasonable price relative to other industries, competitors and
historical price/earnings multiples. These Funds will generally invest in
companies whose earnings are believed to be in a relatively strong growth
trend, or, to a lesser extent, in companies in which significant further
growth is not anticipated but whose market value per share is thought to be
undervalued. In order to determine whether a security has favorable growth
prospects, the Investment Adviser ordinarily looks for one or more of the
following characteristics in relation to the security's prevailing price:
prospects for above average sales and earnings growth per share; high return
on invested capital; free cash flow generation; sound balance sheet, financial
and accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
models used to implement it are discussed below.
13
<PAGE>
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary multifactor models
(each a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. The Investment Adviser may rely on
research from both the Goldman Sachs Global Investment Research Department
(the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily comprised of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional quantitative models. Securities and
markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are principally
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries
14
<PAGE>
and sectors of the international economy. The Fund's investments are selected
using both a variety of quantitative techniques and fundamental research in
seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the EAFE Index. In
addition, the Fund seeks a portfolio comprised of companies with attractive
valuations and stronger momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded on a Japanese stock exchange as well
as those whose shares are registered with the Japan Securities Dealers
Association for trading on Japan's over-the-counter market. The Fund's
concentration in Japanese companies will expose it to the risk of adverse
social, political and economic events which occur in Japan or affect the
Japanese markets as described under "Risk Factors--Special Risks of Investment
in the Japanese Markets."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed income securities.
15
<PAGE>
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of $1
billion or less at the time of investment that are organized outside the U.S.
or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economies which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion and in fixed income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
16
<PAGE>
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers and (ii) equity and fixed income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
17
<PAGE>
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on
18
<PAGE>
dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets of the Funds, political or social
instability or diplomatic developments which could affect investments in those
countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, each Fund may
enter into such contracts to seek to increase total return when the Investment
Adviser anticipates that the foreign currency will appreciate or depreciate in
value, but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each Fund may also engage in cross-
hedging by using forward contracts in a currency different from that in which
the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or enters into forward foreign currency
exchange contracts to sell foreign currency to seek to increase total return,
the Fund will be required to place cash or liquid assets in a segregated
account with the Fund's custodian in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. The
Fund will incur costs in connection with conversions between various
currencies. A Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international
19
<PAGE>
perspective. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the U.S. or
abroad. To the extent that a substantial portion of a Fund's total assets,
adjusted to reflect the Fund's net position after giving effect to currency
transactions, is denominated or quoted in the currencies of foreign countries,
the Fund will be more susceptible to the risk of adverse economic and
political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity or Asia Growth Fund's currency exposure will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objective and Policies" in the Additional
Statement.
FIXED INCOME SECURITIES
Each Fund may invest in fixed income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
Investments in fixed income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's net asset value, to a
greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
Fixed income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference. The
terms of the structured
20
<PAGE>
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, result in the loss of a Fund's investment. Structured
securities may be positively or negatively indexed, so that appreciation of
the Reference may produce an increase or decrease in the interest rate or
value of the security at maturity. In addition, changes in the interest rates
or the value of the security at maturity may be a multiple of changes in the
value of the Reference. Consequently, structured securities may entail a
greater degree of market risk than other types of fixed-income securities.
Structured securities may also be more volatile, less liquid and more
difficult to accurately price than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds" and
are considered predominantly speculative and may be questionable as to
principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and
21
<PAGE>
the securities in a Fund's investment portfolio, the investment performance of
the Fund will be less favorable than it would have been in the absence of such
options transactions. The writing of options could significantly increase a
Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. A Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating a Fund to
purchase securities or currencies, require the Fund to segregate and maintain
cash or liquid assets with a value equal to the amount of the Fund's
obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result
22
<PAGE>
in poorer overall performance than if the Fund had not entered into any
futures contracts or options transactions. Because perfect correlation between
a futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary settlement period. A Fund is required to hold
and maintain in a segregated account with the Fund's custodian until three
days prior to the settlement date, cash or liquid assets in an amount
sufficient to meet the purchase price. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Although a Fund would generally purchase
securities on a when-issued or forward commitment basis with the intention of
acquiring securities for its portfolio, a Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment
Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter options, and certain
restricted securities, unless it is determined, based upon the continuing
review of the trading markets for a specific restricted security, that such
restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and delegated to the Investment Advisers the daily function of
determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount
23
<PAGE>
of their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or 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.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. If an
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund. A Fund may experience a loss or delay in the recovery of its securities
if the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments (i) warrants and stock purchase
24
<PAGE>
rights, (ii) currency swaps (iii) other investment companies including World
Equity Benchmark Shares and Standard & Poor's Depository Receipts, (iv)
unseasoned companies and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks included in the S&P 500 Index.
Among the reasons for the greater price volatility of these small company and
unseasoned stocks are the less certain growth prospects of smaller firms, less
institutional investor interest and the lower degree of liquidity in the
markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many
25
<PAGE>
Emerging Countries do not have fully democratic governments. For example,
governments of some Emerging Countries are authoritarian in nature or have
been installed or removed as a result of military coups, while governments in
other Emerging Countries have periodically used force to suppress civil
dissent. Disparities of wealth, the pace and success of democratization, and
ethnic, religious and racial disaffection, among other factors, have also led
to social unrest, violence and/or labor unrest in some Asian and other
Emerging Countries. Unanticipated political or social developments may affect
the values of a Fund's investments. Investing in Emerging Countries involves
the risk of loss due to expropriation, nationalization, confiscation of assets
and property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. Economies in individual Emerging Countries
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation, currency valuation,
capital reinvestment, resource self-sufficiency and balance of payments
positions. Many Emerging Countries have experienced currency devaluations and
substantial and, in some cases, extremely high rates of inflation, which have
a negative effect on the economies and securities markets of such Emerging
Countries. Economies in Emerging Countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been and
may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly. In addition to this economic downturn, Japan is
undergoing structural adjustments related to high wages, a strong currency and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection with the reform of its political
process and the deregulation of its economy. These conditions present risks to
the Japanese Equity Fund and its ability to attain its investment objective.
26
<PAGE>
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
27
<PAGE>
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the Japanese
Equity and International Small Cap Funds) historical portfolio turnover ratio.
It is anticipated that the annual portfolio turnover rates of the Japanese
Equity and International Small Cap Funds will generally not exceed 50%. The
portfolio turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the average monthly
value of a Fund's portfolio securities, excluding securities having a maturity
at the date of purchase of one year or less. Notwithstanding the foregoing,
the Investment Adviser may, from time to time, make short-term investments
when it believes such investments are in the best interest of a Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the CORE International Equity Fund.
Goldman Sachs registered as an investment adviser in 1981. Goldman Sachs Asset
Management International, 133 Peterborough Court, London EC4A 2BB, England, an
affiliate of Goldman Sachs, serves as the investment adviser to the
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organisation Limited in 1990 and registered as an investment adviser in 1991.
As of , 1998, GSAM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $ billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will have access to
the research of, and proprietary technical models developed by, Goldman Sachs
and may apply quantitative and qualitative analysis in determining the
appropriate allocations among the categories of issuers and types of
securities.
28
<PAGE>
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisor at Fidelity
Investments.
- --------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of the Japanese Equity
Group in Tokyo. Prior to
1996, he spent 12 years
at CINMAN.
- --------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment Adviser in
1992. Prior to 1992, he
was studying for a Ph.D.
in finance at the
University of Chicago.
- --------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- --------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. Prior to 1997, he
was an Assistant
Director and portfolio
manager at Mercury Asset
Management.
- --------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989.
- --------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- --------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMAN for five
years.
- --------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998- 1994. Prior to 1994, he
Japanese Equity 1998 worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- --------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
International Small Cap 1998 Ltd.
- --------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990.
- --------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Takeya Suzuki Portfolio Manager-- Since Mr. Suzuki joined the
Vice President Japanese Equity 1998 Investment Adviser in 1996.
Prior to 1996, he was a
portfolio manager at Nomura
Investment Management.
- -------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in 1994.
International Equity 1997 Prior to 1994, she was an
investment analyst with
Bankers Trust Australia Ltd.
Before 1992 she was employed
at Arthur Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1998*
----------- -----------------
<S> <C> <C>
GSAM
CORE International Equity.................... 0.85% 0.75%
GSAMI
International Equity......................... 1.00% 0.89%
Japanese Equity.............................. 1.00% N/A
International Small Cap...................... 1.20% N/A
Emerging Markets Equity...................... 1.20% 1.10%
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- --------
*All numbers are annualized. With respect to the International Equity and Asia
Growth Funds, a Management Agreement combining both advisory and
administrative services was adopted effective April 30, 1997. The contractual
rate set forth in the table is the rate payable under the Management
Agreements and is identical to the aggregate advisory and administration fees
payable by each Fund under the previous separate investment advisory
(including subadvisory in the case of the International Equity Fund) and
administration agreements. For the fiscal year ended January 31, 1998, the
annual rate expressed is the combined advisory and administration fees paid
(after voluntary fee limitations). The difference, if any, between the stated
fees and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. The Investment Advisers may discontinue or modify
such voluntary limitations in the future at their discretion, although they
have no current intention to do so.
The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
30
<PAGE>
litigation, indemnification and other extraordinary expenses and, transfer
agency fees in the case of each Fund other than CORE International Equity,
Japanese Equity and International Small Cap Funds) to the extent such expenses
exceed 0.25%, 0.20%, 0.10%, 0.30%, 0.16% and 0.24% per annum of the average
daily net assets of the CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Fund, respectively. Such reductions or limits, if any, are calculated
monthly on a cumulative basis and may be discontinued or modified by the
applicable Investment Adviser in its discretion at any time.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers and other persons for performing
administrative services to their customers. These services include maintaining
account records, processing orders to purchase, redeeming and exchanging Fund
shares and responding to certain customer inquiries. In addition, these
services may also include responding to certain inquiries from and providing
written materials to depository institutions about a Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required
to conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of
31
<PAGE>
the expenses related thereto, Goldman Sachs is entitled to receive a fee from
each Fund (other than the CORE International Equity, Japanese Equity and
International Small Cap Funds), with respect to Class A, Class B and Class C
shares equal to each class' proportionate share of $12,000 per year plus $7.50
per account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Goldman Sachs is entitled to receive a fee from the CORE
International Equity, Japanese Equity and International Small Cap Funds, with
respect to Class A, Class B and Class C shares, equal to each class'
proportionate share of the fixed charges set forth above applicable to Class
A, Class B and Class C shares plus 0.04% of the average daily net assets of
the Institutional and Service classes of the Fund. Shareholders with inquiries
regarding any Fund should contact Goldman Sachs (as Transfer Agent) at the
address or the telephone number set forth on the back cover page of this
Prospectus.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Advisers,
distribution and authorized dealer service fees, custodial and transfer agency
fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Fund's shares under federal or state securities laws,
organizational expenses, fees and expenses incurred in connection with
membership in investment company organizations, taxes, interest, costs of
liability insurance, fidelity bonds or indemnification, any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Funds for violation of any law, legal and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of the Investment Adviser with respect to the Funds),
expenses of preparing and setting in type prospectuses, statements of
additional information, proxy material, reports and notices and the printing
and distributing of the same to shareholders and regulatory authorities,
compensation and expenses of the Trust's "non-interested" Trustees and
extraordinary organizational expenses, if any, incurred by the Trust.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which class of shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A shares.
CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A
32
<PAGE>
shares of a Fund, no sales charge will be imposed at the time of purchase, but
you will incur a deferred sales charge equal to 1.00% if you redeem your
shares within 18 months of purchase. Class A shares are subject to
distribution fees of 0.25% (which currently are being limited to 0.21% for the
International Equity and Asia Growth Funds) and authorized dealer service fees
of 0.25%, per annum, respectively, of each Fund's average daily net assets
attributable to Class A shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of 0.75% and 0.25%, per annum,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans." Class B shares
will automatically convert to Class A shares, based on their relative net
asset values, eight years after the initial purchase. Your entire investment
in Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer service fees of 0.75%
and 0.25%, per annum, respectively, of each Fund's average daily net assets
attributable to Class C shares. See "Distribution and Authorized Dealer
Service Plans." Class C shares have no conversion feature, and accordingly, an
investor that purchases Class C shares will be subject to the distribution
fees imposed on Class C shares for an indefinite period, subject to annual
approval by the Fund's Board of Trustees and certain regulatory limitations.
Your entire investment in Class C shares is available to work for you from the
time you make your initial investment, but the distribution fee paid by Class
C shares will cause your Class C shares to have a higher expense ratio and to
pay lower dividends, to the extent dividends are paid, than Class A shares (or
Class B shares after conversion to Class A shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C shares. There is a maximum
purchase limitation of $250,000 and $1,000,000 in the aggregate on purchases
of Class B shares and Class C shares, respectively. Although Class C shares
are subject to a CDSC for only twelve months and at a lower rate than Class B
shares, Class C shares do not have the conversion feature applicable to Class
B shares, making them subject to higher distribution fees for an indefinite
period. Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. Currently,
33
<PAGE>
each Fund's net asset value is determined as of the close of regular trading
on the New York Stock Exchange (normally 4:00 p.m. New York time).
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial investment minimum of $200 applies to purchases in
connection with 403(b) plans. For purchases through the Automatic Investment
Plan, the minimum initial investment is $50. The minimum subsequent investment
is $50. These requirements may be waived at the discretion of the Trust's
officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs International Equity Funds--(Name of Fund and
Class of shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711. Federal funds wires, ACH transfers and bank wires should be sent to
State Street Bank and Trust Company ("State Street"). Payment must be received
within three Business Days after receipt of the purchase order. An investor's
Authorized Dealer is responsible for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
OFFERING PRICE--CLASS A SHARES
The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
34
<PAGE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (j) below. Purchases by such plans will be made at net asset value
with no initial sales charge, but if all of the shares held are redeemed
within 18 months after the end of the calendar month in which such
purchase was made, a contingent deferred sales charge (CDSC), as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made,
excluding any period of time in which the shares were exchanged into and
remained invested in an ILA Portfolio (the contingent deferred sales charge
period), a CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
shares. Upon redemption of shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the shares
actually redeemed. In determining whether a CDSC applies to a redemption, it
will be assumed that the redemption is first made from any Class A shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver or Reduction of Contingent
Deferred Sales Charges" below.
Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided
35
<PAGE>
administrative services by a third party administrator that in the aggregate
satisfies (1) or (3) above; (i) until October 15, 1997 shareholders whose
purchase is attributable to redemption proceeds (subject to appropriate
documentation) from a registered open-end management investment company not
distributed or managed by Goldman Sachs or its affiliates, if such redemption
has occurred no more than 60 days prior to the purchase of shares of the Funds
and the shareholder either (1) paid an initial sales charge or (2) was at some
time subject to a deferred sales charge with respect to the redemption
proceeds; (j) "wrap" accounts for the benefit of clients of broker-dealers,
financial institutions or financial planners, provided that they have entered
into an agreement with GSAM specifying aggregate minimums and certain
operating policies and standards; (k) registered investment advisers investing
for accounts for which they receive asset-based fees; (l) accounts over which
GSAM or its advisory affiliates have investment discretion; and (m)
shareholders receiving distributions from a qualified retirement plan invested
in the Goldman Sachs Funds and reinvesting such proceeds in a Goldman Sachs
IRA. Purchasers must certify eligibility for an exemption on the Account
Application and notify Goldman Sachs if the shareholder is no longer eligible
for an exemption. Exemptions will be granted subject to confirmation of a
purchaser's entitlement. Investors purchasing shares of the Funds at net asset
value without payment of any initial sales charge may be charged a fee if they
effect transactions in shares through a broker or agent. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Funds may be reinvested in shares of each Fund at net asset value, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the charge will
be assessed on the amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the
36
<PAGE>
first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Goldman Sachs Fund will convert into
Class A shares of such Fund based on the date of the initial purchase. Class B
shares acquired through reinvestment of distributions will convert into Class
A shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
shares, the Funds will first redeem shares held for longer than 12 months, and
then shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C shares,
including the payment of compensation to Authorized Dealers. A commission
equal to 1.00% of the amount invested is paid to Authorized Dealers.
37
<PAGE>
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B shares of a Fund may reinvest
at net asset value any portion or all of his redemption proceeds (plus that
amount necessary to acquire a fractional share to round off his purchase to
the nearest full share) in Class A shares of the same Fund or any other
Goldman Sachs Fund. A shareholder who redeems Class C shares of a Fund may
reinvest at net asset value any portion or all of his redemption proceeds
(plus that amount necessary to acquire a fractional share to round off his
purchase to the nearest full share) in Class C shares of the same Fund or any
other Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed shares. If you redeemed Class B
shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A shares at net asset value as described above,
but the amount of the CDSC paid upon redemption will not be credited to your
account.
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
realized on the redemption, but instead will be added to the tax basis of the
Class A shares received in the reinvestment. To the extent that any loss is
realized and shares of the same Fund are purchased within thirty (30) days
before or after the redemption, some or all of the loss may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
section 72 of the Code) of a participant or beneficiary in a Plan; (c)
hardship withdrawals by a participant or beneficiary in a Plan; (d) satisfying
the minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t) of the
Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in section 72 of the Code) of a
shareholder if the redemption is made within one year of such event; (h)
excess contributions being returned to a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C shares subject to a Systematic Withdrawal Plan
38
<PAGE>
may be redeemed without a CDSC. However, Goldman Sachs reserves the right to
limit such redemptions, on an annual basis, to 12% each of the value of your
Class B and Class C shares and 10% of the value of your Class A shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
A shareholder may also elect to exchange automatically a specified dollar
amount of shares of a Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund or ILA Portfolio. Shares acquired through
cross-reinvestment of dividends or the automatic exchange program will be
purchased at net asset value and will not be subject to any initial or
contingent deferred sales charge as a result of the cross-reinvestment or
exchange, but shares subject to a CDSC acquired under the automatic exchange
program may be subject to a CDSC at the time of redemption from the fund into
which the exchange is made determined on the basis of the date and value of
the investor's initial purchase of the fund from which the exchange (or any
prior exchange) is made. Automatic exchanges are made monthly on the fifteenth
day of each month or the first Business Day thereafter. The minimum dollar
amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(i) the value of the shareholder's account(s) in the fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $5,000 and (ii) the value of the account in the acquired fund must
equal or exceed the acquired fund's minimum initial investment requirement or
the shareholder must elect to continue cross-reinvestment or automatic
exchanges until the value of acquired fund shares in the shareholder's account
equals or exceeds the acquired fund's minimum initial investment requirement.
A Fund shareholder may elect cross-reinvestment into an identical account or
an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus of the fund into which
dividends are invested or automatic exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these plans may be obtained from the
Transfer Agent. This information should be read carefully, and consultation
with an attorney or tax adviser may be advisable. The information sets forth
the service fee charged for retirement plans and describes the federal income
tax consequences of establishing a plan.
39
<PAGE>
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial sales charge or CDSC at the time of exchange for shares of the
same class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for shares of the same class (or an
equivalent class) of the original Fund at the next determined net asset value
without the imposition of an initial or contingent deferred sales charge if
the dollar amount in the Fund resulting from such exchanges is below the
shareholder's all-time highest dollar amount on which it has previously paid
the applicable sales charge. Shares of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Funds without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs
International Equity Funds, Shareholder Services, c/o NFDS, P.O. Box 419711,
Kansas City, MO 64141-6711 or, unless the investor has specifically declined
telephone exchange privileges on the Account Application or elected in writing
not to utilize telephone exchanges, by a telephone request to the Transfer
Agent at 800-526-7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain
procedures are employed to prevent unauthorized or fraudulent exchange
requests as set forth under "How to Sell Shares of the Funds." Under the
telephone exchange privilege, shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized by
the Trust to accept purchase, exchange and redemption orders on the Trust's
behalf. In these cases, a Fund will be deemed to have received
40
<PAGE>
an order that is in proper form when the order is accepted by an Authorized
Dealer or intermediary on a Business Day, and the order will be priced at a
Fund's net asset value per share next determined after such acceptance.
Otherwise, a Fund or Goldman Sachs must receive an order in proper form before
it is effective. Authorized Dealers and intermediaries will be responsible for
transmitting accepted orders to the Funds within the period agreed upon by
them.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Funds, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A, Class B or Class C
shares (such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
a Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Funds, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed .50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of each Fund's Class A, Class B and Class C shares, has
adopted Distribution Plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act") (each a
41
<PAGE>
"Distribution Plan"). Goldman Sachs is entitled to a quarterly fee from each
Fund under its Class A, Class B or Class C Distribution Plan for distribution
services equal, on an annual basis, to 0.25%, 0.75% and 0.75%, respectively,
of a Fund's average daily net assets attributable to Class A, Class B and
Class C shares. Currently, Goldman Sachs has voluntarily agreed to limit the
amount of such fee to 0.21% of average daily net assets attributable to Class
A shares of International Equity and Asia Growth Funds. Goldman Sachs has no
current intention of modifying or discontinuing such waiver, but may do so in
the future at its discretion. The average rate for the fiscal year ended
January 31, 1998 paid by the CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds to Goldman Sachs was %, 0.21%,
% and 0.21% with respect to each Fund's Class A shares. The average rate for
the fiscal year ended January 31, 1998 paid by the Funds offering Class B and
Class C shares was 0.75%. As of January 31, 1998, the Japanese Equity and
International Small Cap Funds had not commenced operations.
Goldman Sachs may use the distribution fee for its expenses of distributing
Class A, Class B and Class C shares of the Funds. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Class A, Class B and Class C Distribution Plans include compensation paid to
and expenses incurred by Authorized Dealers, Goldman Sachs and their
respective officers, employees and sales representatives, commissions paid to
Authorized Dealers (Class B and Class C only), allocable overhead, telephone
and travel expenses, the printing of prospectuses for prospective
shareholders, preparation and distribution of sales literature, advertising of
any type and all other expenses incurred in connection with activities
primarily intended to result in the sale of Class A, Class B and Class C
shares. If the fee received by Goldman Sachs pursuant to the Class A, Class B
and Class C Distribution Plans exceeds its expenses, Goldman Sachs may realize
a profit from these arrangements. The Distribution Plans will be reviewed and
is subject to approval annually by the Trustees. The aggregate compensation
that may be received under each Distribution Plan for distribution services
may not exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs pays sales
commissions of 0.75% of the purchase price to Authorized Dealers from its own
resources at the time of sale. Goldman Sachs plans to pay the 0.75%
distribution fee on a quarterly basis as an ongoing commission to Authorized
Dealers on Class C shares that have been outstanding for one year or more.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on behalf of the Funds. The Service Plans will
be reviewed and are subject to approval annually by the Trustees. For the
fiscal year ended January 31, 1998, each Fund paid Authorized Dealer service
fees at the foregoing rate for each Fund's shares.
In connection with the sale of Class C shares, Goldman Sachs pays the 0.25%
service fee to Authorized Dealers in advance for the first year after the
shares have been sold by the Authorized Dealer. After the shares have been
held for one year, Goldman Sachs pays the service fee on a quarterly basis. In
addition, as described
42
<PAGE>
above under "Distribution Plan--Class A, Class B and Class C shares," Goldman
Sachs pays sales commissions of 0.75% of the purchase price of Class C shares
from its own resources at the time of sale. Accordingly, the total up front
commission paid by Goldman Sachs to the Authorized Dealer at the time of sale
is 1.00% of the purchase price.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will normally be mailed by check to a shareholder within
three (3) Business Days of receipt of a properly executed request. If shares
to be redeemed were recently purchased by check, a Fund may delay transmittal
of redemption proceeds until such time as it has assured itself that good
funds have been collected for the purchase of such shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and
43
<PAGE>
loan association, a building and loan association, a cooperative bank, a
federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B or Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See the
Additional Statement for more information about the Systematic Withdrawal
Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the Fund.
44
<PAGE>
The election to reinvest dividends and distributions paid by a Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. Each Fund
will pay dividends from net investment income at least annually. All of the
Funds will pay dividends from net realized long-term and short-term capital
gains, reduced by available capital losses, at least annually. From time to
time, a portion of any Fund's dividends may constitute a return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio
securities. Therefore, subsequent distributions on such shares from such
income or realized appreciation may be taxable to the investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at net asset value.
The total return calculation assumes a complete redemption of the investment
at the end of the relevant period. Total return calculations for Class A
shares reflect the effect of paying the maximum initial sales charge.
Investment at a lower sales charge would result in higher performance figures.
Total return calculations for Class B and Class C shares reflect deduction of
the applicable CDSC imposed upon redemption of Class B and Class C shares held
for the applicable period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various
45
<PAGE>
sales charge levels or at net asset value. Any performance data which is based
on a Fund's net asset value per share would be reduced if any applicable sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance data
is available.
Each Fund's total return will be calculated separately for each class of
shares in existence. Because each class of shares may be subject to different
expenses, the total return calculations with respect to each class of shares
for the same period will differ. The investment performance of the Class A,
Class B and Class C shares will be affected by the payment of a sales charge,
distribution fees and other class specific expenses. See "Shares of the
Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interest in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of shares into one or more classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of February 1, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-
1992 was recordholder of 59.3% of Mid Cap Equity Fund's outstanding shares. As
of the same date, Fluor Corporation, Master Retirement Trust, Bankers Trust as
Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was recordholder of 27.9%
of CORE Large Cap Growth Fund's outstanding shares. As of the same date, The
Goldman Sachs Group LP Seed Account, 85 Broad Street, New York, New York
10004, was recordholder of 29.9% of CORE International Equity Fund's
outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under
46
<PAGE>
certain circumstances, as permitted by the Act, communicate with other
shareholders in connection with requiring a special meeting of shareholders.
The Trustees will call a special meeting of shareholders for the purpose of
electing Trustees if, at any time, less than a majority of Trustees holding
office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company and each Fund
intends to continue to qualify for such treatment for each taxable year under
Subchapter M of the Code. To qualify as such, a Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated
investment company, a Fund will not be subject to federal income or excise tax
on any net investment income and net realized capital gains that are
distributed to its shareholders in accordance with certain timing requirements
of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. Such long-term capital gain will be 20%
or 28% rate gain, depending upon the Fund's holding period for the assets the
sale of which generated the capital gain. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification
47
<PAGE>
number and certain certifications required by the Internal Revenue Service or
if they are otherwise subject to backup withholding. Individuals, corporations
and other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
48
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A shares of
a Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQ PROABC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--FEBRUARY 13, 1998
PROSPECTUS
May 1, 1998
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS INSTITUTIONAL SHARES
GOLDMAN SACHS CORE INTERNA-
TIONAL EQUITY FUND GOLDMAN SACHS INTERNATIONAL
Seeks long-term growth of SMALL CAP FUND
capital through a broadly
diversified portfolio of eq- Seeks long-term capital ap-
uity securities of large cap preciation through invest-
companies that are organized ments in equity securities
outside the U.S. or whose of companies with public
securities are principally stock market capitalizations
traded outside the U.S. of $1 billion or less at the
time of investment that are
organized outside the U.S.
or whose securities are
principally traded outside
the U.S.
GOLDMAN SACHS INTERNATIONAL
EQUITY FUND
Seeks long-term capital ap-
preciation through invest- GOLDMAN SACHS EMERGING MARKETS
ments in equity securities EQUITY FUND
of companies that are orga- Seeks long-term capital ap-
nized outside the U.S. or preciation through invest-
whose securities are princi- ments in equity securities
pally traded outside the of emerging country issuers.
U.S.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital ap-
GOLDMAN SACHS JAPANESE EQUITY preciation through invest-
FUND ments in equity securities
of companies related (in the
Seeks long-term capital ap- manner described herein) to
preciation through invest- Asian countries.
ments in equity securities
of Japanese companies.
----------------
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Goldman Sachs CORE International Equity Fund. Goldman
Sachs Asset Management International ("GSAMI"), London, England, an affiliate
of Goldman Sachs, serves as investment adviser to the International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds. GSAM and GSAMI are each referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as each Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
(continued on next page)
<PAGE>
(cover continued)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF ITS ASSETS
AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING MARKETS AND
ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, SUBJECT TO GREATER
PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT
REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING,
FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE
DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS
LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS
RESULTING FROM PROBLEMS IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT
NORMALLY ASSOCIATED WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. FUNDS THAT
INVEST IN FOREIGN SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS
WHO CAN ACCEPT THE RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <S> <C>
Fund Highlights.................... 3 Performance Information............. 43
Fees and Expenses.................. 7 Shares of the Trust................. 43
Financial Highlights............... 9 Taxation............................ 44
Investment Objectives and Policies. 18 Additional Information.............. 45
Description of Securities.......... 26 Reports to Shareholders............. 46
Investment Techniques.............. 31 Dividends........................... 46
Risk Factors....................... 35 Purchase of Institutional Shares.... 46
Investment Restrictions............ 37 Exchange Privilege.................. 48
Portfolio Turnover................. 37 Redemption of Institutional Shares.. 48
Management......................... 38 Appendix ........................... A-1
Expenses........................... Account Information Form
Net Asset Value.................... 42
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
<TABLE>
<CAPTION>
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
-------------- ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less World Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------- ---------------- --------------------------------------- ----------------
<S> <C> <C> <C>
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the Funds invest primarily outside
the United States, they may involve greater risks, since the securities
markets of foreign countries are generally less liquid and subject to
greater price volatility. The securities markets of emerging countries,
including those in Asia, Latin America, Eastern Europe and Africa are
marked by a high concentration of market capitalization and trading volume
in a small number of issuers representing a limited number of industries,
as well as a high concentration of ownership of such securities by a
limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and therefore, will be particularly subject
to the risk of adverse social, political and economic events which occur in
Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
4
<PAGE>
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of , 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $ billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 in Institutional Shares of
the Fund alone or in combination with Institutional Shares (or the
corresponding class) of any other mutual fund sponsored by Goldman Sachs
and designated as an eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
5
<PAGE>
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund or you may elect to receive dividends in
cash. For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
CORE INT'L EMERGING
INTERNATIONAL INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND/1/ FUND FUND/1/ FUND/1/ FUND/1/ FUND
------------- ------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases... None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. None None None None None None
Redemption Fees......... None None None None None None
Exchange Fees........... None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/........ 0.75% 0.90% 0.90% 1.10% 1.10% 0.86%
Distribution (Rule 12b-
1) Fees................ None None None None None None
Other Expenses (after
applicable
limitations)/3/........ 0.25% 0.20% 0.10% 0.30 0.20% 0.24%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/4/........ 1.00% 1.10% 1.00% 1.40% 1.30% 1.10%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds equal to 0.10%, 0.10%, 0.10%, 0.10%,
0.10% and 0.14%, respectively. Without such limitations, management fees
would be 0.85%, 1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average
daily net assets, respectively.
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of each Fund other than CORE International
Equity, Japanese Equity and International Small Caps Funds) for the
following funds to the extent such expenses exceed the following percentage
of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.25%
International Equity............................................. 0.20%
Japanese Equity ................................................. 0.10%
International Small Cap.......................................... 0.30%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional shares of the International Equity
and Asia Growth Funds for the fiscal year ended January 31, 1998, would have
been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Equity................................... 0.25% 1.25%
Asia Growth............................................ 0.26% 1.26%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of the CORE
International Equity, Emerging Markets, Japanese Equity and International
Small Cap Funds for the current fiscal year are estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.86% 1.71%
Emerging Markets Equity................................ 0.82% 2.02%
Japanese Equity........................................ 1.47% 2.47%
International Small Cap................................ 0.52% 1.72%
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
CORE International Equity Fund................ $10 $32 n/a n/a
International Equity Fund..................... $11 $35 $61 $134
Japanese Equity Fund.......................... $10 $32 n/a n/a
International Small Cap Fund.................. $14 $44 n/a n/a
Emerging Markets Equity Fund.................. $13 $41 n/a n/a
Asia Growth Fund.............................. $11 $35 $61 $134
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Service, Class A, Class B and Class C Shares
may be obtained from an investor's sales representative or from Goldman Sachs
by calling the number on the back cover of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by
, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1998 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer shares of the
Japanese Equity and International Small Cap Funds. Accordingly, there are no
financial highlights for these Funds or Classes.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, NET NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES (DECREASE) IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------------- ---------
CORE INTERNATIONAL EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- --------- ---------- --------- ----------- ---------------- ---------- -------------
CORE INTERNATIONAL EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, NET NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES (DECREASE) IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------------- ---------
INTERNATIONAL EQUITY FUND
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- --------- ---------- --------- ----------- ---------------- ---------- -------------
INTERNATIONAL EQUITY FUND
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(F)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- --------- --------- ----------
ASIA GROWTH FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET RATIO OF NET
ASSETS AT NET RATIO OF RATIO OF INVESTMENT
END OF EXPENSES TO NET EXPENSES INCOME (LOSS)
PERIOD AVERAGE NET INVESTMENT TO AVERAGE TO AVERAGE
(000'S) ASSETS INCOME (LOSS) TO AVERAGE NET ASSETS NET ASSETS NET ASSETS
--------- ----------- ----------------------------------- ---------- -------------
ASIA GROWTH FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(F)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- --------- --------- ----------
EMERGING MARKETS EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET RATIO OF NET
ASSETS AT NET RATIO OF RATIO OF INVESTMENT
END OF EXPENSES TO NET EXPENSES INCOME (LOSS)
PERIOD AVERAGE NET INVESTMENT TO AVERAGE TO AVERAGE
(000'S) ASSETS INCOME (LOSS) TO AVERAGE NET ASSETS NET ASSETS NET ASSETS
--------- ----------- ----------------------------------- ---------- -------------
EMERGING MARKETS EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that the
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. The Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."
Growth Style Funds. The International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds are managed using a
growth oriented approach. Equity securities for these Funds are selected based
on their prospects for above average growth. The Investment Adviser will
select securities of growth companies trading, in the Investment Adviser's
opinion, at a reasonable price relative to other industries, competitors and
historical price/earnings multiples. These Funds will generally invest in
companies whose earnings are believed to be in a relatively strong growth
trend, or, to a lesser extent, in companies in which significant further
growth is not anticipated but whose market value per share is thought to be
undervalued. In order to determine whether a security has favorable growth
prospects, the Investment Adviser ordinarily looks for one or more of the
following characteristics in relation to the security's prevailing price:
prospects for above average sales and earnings growth per share; high return
on invested capital; free cash flow generation; sound balance sheet, financial
and accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor model used to implement it are discussed below.
13
<PAGE>
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. The Investment Adviser may
rely on research from both the Goldman Sachs Global Investment Research
Department (the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily comprised of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional, quantitative models. Securities
and markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally
14
<PAGE>
traded outside the United States. The Fund seeks broad representation of large
cap issuers across major countries and sectors of the international economy.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded on a Japanese stock exchange as well
as those whose shares are registered with the Japan Securities Dealers
Association for trading on Japan's over-the-counter market. The Fund's
concentration in Japanese companies will expose it to the risk of adverse
social, political and economic events which occur in Japan or affect the
Japanese markets as described under "Risk Factors--Special Risks of Investment
in the Japanese Markets."
15
<PAGE>
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed income securities.
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion and in fixed income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies
16
<PAGE>
that are in the process of being privatized by foreign governments, securities
of issuers that have not paid dividends on a timely basis, equity securities
of issuers that have experienced difficulties, and securities of companies
without performance records.
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers and (ii) equity and fixed income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
17
<PAGE>
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on
18
<PAGE>
dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets of the Funds, political or social
instability or diplomatic developments which could affect investments in those
countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, each Fund may
enter into such contracts to seek to increase total return when the Investment
Adviser anticipates that the foreign currency will appreciate or depreciate in
value, but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each Fund may also engage in cross-
hedging by using forward contracts in a currency different from that in which
the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or enters into forward foreign currency
exchange contracts to sell foreign currency to seek to increase total return,
the Fund will be required to place cash or liquid assets in a segregated
account with the Fund's custodian in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. The
Fund will incur costs in connection with conversions between various
currencies. A Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries,
19
<PAGE>
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also can be
affected unpredictably by the intervention of U.S. or foreign governments or
central banks or the failure to intervene or by currency controls or political
developments in the U.S. or abroad. To the extent that a substantial portion
of a Fund's total assets, adjusted to reflect the Fund's net position after
giving effect to currency transactions, is denominated or quoted in the
currencies of foreign countries, the Fund will be more susceptible to the risk
of adverse economic and political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Fund's currency exposure will be covered by
such instruments. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
FIXED INCOME SECURITIES
Each Fund may invest in fixed income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
Investments in fixed income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's net asset value, to a
greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
Fixed income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two
20
<PAGE>
or more References. The interest rate or the principal amount payable upon
maturity or redemption may be increased or decreased depending upon changes in
the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
result in the loss of a Fund's investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investor's Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or
21
<PAGE>
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing call
and put options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. A Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating a Fund to
purchase securities or currencies, require the Fund to segregate and maintain
cash or liquid assets with a value equal to the amount of the Fund's
obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result
22
<PAGE>
in poorer overall performance than if the Fund had not entered into any
futures contracts or options transactions. Because perfect correlation between
a futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary settlement period. A Fund is required to hold
and maintain in a segregated account with the Fund's custodian until three
days prior to the settlement date, cash or liquid assets in an amount
sufficient to meet the purchase price. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Although a Fund would generally purchase
securities on a when-issued or forward commitment basis with the intention of
acquiring securities for its portfolio, a Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment
Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount
23
<PAGE>
of their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or 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.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase
24
<PAGE>
rights, (ii) currency swaps, (iii) other investment companies including World
Equity Benchmark Shares and Standard & Poor's Depository Receipts,
(iv) unseasoned companies and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks. Among the reasons for the
greater price volatility of these small company and unseasoned stocks are the
less certain growth prospects of smaller firms, less institutional investor
interest and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging
25
<PAGE>
Countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other Emerging Countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some Asian and other Emerging Countries. Unanticipated
political or social developments may affect the values of a Fund's
investments. Investing in Emerging Countries involves the risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such Emerging Countries.
Economies in Emerging Countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly. In addition to this economic downturn, Japan is
undergoing structural adjustments related to high wages, a strong currency and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection with the reform of its political
process and the deregulation of its economy. These conditions present risks to
the Japanese Equity Fund and its ability to attain its investment objective.
26
<PAGE>
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the
27
<PAGE>
Japanese Equity and International Small Cap Funds) historical portfolio
turnover ratio. It is anticipated that the annual portfolio turnover rates of
the Japanese Equity and International Small Cap Funds will generally not
exceed 50%. The portfolio turnover rate is calculated by dividing the lesser
of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of a Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. Notwithstanding
the foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interest of a
Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. As of , 1998, GSAM,
and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $ billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense
28
<PAGE>
(a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of
prospectuses and statements of additional information and (d) the preparation
of reports to be filed with the SEC and other regulatory authorities; (iv)
maintains each Fund's records; and (v) provides office space and all necessary
office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity, 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of the Japanese Equity
Group in
Tokyo. Prior to 1996, he
spent 12
years at CINMAN.
- ----------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment
Adviser in 1992. Prior
to 1992, he
was studying for a Ph.D.
in finance
at the University of
Chicago.
- ----------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at
Exane in Paris.
- ----------------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. Prior to 1997, he
was an Assistant
Director and portfolio
manager at Mercury Asset
Management.
- ----------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989.
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. Prior to 1994, he
Japanese Equity 1998 worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
International Small Cap 1998 Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
--------------- ------------------- ----------- -------------------------------
<C> <C> <C> <S>
Takeya Suzuki Portfolio Since Mr. Suzuki joined the
Vice President Manager-- 1998 Investment Adviser in 1996.
Japanese Equity Prior to 1996, he was a
portfolio manager at Nomura
Investment Management.
- ----------------------------------------------------------------------------------
Karma Wilson Portfolio Since Ms. Wilson joined the
Vice President Manager-- 1995 Investment Adviser in 1994.
Asia Growth 1997 Prior to 1994, she was an
International investment analyst with Bankers
Equity Trust Australia Ltd. Before
1992 she was employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1998*
----------- -----------------
<S> <C> <C>
GSAM
CORE International Equity ................... 0.85% 0.75%
GSAMI
International Equity......................... 1.00% 0.89%
Japanese Equity.............................. 1.00% n/a
International Small Cap...................... 1.20% n/a
Emerging Markets Equity...................... 1.20% 1.10%
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*All numbers are annualized. With respect to the International Equity and Asia
Growth Funds, a Management Agreement combining both advisory and
administrative services was adopted effective April 30, 1997. The contractual
rate set forth in the table is the rate payable under the Management
Agreements and is identical to the aggregate advisory and administration fees
payable by each Fund under the previous separate investment advisory
(including subadvisory in the case of International Equity Fund) and
administration agreements. For the fiscal year ended January 31, 1998, the
annual rate expressed is the combined advisory and administration fees paid
(after voluntary fee limitations). The difference, if any, between the stated
fees and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. The Investment Advisers may discontinue or modify
such voluntary limitations in the future at their discretion, although they
have no current intention to do so.
The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the CORE
30
<PAGE>
International Equity, Japanese Equity and International Small Cap Funds to the
extent such expenses exceed 0.25%, 0.20%, 0.10%, 0.30%, 0.16% and 0.24% per
annum of the average daily net assets of the CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds, respectively. Such reductions or limits,
if any, are calculated monthly on a cumulative basis and may be discontinued
or modified by the applicable Investment Adviser in its discretion at any
time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the International Equity
and Asia Growth Funds with respect to Institutional or Service Shares. Goldman
Sachs is entitled to receive a transfer agency fee from the Emerging Markets
Equity Fund equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Fund. Goldman Sachs is entitled to
receive a fee from the CORE International Equity, Japanese Equity and
International Small Cap Funds, with respect to Institutional and Service
shares, equal to their proportionate share of the total transfer agency fees
borne by the Fund. Such fees are equal to the fixed per account charge of
$12,000 per year plus $7.50 per account, together with out-of-pocket and
transaction related expenses (including those out-of-pocket expenses payable
to servicing and/or sub-transfer agents) applicable to Class A, B and C shares
plus 0.04% of the average daily net assets of the Institutional and Service
classes.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Advisers,
distribution and authorized dealer service fees, custodial and transfer agency
fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Fund's shares
31
<PAGE>
under federal or state securities laws, organizational expenses, fees and
expenses incurred in connection with membership in investment company
organizations, taxes, interest, costs of liability insurance, fidelity bonds
or indemnification, any costs, expenses or losses arising out of any liability
of, or claim for damages or other relief asserted against, the Funds for
violation of any law, legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser with respect to the Funds), expenses of preparing and
setting in type prospectuses, statements of additional information, proxy
material, reports and notices and the printing and distributing of the same to
shareholders and regulatory authorities, compensation and expenses of the
Trust's "non-interested" Trustees and extraordinary organizational expenses,
if any, incurred by the Trust.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at net asset value.
The total return calculation assumes a complete redemption of the investment
at the end of the relevant period. Each Fund may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis
for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
Each Fund's total return will be calculated separately for each class of
shares in existence. Because each class of shares may be subject to different
expenses, the total return calculations with respect to each class of shares
for the same period will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
32
<PAGE>
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of shares into one or more classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of February 1, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-
1992 was recordholder of 59.3% of Mid Cap Equity Fund's outstanding shares. As
of the same date, Fluor Corporation, Master Retirement Trust, Bankers Trust as
Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was recordholder of 27.9%
of CORE Large Cap Growth Fund's outstanding shares. As of the same date, The
Goldman Sachs Group LP Seed Account, 85 Broad Street, New York, New York
10004, was recordholder of 29.9% CORE International Equity Fund's outstanding
shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company and each Fund
intends to qualify for such treatment for each taxable year under Subchapter M
of the Code. To qualify as
33
<PAGE>
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. Such long-term capital gain will be 20%
or 28% rate gain, depending upon the Fund's holding period for the assets the
sale of which generated the capital gain. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied.
34
<PAGE>
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
35
<PAGE>
REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and a quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide subaccounting
services with respect to beneficial ownership of Institutional Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. Each Fund
will pay dividends from net investment income at least annually. All of the
Funds will pay dividends from net realized long-term and short-term capital
gains, reduced by available capital losses, at least annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by the close of regular trading on
the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New
York time), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the day the purchase order is
received. See "Net Asset Value." Purchases of Institutional Shares of the Funds
must be settled within three (3) Business Days of the receipt of a complete
purchase order. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Institutional Shares."
36
<PAGE>
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer.
Purchases may also be made by check (except that the Trust will not accept a
check drawn on a foreign bank or a third party check) or Federal Reserve draft
made payable to "Goldman Sachs International Equity Funds--Name of Fund and
Class of shares" and should be directed to "Goldman Sachs International Equity
Funds--Name of Fund and Class of shares," c/o National Financial Data Services,
Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
The minimum initial investment is $1,000,000 in Institutional Shares of a
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or agency
thereof; (e) corporations and other for-profit business organizations with
assets of at least $100 million or publicly traded securities outstanding; (f)
"wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided that they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards; (g) registered investment advisers investing for
accounts for which they receive asset-based fees; and (h) accounts over which
GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
OTHER PURCHASE INFORMATION
The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Trust will give sixty (60) days'
prior written notice to Institutional Shareholders whose Institutional Shares
are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
37
<PAGE>
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs International Equity Funds--
Name of Fund and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange request is in writing and is received in accordance with
the procedures set forth under "Redemption of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is treated
as a sale of the Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem their Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption
38
<PAGE>
requests may be made by writing to or calling the Transfer Agent at the address
or telephone number set forth on the back cover of this Prospectus. An
Institutional Shareholder may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form
accompanying this Prospectus. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each Institutional
Shareholder whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would originally be wired. Redemption proceeds paid
by check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the Funds,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the Institutional Shareholder's bank in the
transfer process. If a problem with such performance arises, the Institutional
Shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
--------------------
39
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
INTERNATIONAL
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
Goldman
Sachs
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--FEBRUARY 13, 1998
PROSPECTUS
May 1, 1998
GOLDMAN SACHS INTERNATIONAL EQUITY FUNDS
SERVICE SHARES
GOLDMAN SACHS CORE
INTERNATIONAL EQUITY FUND GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
Seeks long term growth of
capital through a broadly di- Seeks long-term capital appreciation
versified portfolio of equity through investments in equity securities
securities of large cap com- of companies with public stock market
panies that are organized capitalizations of $1 billion or less at
outside the U.S. or whose se- the time of investment that are organized
curities are principally outside the U.S. or whose securities are
traded outside the U.S. principally traded outside the U.S.
GOLDMAN SACHS EMERGING MARKETS
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
EQUITY FUND Seeks long-term capital appreciation
Seeks long-term capital ap- through investments in equity securities
preciation through invest- of emerging country issuers.
ments in equity securities of
companies that are organized
outside the U.S. or whose se-
curities are principally
traded outside the U.S.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies related (in the manner de-
scribed herein) to Asian countries.
GOLDMAN SACHS JAPANESE EQUITY
FUND
Seeks long-term capital ap-
preciation through invest-
ments in equity securities of
Japanese companies.
-------------
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the CORE International Equity Fund. Goldman Sachs Asset
Management International ("GSAMI"), London, England, an affiliate of Goldman
Sachs, serves as investment adviser to the International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds.
GSAM and GSAMI are each referred to in this Prospectus as the "Investment
Adviser." Goldman Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated May 1, 1998,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
(continued on next page)
<PAGE>
(cover continued)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE CORE INTERNATIONAL EQUITY FUND CAN INVEST A PORTION OF ITS ASSETS
AND THE INTERNATIONAL SMALL CAP, INTERNATIONAL EQUITY, EMERGING MARKETS AND
ASIA GROWTH FUNDS MAY INVEST WITHOUT LIMIT, ARE LESS LIQUID, SUBJECT TO GREATER
PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT
REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING,
FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE
DEVELOPED COUNTRIES. FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS
LOCATED IN RUSSIA AND CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS
RESULTING FROM PROBLEMS IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT
NORMALLY ASSOCIATED WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. FUNDS THAT
INVEST IN FOREIGN SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS
WHO CAN ACCEPT THE RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 18
Description of Securities.......... 26
Investment Techniques.............. 31
Risk Factors....................... 35
Investment Restrictions............ 37
Portfolio Turnover................. 37
Management......................... 38
Expenses...........................
Net Asset Value.................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 43
Shares of the Trust........... 43
Taxation...................... 44
Additional Information........ 45
Additional Services........... 46
Reports to Shareholders....... 46
Dividends..................... 47
Purchase of Service Shares.... 47
Exchange Privilege............ 48
Redemption of Service Shares.. 49
Appendix...................... A-1
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
--------------
-----------------------
------------------------------------------------------
---------------------
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
JAPANESE Long-term Substantially all, and at least 65%, of Tokyo Price
EQUITY FUND capital total assets in equity securities of Index ("TOPIX")
appreciation. Japanese companies. The Fund may employ
currency management techniques.
- ------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of Morgan Stanley
SMALL CAP capital total assets in equity securities of Capital
FUND appreciation. companies with public stock market International
capitalizations of $1 billion or less World Small Cap
at the time of investment that are Index
organized outside the United States or
whose securities are principally traded
outside the United States. The Fund may
employ currency management techniques.
</TABLE>
(continued)
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- ------------ ---------------- --------------------------------------- ----------------
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital its total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- ----------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the Funds invest primarily outside
the United States, they may involve greater risks, since the securities
markets of foreign countries are generally less liquid and subject to
greater price volatility. The securities markets of emerging countries,
including those in Asia, Latin America, Eastern Europe and Africa are
marked by a high concentration of market capitalization and trading volume
in a small number of issuers representing a limited number of industries,
as well as a high concentration of ownership of such securities by a
limited number of investors.
Risks of Investing in Japanese Markets. The Japanese Equity Fund will
concentrate in Japanese securities and therefore, will be particularly
subject to the risk of adverse social, political and economic events which
occur in Japan or affect the Japanese markets.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
4
<PAGE>
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the CORE
International Equity Fund. Goldman Sachs Asset Management International
serves as Investment Adviser to each other Fund. As of , 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $ billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value without any sales load. See "Purchase of
Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Service Shares."
5
<PAGE>
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
CORE International Equity............. Annually Annually
International Equity.................. Annually Annually
Japanese Equity....................... Annually Annually
International Small Cap............... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund or you may elect to receive dividends in cash.
For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
CORE INT'L EMERGING
INTERNATIONAL INT'L JAPANESE SMALL MARKETS ASIA
EQUITY EQUITY EQUITY CAP EQUITY GROWTH
FUND/1/ FUND FUND/1/ FUND/1/ FUND/1/ FUND
------------- ------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases... None None None None None None
Maximum Sales Charge
Imposed on Reinvested
Dividends.............. None None None None None None
Redemption Fees......... None None None None None None
Exchange Fees........... None None None None None None
ANNUAL FUND OPERATING
EXPENSES: (as a
percentage of average
daily net assets)
Management Fees (after
applicable
limitations)/2/........ 0.75% 0.90% 0.90% 1.10% 1.10% 0.86%
Service Fees/5/......... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after
applicable limita-
tions)/3/.............. 0.25% 0.20% 0.10% 0.30% 0.20% 0.24%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE
LIMITATIONS)/4/........ 1.50% 1.60% 1.50% 1.90% 1.80% 1.60%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------------
/1/Based on estimated amounts for the current fiscal year.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds equal to 0.10%, 0.10%, 0.10%, 0.10%,
0.10% and 0.14%, respectively. Without such limitations, management fees
would be 0.85%, 1.00%, 1.00%, 1.20%, 1.20% and 1.00% of each Fund's average
daily net assets, respectively.
/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of each Fund other than CORE
International Equity Fund)) for the following funds to the extent such
expenses exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
CORE International Equity........................................ 0.25%
International Equity............................................. 0.20%
Japanese Equity.................................................. 0.10%
International Small Cap.......................................... 0.30%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
7
<PAGE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" for the Service Shares of the International Equity and
Asia Growth funds for the fiscal year ended January 31, 1998, would have
been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
International Equity................................... 0.25% 1.75%
Asia Growth............................................ 0.26% 1.76%
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Service Shares of the CORE International
Equity, Emerging Markets, Japanese Equity and International Small Cap Funds
for the current fiscal year are estimated to be as follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
CORE International Equity.............................. 0.86% 2.21%
Emerging Markets Equity................................ 0.82% 2.52%
Japanese Equity........................................ 1.47% 2.97%
International Small Cap................................ 0.52% 2.22%
</TABLE>
/5/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
CORE International Equity Fund................ $15 $47 n/a n/a
International Equity Fund..................... $16 $50 $ 87 $190
Japanese Equity............................... $15 $47 n/a n/a
International Small Cap....................... $19 $60 n/a n/a
Emerging Markets Equity Fund.................. $18 $57 n/a n/a
Asia Growth Fund.............................. $16 $50 $ 87 $190
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each
Fund also offers Institutional Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Institutional, Class A, Class B and Class C
Shares may be obtained from an investor's sales representative or from Goldman
Sachs by calling the number on the back of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds outstanding during the period(s) indicated has been audited by
, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1998 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus. During the periods shown, the Trust did not offer shares of the
Japanese Equity and International Small Cap Funds. Accordingly, there are no
financial highlights for these Funds or Classes.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, NET NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES (DECREASE) IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------------- ---------
CORE INTERNATIONAL EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- --------- ---------- --------- ----------- ---------------- ---------- -------------
CORE INTERNATIONAL EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------------------- -----------------------
FROM NET
NET REALIZED REALIZED
NET REALIZED AND UNREALIZED GAIN ON
NET ASSET AND UNREALIZED GAIN (LOSS) ON FROM INVESTMENT, NET NET ASSET
VALUE, NET GAIN (LOSS) ON FOREIGN NET OPTION AND INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED INVESTMENT FUTURES (DECREASE) IN NET END OF
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS INCOME TRANSACTIONS ASSET VALUE PERIOD
--------- ------------- ------------------- ---------------- ---------- ------------ ----------------- ---------
INTERNATIONAL EQUITY FUND
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) TO EXPENSES INCOME (LOSS)
TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RETURN(A) RATE RATE(F) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
--------- --------- ---------- --------- ----------- ---------------- ---------- -------------
INTERNATIONAL EQUITY FUND
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(F)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- --------- --------- ----------
ASIA GROWTH FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET RATIO OF NET
ASSETS AT NET RATIO OF RATIO OF INVESTMENT
END OF EXPENSES TO NET EXPENSES INCOME (LOSS)
PERIOD AVERAGE NET INVESTMENT TO AVERAGE TO AVERAGE
(000'S) ASSETS INCOME (LOSS) TO AVERAGE NET ASSETS NET ASSETS NET ASSETS
--------- ----------- ----------------------------------- ---------- -------------
ASIA GROWTH FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE, PORTFOLIO AVERAGE
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL TURNOVER COMMISSION
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A) RATE RATE(F)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- --------- --------- ----------
EMERGING MARKETS EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF
NET RATIO OF NET
ASSETS AT NET RATIO OF RATIO OF INVESTMENT
END OF EXPENSES TO NET EXPENSES INCOME (LOSS)
PERIOD AVERAGE NET INVESTMENT TO AVERAGE TO AVERAGE
(000'S) ASSETS INCOME (LOSS) TO AVERAGE NET ASSETS NET ASSETS NET ASSETS
--------- ----------- ----------------------------------- ---------- -------------
EMERGING MARKETS EQUITY FUND
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. In particular, each Fund may employ certain currency
techniques to seek to hedge against currency exchange rate fluctuations or to
seek to increase total return. When used to seek to enhance return, these
management techniques are considered speculative. Such currency management
techniques involve risks different from those associated with investing solely
in securities of U.S. issuers quoted in U.S. dollars. To the extent that the
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk. The Fund's net currency
positions may expose it to risks independent of its securities positions.
There can be no assurance that a Fund's investment objectives will be
achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, bonds with attached warrants,
equity-related transferable securities, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified. Other investment practices and management
techniques, which involve certain risks are described under "Description of
Securities," "Risk Factors" and "Investment Techniques."
Growth Style Funds. The International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds are managed using a
growth oriented approach. Equity securities for these Funds are selected based
on their prospects for above average growth. The Investment Adviser will
select securities of growth companies trading, in the Investment Adviser's
opinion, at a reasonable price relative to other industries, competitors and
historical price/earnings multiples. These Funds will generally invest in
companies whose earnings are believed to be in a relatively strong growth
trend, or, to a lesser extent, in companies in which significant further
growth is not anticipated but whose market value per share is thought to be
undervalued. In order to determine whether a security has favorable growth
prospects, the Investment Adviser ordinarily looks for one or more of the
following characteristics in relation to the security's prevailing price:
prospects for above average sales and earnings growth per share; high return
on invested capital; free cash flow generation; sound balance sheet, financial
and accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
Quantitative Style Fund. The CORE International Equity Fund is managed using
both quantitative and fundamental techniques. CORE is an acronym for
"Computer-Optimized, Research-Enhanced," which reflects the CORE International
Equity Fund's investment process. This investment process and the proprietary
multifactor model used to implement it are discussed below.
13
<PAGE>
Investment Process. The Investment Adviser begins with a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. The Investment Adviser may
rely on research from both the Goldman Sachs Global Investment Research
Department (the "Research Department") and other industry sources.
In building a diversified portfolio for the CORE International Equity Fund,
the Investment Adviser utilizes optimization techniques to seek to maximize
the Fund's expected return, while maintaining a risk profile similar to the
Fund's benchmark. The Fund's portfolio is primarily comprised of securities
rated highest by the foregoing investment process and has risk characteristics
and industry weightings similar to the Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE International Equity Fund uses multiple Multifactor
Models to forecast returns. Currently, the CORE International Equity Fund uses
one model to forecast equity market returns, one model to forecast currency
returns and 22 separate models to forecast individual equity security returns
in 22 different countries. Despite this variety, all Multifactor Models
incorporate common variables covering measures of value, growth, momentum and
risk (e.g., book/price ratio, earnings/price ratio, price momentum, price
volatility, consensus growth forecasts, earnings estimate revisions, earnings
stability, currency momentum and country political risk ratings). All of the
factors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
Because they include many disparate factors, the Investment Adviser believes
that all the Multifactor Models are broader in scope and provide a more
thorough evaluation than most conventional, quantitative models. Securities
and markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive
combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, the CORE
International Equity Fund seeks to capitalize on the strengths of each
discipline.
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally
14
<PAGE>
traded outside the United States. The Fund seeks broad representation of large
cap issuers across major countries and sectors of the international economy.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Fund."
Other. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The Fund intends to invest in companies with public
stock market capitalizations that are larger than those in which the
International Small Cap Fund primarily intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed income
securities.
JAPANESE EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of Japanese companies. Japanese companies include those organized under the
laws of Japan or whose shares are traded on a Japanese stock exchange as well
as those whose shares are registered with the Japan Securities Dealers
Association for trading on Japan's over-the-counter market. The Fund's
concentration in Japanese companies will expose it to the risk of adverse
social, political and economic events which occur in Japan or affect the
Japanese markets as described under "Risk Factors--Special Risks of Investment
in the Japanese Markets."
15
<PAGE>
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of non-Japanese companies and in fixed income securities.
INTERNATIONAL SMALL CAP FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment that are organized outside the
U.S. or whose securities are principally traded outside the U.S. The Fund may
allocate its assets among countries as determined by the Investment Adviser
from time to time provided that the Fund's assets are invested in at least
three foreign countries. The Fund expects to invest a substantial portion of
its assets in small cap securities of companies in the developed countries of
Western Europe, Japan and Asia. However, the Fund may also invest in the
securities of issuers located in Australia, Canada, New Zealand and the
Emerging Countries in which the Emerging Markets Equity Fund may invest. Many
of the countries in which the Fund may invest have emerging markets or
economics which involve certain risks, as described below under "Risk
Factors--Special Risks of Investments in Asian and Other Emerging Markets,"
which are not present in investments in more developed countries.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion and in fixed income securities.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies
16
<PAGE>
that are in the process of being privatized by foreign governments, securities
of issuers that have not paid dividends on a timely basis, equity securities
of issuers that have experienced difficulties, and securities of companies
without performance records.
Other. Under normal circumstances, the Fund maintains investments in at
least six Emerging Countries and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the
Emerging Country markets and particular issuers. In addition, macro-economic
factors and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers and (ii) equity and fixed income securities of issuers in developed
countries.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may allocate its assets among the Asian countries as
determined from time to time by the Investment Adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
17
<PAGE>
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
securities in which the Funds invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
each Fund's investment policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund will invest in the securities of foreign
issuers. Investments in foreign securities may offer potential benefits that
are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the United States. Foreign securities markets may have substantially
less volume than U.S. securities markets and securities of many foreign
issuers are less liquid and more volatile than securities of comparable
domestic issuers. Furthermore, with respect to certain foreign countries,
there is a possibility of nationalization, expropriation or confiscatory
taxation, imposition of withholding or other taxes on
18
<PAGE>
dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets of the Funds, political or social
instability or diplomatic developments which could affect investments in those
countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together, "Depository Receipts"). ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or over-the-
counter and are sponsored and issued by domestic banks. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security. To the
extent a Fund acquires Depository Receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying
the Depository Receipts to issue and service such Depository Receipts
(unsponsored Depository Receipts), there may be an increased possibility that
the Fund would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign
issuer, in a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. Investment in Depository
Receipts does not eliminate all the risks inherent in investing in securities
of non-U.S. issuers. The market value of Depository Receipts is dependent upon
the market value of the underlying securities and fluctuations in the relative
value of the currencies in which the Depository Receipt and the underlying
securities are quoted. However, by investing in Depository Receipts, such as
ADRs, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because each Fund may
have currency exposure independent of its securities positions, the value of
the assets of a Fund as measured in U.S. dollars will be affected by changes
in foreign currency exchange rates. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, each Fund may
enter into such contracts to seek to increase total return when the Investment
Adviser anticipates that the foreign currency will appreciate or depreciate in
value, but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to enhance return, forward foreign currency exchange
contracts are considered speculative. Each Fund may also engage in cross-
hedging by using forward contracts in a currency different from that in which
the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or enters into forward foreign currency
exchange contracts to sell foreign currency to seek to increase total return,
the Fund will be required to place cash or liquid assets in a segregated
account with the Fund's custodian in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract. The
Fund will incur costs in connection with conversions between various
currencies. A Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries,
19
<PAGE>
actual or anticipated changes in interest rates and other complex factors, as
seen from an international perspective. Currency exchange rates also can be
affected unpredictably by the intervention of U.S. or foreign governments or
central banks or the failure to intervene or by currency controls or political
developments in the U.S. or abroad. To the extent that a substantial portion
of a Fund's total assets, adjusted to reflect the Fund's net position after
giving effect to currency transactions, is denominated or quoted in the
currencies of foreign countries, the Fund will be more susceptible to the risk
of adverse economic and political developments within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
Each Fund may also engage in a variety of foreign currency management
techniques. However, due to the limited market for these instruments with
respect to the currencies of many Emerging Countries, including certain Asian
countries, the Investment Advisers do not currently anticipate that a
significant portion of International Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Fund's currency exposure will be covered by
such instruments. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
FIXED INCOME SECURITIES
Each Fund may invest in fixed income securities, including U.S. Government
securities, corporate debt obligations, obligations issued by U.S. or foreign
banks (including without limitation, time deposits, bankers' acceptances and
certificates of deposit), mortgage-backed securities (including stripped
mortgage-backed securities) and asset-backed securities.
Investments in fixed income securities may include obligations of foreign
governments and governmental agencies, including those of Emerging Countries.
Investment in sovereign debt obligations involves special risks not present in
debt obligations of corporate issuers. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due in accordance with the
terms of such debt, and a Fund may have limited recourse in the event of a
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's net asset value, to a
greater extent than the volatility inherent in debt obligations of U.S.
issuers. A sovereign debtor's willingness or ability to repay principal and
pay interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject.
Fixed income investments may also include investments in structured
securities. The value of the principal of and/or interest on such securities
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two
20
<PAGE>
or more References. The interest rate or the principal amount payable upon
maturity or redemption may be increased or decreased depending upon changes in
the applicable Reference. The terms of the structured securities may provide
that in certain circumstances no principal is due at maturity and, therefore,
result in the loss of a Fund's investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
Each Fund (other than the CORE International Equity Fund, which only invests
in debt instruments that are cash equivalents) may invest up to 35% of its
total assets in debt securities which are unrated or rated in the lowest
rating categories by Standard & Poor's Ratings Group ("Standard & Poor's") or
Moody's Investor's Service, Inc. ("Moody's") (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Fixed income securities rated BB or Ba or below (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment grade standing and be in default.
As a result, investment in such bonds will entail greater speculative risks
than those associated with investment in investment grade bonds. Also, to the
extent that the rating assigned to a security in a Fund's portfolio is
downgraded by a rating organization, the market price and liquidity of such
security may be adversely affected. See Appendix A to the Additional Statement
for a description of the corporate bond ratings assigned by Standard & Poor's
and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' managers. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund may write (sell) covered call and put options and purchase call
and put options on any securities in which it may invest or on any securities
index composed of securities in which it may invest. The writing and purchase
of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The use of options to seek to increase total return
involves the risk of loss if the Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates. The
successful use of options for hedging purposes also depends in part on the
ability of the Investment Adviser to manage future price fluctuations and the
degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or
21
<PAGE>
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition,
each Fund may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of options transactions, however, the
writing of an option on a foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If an option that a Fund has
written is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing call
and put options for hedging purposes, each Fund may purchase call or put
options on currency to seek to increase total return when the Investment
Adviser anticipates that the currency will appreciate or depreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When purchased or sold to seek to increase total return, options on currencies
are considered speculative. Options on foreign currencies written or purchased
by the Funds are traded on U.S. and foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities, foreign
currencies, securities indices and other financial instruments and indices. A
Fund will engage in futures and related options transactions for bona fide
hedging purposes as defined in regulations of the Commodity Futures Trading
Commission or to seek to increase total return to the extent permitted by such
regulations. A Fund may not purchase or sell futures contracts or purchase or
sell related options to seek to increase total return, except for closing
purchase or sale transactions, if immediately thereafter the sum of the amount
of initial margin deposits and premiums paid on the Fund's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Fund's net assets. These transactions involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating a Fund to
purchase securities or currencies, require the Fund to segregate and maintain
cash or liquid assets with a value equal to the amount of the Fund's
obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result
22
<PAGE>
in poorer overall performance than if the Fund had not entered into any
futures contracts or options transactions. Because perfect correlation between
a futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary settlement period. A Fund is required to hold
and maintain in a segregated account with the Fund's custodian until three
days prior to the settlement date, cash or liquid assets in an amount
sufficient to meet the purchase price. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Although a Fund would generally purchase
securities on a when-issued or forward commitment basis with the intention of
acquiring securities for its portfolio, a Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment
Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount
23
<PAGE>
of their repurchase obligation. Each Fund may also enter into repurchase
agreements involving certain foreign government securities. If the other party
or "seller" defaults, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held
by the Fund in connection with the related repurchase agreement are less than
the repurchase price. In addition, in the event of bankruptcy of the seller or
failure of the seller to repurchase the securities as agreed, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with an
Investment Adviser or 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.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE International Equity Fund) may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE International Equity Fund and Emerging Markets
Equity Fund may only hold up to 35% of their respective total assets) in U.S.
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase
24
<PAGE>
rights, (ii) currency swaps, (iii) other investment companies including World
Equity Benchmark Shares and Standard & Poor's Depository Receipts,
(iv) unseasoned companies and (v) custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than larger market capitalization stocks. Among the reasons for the
greater price volatility of these small company and unseasoned stocks are the
less certain growth prospects of smaller firms, less institutional investor
interest and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, International Small Cap,
Emerging Markets Equity and Asia Growth Funds may each invest without limit in
the securities of issuers in Emerging Countries. The CORE International Equity
Fund may invest up to 25% of its total assets in securities of issuers in
Emerging Countries. Emerging Countries are generally located in the Asia-
Pacific region, Eastern Europe, Latin and South America and Africa. A Fund's
purchase and sale of portfolio securities in certain Emerging Countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed
based on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, governments
of some Emerging
25
<PAGE>
Countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other Emerging Countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some Asian and other Emerging Countries. Unanticipated
political or social developments may affect the values of a Fund's
investments. Investing in Emerging Countries involves the risk of loss due to
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and on repatriation of
capital invested. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such Emerging Countries.
Economies in Emerging Countries generally are dependent heavily upon commodity
prices and international trade and, accordingly, have been and may continue to
be affected adversely by the economies of their trading partners, trade
barriers, exchange controls, managed adjustments in relative currency values
and other protectionist measures imposed or negotiated by the countries with
which they trade.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
SPECIAL RISKS OF INVESTMENTS IN THE JAPANESE MARKETS. The Japanese Equity
Fund invests primarily in equity securities of Japanese companies.
Accordingly, the Japanese Equity Fund's performance will be closely tied to
economic and market conditions in Japan, and may be more volatile than more
geographically diversified funds. Changes in regulatory, as well as tax or
economic, policy in Japan could significantly affect the Japanese securities
markets and, therefore, the Japanese Equity Fund's performance.
Japan's economy, the second largest in the world, has grown substantially
over the last three decades. Since 1990, however, Japan's economic growth has
declined significantly. In addition to this economic downturn, Japan is
undergoing structural adjustments related to high wages, a strong currency and
structural rigidities. Japan has also been experiencing notable uncertainty
and loss of public confidence in connection with the reform of its political
process and the deregulation of its economy. These conditions present risks to
the Japanese Equity Fund and its ability to attain its investment objective.
26
<PAGE>
Japan's economy is heavily dependent upon international trade, and is
especially sensitive to trade barriers and disputes. In particular, Japan
relies on large imports of agricultural products, raw materials and fuels. A
substantial rise in world oil or commodity prices, or a fall-off in Japan's
manufactured exports, could be expected to adversely affect Japan's economy.
In addition, Japan is vulnerable to earthquakes, volcanoes and other natural
disasters. As of the date of this Prospectus, Japan's banking industry
continued to suffer from non-performing loans, declining real estate values
and lower valuations of securities holdings.
The Japanese securities markets are less regulated than the U.S. markets.
Evidence has emerged from time to time of distortion of market prices to serve
political or other purposes. Shareholders' rights are also not always equally
enforced.
The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the U.S. In general, however, reported net income in Japan is
understated relative to U.S. accounting standards and this is one reason
price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those of U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies, and
Japanese interest rates have generally been lower than U.S. interest rates.
These factors have contributed to lower discount rates and higher price-
earnings ratios in Japan than in the U.S.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the
27
<PAGE>
Japanese Equity and International Small Cap Funds) historical portfolio
turnover ratio. It is anticipated that the annual portfolio turnover rates of
the Japanese Equity and International Small Cap Funds will generally not
exceed 50%. The portfolio turnover rate is calculated by dividing the lesser
of the dollar amount of sales or purchases of portfolio securities by the
average monthly value of a Fund's portfolio securities, excluding securities
having a maturity at the date of purchase of one year or less. Notwithstanding
the foregoing, the Investment Adviser may, from time to time, make short-term
investments when it believes such investments are in the best interest of a
Fund.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the CORE International Equity Fund. Goldman Sachs
registered as an investment adviser in 1981. Goldman Sachs Asset Management
International, 133 Peterborough Court, London EC4A 2BB, England, an affiliate
of Goldman Sachs, serves as the investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. Goldman Sachs Asset Management International became a
member of the Investment Management Regulatory Organisation Limited in 1990
and registered as an investment adviser in 1991. As of , 1998, GSAM,
and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $ billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense
28
<PAGE>
(a) the preparation of all required tax returns, (b) the preparation and
submission of reports to existing shareholders, (c) the periodic updating of
prospectuses and statements of additional information and (d) the preparation
of reports to be filed with the SEC and other regulatory authorities; (iv)
maintains each Fund's records; and (v) provides office space and all necessary
office equipment and services.
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-------------- ------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity, 1997 Investment Adviser in
Japanese Equity 1998 1996 and is also co-head
of the Japanese Equity
Group in
Tokyo. Prior to 1996, he
spent 12
years at CINMAN.
- ----------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE International Equity 1997 Investment
Adviser in 1992. Prior
to 1992, he
was studying for a Ph.D.
in finance
at the University of
Chicago.
- ----------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at
Exane in Paris.
- ----------------------------------------------------------------------------------------------------
James P. Hordern Portfolio Manager-- Since Mr. Hordern joined the
Executive Director International Small Cap 1998 Investment Adviser in
1997. Prior to 1997, he
was an Assistant
Director and portfolio
manager at Mercury Asset
Management.
- ----------------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE International Equity 1997 Investment Adviser in
1989.
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Managing Director International Equity 1994 Investment Adviser in
International Small Cap 1998 1994. Prior to 1994, he
Japanese Equity 1998 worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
International Small Cap 1998 Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE International Equity 1997 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
--------------- ------------------- ----------- -------------------------------
<C> <C> <C> <S>
Takeya Suzuki Portfolio Since Mr. Suzuki joined the
Vice President Manager-- 1998 Investment Adviser in 1996.
Japanese Equity Prior to 1996, he was a
portfolio manager at Nomura
Investment Management.
- ----------------------------------------------------------------------------------
Karma Wilson Portfolio Since Ms. Wilson joined the
Vice President Manager-- 1995 Investment Adviser in 1994.
Asia Growth 1997 Prior to 1994, she was an
International investment analyst with Bankers
Equity Trust Australia Ltd. Before
1992 she was employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSAMI are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1998*
----------- -----------------
<S> <C> <C>
GSAM
CORE International Equity ................... 0.85% 0.75%
GSAMI
International Equity......................... 1.00% 0.89%
Japanese Equity.............................. 1.00% n/a
International Small Cap...................... 1.20% n/a
Emerging Markets Equity...................... 1.20% 1.10%
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*All numbers are annualized. With respect to the International Equity and Asia
Growth Funds, a Management Agreement combining both advisory and
administrative services was adopted effective April 30, 1997. The contractual
rate set forth in the table is the rate payable under the Management
Agreements and is identical to the aggregate advisory and administration fees
payable by each Fund under the previous separate investment advisory
(including subadvisory in the case of International Equity Fund) and
administration agreements. For the fiscal year ended January 31, 1998, the
annual rate expressed is the combined advisory and administration fees paid
(after voluntary fee limitations). The difference, if any, between the stated
fees and the actual fees paid by the Funds reflects that the applicable
Investment Adviser did not charge the full amount of the fees to which it
would have been entitled. The Investment Advisers may discontinue or modify
such voluntary limitations in the future at their discretion, although they
have no current intention to do so.
The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the CORE
30
<PAGE>
International Equity, Japanese Equity and International Small Cap Funds to the
extent such expenses exceed 0.25%, 0.20%, 0.10%, 0.30%, 0.16% and 0.24% per
annum of the average daily net assets of the CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds, respectively. Such reductions or limits,
if any, are calculated monthly on a cumulative basis and may be discontinued
or modified by the applicable Investment Adviser in its discretion at any
time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the International Equity
and Asia Growth Funds with respect to Institutional or Service Shares. Goldman
Sachs is entitled to receive a transfer agency fee from the Emerging Markets
Equity Fund equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Fund. Goldman Sachs is entitled to
receive a fee from the CORE International Equity, Japanese Equity and
International Small Cap Funds, with respect to Institutional and Service
shares, equal to their proportionate share of the total transfer agency fees
borne by the Fund. Such fees are equal to the fixed per account charge of
$12,000 per year plus $7.50 per account, together with out-of-pocket and
transaction related expenses (including those out-of-pocket expenses payable
to servicing and/or sub-transfer agents) applicable to Class A, B and C shares
plus 0.04% of the average daily net assets of the Institutional and Service
classes.
EXPENSES
The Funds are responsible for the payment of their expenses. The expenses
include, without limitation, the fees payable to the Investment Advisers,
distribution and authorized dealer service fees, custodial and transfer agency
fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Fund's shares
31
<PAGE>
under federal or state securities laws, organizational expenses, fees and
expenses incurred in connection with membership in investment company
organizations, taxes, interest, costs of liability insurance, fidelity bonds
or indemnification, any costs, expenses or losses arising out of any liability
of, or claim for damages or other relief asserted against, the Funds for
violation of any law, legal and auditing fees and expenses (including the cost
of legal and certain accounting services rendered by employees of the
Investment Adviser with respect to the Funds), expenses of preparing and
setting in type prospectuses, statements of additional information, proxy
material, reports and notices and the printing and distributing of the same to
shareholders and regulatory authorities, compensation and expenses of the
Trust's "non-interested" Trustees and extraordinary organizational expenses,
if any, incurred by the Trust.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in
advertisements and communications to shareholders or prospective investors.
Average annual total return is determined by computing the average annual
percentage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at net asset value.
The total return calculation assumes a complete redemption of the investment
at the end of the relevant period. Each Fund may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis
for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
Each Fund's total return will be calculated separately for each class of
shares in existence. Because each class of shares may be subject to different
expenses, the total return calculations with respect to each class of shares
for the same period will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
32
<PAGE>
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. Each Fund (except the
Japanese Equity, International Small Cap and CORE International Equity Funds)
was formerly a series of Goldman Sachs Equity Portfolios, Inc., a Maryland
corporation, and was reorganized into the Trust as of April 30, 1997. The
Trustees have authority under the Trust's Declaration of Trust to create and
classify shares of beneficial interests in separate series, without further
action by shareholders. Additional series may be added in the future. The
Trustees also have authority to classify and reclassify any series or
portfolio of shares into one or more classes. Information about the Trust's
other series and classes is contained in separate prospectuses.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of February 1, 1998, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-
1992 was recordholder of 59.3% of Mid Cap Equity Fund's outstanding shares. As
of the same date, Fluor Corporation, Master Retirement Trust, Bankers Trust as
Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was recordholder of 27.9%
of CORE Large Cap Growth Fund's outstanding shares. As of the same date, The
Goldman Sachs Group LP Seed Account, 85 Broad Street, New York, New York
10004, was recordholder of 29.9% CORE International Equity Fund's outstanding
shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The Japanese
Equity and International Small Cap Funds intend to elect and each other Fund
has elected to be treated as a regulated investment company and each Fund
intends to qualify for such treatment for each taxable year under Subchapter M
of the Code. To qualify as
33
<PAGE>
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. Such long-term capital gain will be 20%
or 28% rate gain, depending upon the Fund's holding period for the assets the
sale of which generated the capital gain. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
the Funds are not generally expected to qualify, in the hands of corporate
shareholders, for the corporate dividends-received deduction. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied.
34
<PAGE>
For a further discussion of certain tax consequences of investing in shares of
the Funds, see "Taxation" in the Additional Statement. Shareholders are urged
to consult their own tax advisers regarding specific questions as to federal,
state and local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day (observed),
Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
35
<PAGE>
ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services shall
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
Normally, purchase, exchange and redemption orders processed by a Service
Organization on behalf of its customers will not be effective until received by
Goldman Sachs as described herein. The Trust may, however, authorize certain
Service Organizations that provide recordkeeping, reporting and processing
services to qualified employee benefit plans to accept on the Trust's behalf
orders placed by such plans and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form from a plan when the order is accepted by
the authorized Service Organization or intermediary on a Business Day, and the
order will be priced at a Fund's net asset value per share next determined
after such acceptance. The Service Organization or intermediary will be
responsible for transmitting accepted orders to the Trust within the period
agreed upon by them. An employee benefit plan may contact its Service
Organization to learn whether the Service Organization is authorized to accept
orders.
For the fiscal year ended January 31, 1998, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares outstanding during the period.
Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations for their services with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs. The Funds do not generally provide
subaccounting services with respect to beneficial ownership of Service Shares.
36
<PAGE>
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. Each Fund
will pay dividends from net investment income at least annually. All of the
Funds will pay dividends from net realized long-term and short-term capital
gains, reduced by available capital losses, at least annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
Service Organizations. Service Shares may be purchased on any Business Day at
the net asset value per share next determined after receipt of an order by
Goldman Sachs from a Service Organization. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may be authorized to accept orders for the Funds.) No sales load will be
charged. Currently, each Fund's net asset value is determined as of the close
of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago
time, 4:00 p.m. New York time), as described under "Net Asset Value." Purchases
of Service Shares of the Fund must be settled within three (3) Business Days of
the receipt of a complete purchase order. Payment of the proceeds of redemption
of shares purchased by check may be delayed for a period of time as described
under "Redemption of Service Shares."
37
<PAGE>
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street. In order to
facilitate timely transmittal, the Service Organizations have established times
by which purchase orders and payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third party
check) or Federal Reserve draft made payable to "Goldman Sachs International
Equity Funds--Name of Fund and Class of shares" and should be directed to
"Goldman Sachs International Equity Funds--Name of Fund and Class of shares,"
c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box 419711, Kansas
City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of such shareholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give sixty (60) days' prior written notice to Service
Organizations whose Service Shares are being redeemed to allow them to purchase
sufficient additional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose and (ii) the
38
<PAGE>
corresponding class of any Goldman Sachs Money Market Fund at the net asset
value next determined either by writing to Goldman Sachs, Attention: Goldman
Sachs International Equity Funds--Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if previ-
ously elected in the Fund's Account Information Form, by telephone at 800-621-
2550 (7:00 a.m. to 5:30 p.m. Chicago time). A shareholder should obtain and
read the prospectus relating to any other fund and its shares and consider its
investment objective, policies and applicable fees before making an exchange.
Service Shares acquired by telephone exchange must be registered in the same
name(s) and have the same address as Service Shares of the Fund for which the
exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be modified or with-
drawn at any time on sixty (60) days' written notice to recordholders of Serv-
ice Shares and is subject to certain limitations. See "Purchase of Service
Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder
of such Shares on any Business Day at the net asset value next determined after
the receipt of such request in proper form by Goldman Sachs from a Service Or-
ganization. (See "Additional Services" for a description of limited situations
where a Service Organization or other intermediary may be authorized to accept
requests for the Funds.) If Service Shares to be redeemed were recently pur-
chased by check, a Fund may delay transmittal of redemption proceeds until such
time as it has assured itself that good funds have been collected for the pur-
chase of such Service Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a Service Organization by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A Service Organization may request redemptions by telephone
if the optional telephone redemption privilege is elected on the Account Infor-
mation Form. It may be difficult to implement redemptions by telephone in times
of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented,
39
<PAGE>
the Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares, or if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once wire
transfer instructions have been given by Goldman Sachs, neither the Funds, the
Trust nor Goldman Sachs assumes any further responsibility for the performance
of intermediaries or the customer's Service Organization in the transfer
process. If a problem with such performance arises, the customer should deal
directly with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
--------------------
40
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONALEQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS
SUBJECT TO COMPLETION
FEBRUARY 13, 1998
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS JAPANESE EQUITY FUND
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
prospectus for the Class A Shares, Class B Shares and Class C Shares of Goldman
Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs CORE
U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE
Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund, Goldman
Sachs Capital Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
Japanese Equity Fund, Goldman Sachs International Small Cap Fund, Goldman Sachs
Emerging Markets Equity Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs
Real Estate Securities Fund dated ______________, 1998 (the "Prospectus"), which
may be obtained without charge from Goldman, Sachs & Co. by calling the
telephone number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
Page
----
Introduction.................................................. B-3
Investment Policies........................................... B-4
Investment Restrictions....................................... B-28
Management.................................................... B-30
Portfolio Transactions and Brokerage.......................... B-43
Net Asset Value............................................... B-48
Performance Information....................................... B-49
Shares of the Trust........................................... B-57
Taxation...................................................... B-60
Financial Statements.......................................... B-65
Other Information............................................. B-65
Distribution and Authorized Dealer Service Plans.............. B-66
Other Information Regarding Maximum Sales Charge, Purchases,
Redemptions, Exchanges and Dividends........................ B-72
Appendix A:................................................... 1-A
Appendix B:................................................... 1-B
The date of this Additional Statement is __________________, 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. GOLDMAN, SACHS & CO.
Adviser to: Distributor
Goldman Sachs CORE U.S. Equity Fund 85 Broad Street
Goldman Sachs Capital Growth Fund New York, New York 10004
One New York Plaza
New York, New York 10004
<S> <C>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET MANAGEMENT
Adviser to: INTERNATIONAL
Goldman Sachs Balanced Fund Adviser to:
Goldman Sachs Growth and Income Fund Adviser to:
Goldman Sachs CORE Large Cap Growth Fund Goldman Sachs International Equity Fund
Goldman Sachs CORE Small Cap Equity Fund Goldman Sachs Japanese Equity Fund
Goldman Sachs CORE International Equity Fund Goldman Sachs International Small Cap Fund
Goldman Sachs Mid Cap Equity Fund Goldman Sachs Emerging Markets Equity Fund
Goldman Sachs Mid Cap Equity Fund Goldman Sachs Asia Growth Fund
Goldman Sachs Small Cap Value Fund 133 Peterborough Court
Goldman Sachs Real Estate Securities Fund London, England EC4A 2BB
One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free.......800-526-7384
</TABLE>
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Japanese Equity Fund ("Japanese Equity Fund"),
Goldman Sachs International Small Cap Fund ("International Small Cap Fund"),
Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets Equity Fund"),
Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman Sachs Real
Estate Securities Fund ("Real Estate Securities Fund") (collectively referred to
herein as the "Funds").
The Funds except the Japanese Equity, International Small Cap, CORE Large Cap
Growth, CORE International, CORE Small Cap Equity and Emerging Markets Equity
Funds were initially organized as a series of a corporation formed under the
laws of the State of Maryland on September 27, 1989 and were reorganized as a
Delaware business trust as of April 30, 1997. The Trustees have authority under
the Trust's charter to create and classify shares into separate series and to
classify and reclassify any series or portfolio of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Funds and other series. Additional series may be added in the
future from time to time. The Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap Equity Fund, CORE
International Equity Fund, Capital Growth Fund, International Equity, Small Cap
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds currently offer five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Institutional Shares and Service
Shares. See "Shares of the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are sometimes referred to collectively
herein as the "Advisers." Goldman Sachs serves as each Fund's distributor and
transfer agent. Each Fund's custodian is State Street Bank and Trust Company
("State Street").
The following information relates to and supplements the description of each
Fund's investment policies contained in the Prospectus. See the Prospectus for
a fuller description of the Funds' investment objectives and policies. There is
no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
- -------------
The investment objective of the Balanced Fund is to provide shareholders with
long-term capital growth and current income. The Balanced Fund seeks to achieve
its investment objective by investing in a balanced portfolio diversified among
both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways. These
include diversifying the fixed income portion of the Balanced Fund's portfolio
among various types of fixed income securities and utilizing sophisticated
quantitative models to understand how the fixed income portion of the portfolio
will perform under a variety of market and economic scenarios. In addition,
GSAM uses extensive credit analysis to select and to monitor any investment-
grade or non-investment grade bonds that may be included in the Balanced Fund's
portfolio. In employing this and other investment strategies, the GSAM team has
access to extensive fundamental research and analysis available through Goldman
Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers -those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low and
intermediate but improving credit quality -is intended to enhance total returns
in two stages. Initially, these securities are expected to provide incremental
yield. Eventually, price appreciation should occur relative to alternative
securities as credit quality improves, the nationally recognized statistical
rating organizations upgrade credit ratings, and credit spreads narrow.
Securities from the third type of
B-4
<PAGE>
issuers - issuers with deteriorating credit quality - will be avoided, since
total returns are typically enhanced by avoiding the widening of credit spreads
and the consequent relative price depreciation. Finally, total returns can be
enhanced by focusing on securities that are rated differently by different
rating organizations. If the securities are trading in line with the higher
published quality rating while GSAM concurs with the lower published quality
rating, the securities would generally be sold and any potential price
deterioration avoided. On the other hand, if the securities are trading in line
with the lower published quality rating while the higher published quality
rating is considered more realistic, the securities may be purchased in
anticipation of the expected market reevaluation and relative price
appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
- -----------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
- --------------------------
Under normal circumstances, the Funds will invest at least 90% of their total
assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds will be implemented to the
extent it is consistent with maintaining a Fund's qualification as a regulated
investment company under the Internal Revenue Code. A Fund's strategy may be
limited, in particular, by the requirement for such qualification that less than
30% of the Fund's gross income for its taxable year be derived from the sale or
other disposition of stocks or securities or certain other investments
(generally including options and futures contracts) held for less than three
months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For example, if
cash balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, a Fund may
enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a variety
of relevant factors to select securities, the Adviser believes that the Fund
will be better balanced and have more consistent performance than an investment
portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
B-5
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and company
research, GSAMI's equity team in London, Singapore and Tokyo seeks to identify
companies that may achieve superior long-term returns. Stocks are carefully
selected for International Equity Fund's portfolio through a three-stage
investment process. Because International Equity Fund is a long-term holder of
stocks, the portfolio managers adjust International Equity Fund's portfolio only
when expected returns fall below acceptable levels or when the portfolio
managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from other
sources in Europe and the Asia-Pacific region, the Adviser seeks to identify
attractive industries around the world. Such industries are expected to have
favorable underlying economics and allow companies to generate sustainable and
predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.
Within these industries the Adviser seeks to identify well-run companies that
enjoy a stable competitive advantage and are able to benefit from the favorable
dynamics of the industry. This stage includes analyzing the current and
expected financial performance of the company; contacting suppliers, customers
and competitors; and meeting with management. In particular, the portfolio
managers look for companies whose managers have a strong commitment to both
maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
- --------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap
B-6
<PAGE>
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds to dispose of a particular security when
necessary to meet their redemption requests or other liquidity needs. Under
adverse market or economic conditions, the secondary market for junk bonds could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Advisers could find it difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under such circumstances, may be less
than the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Japanese Equity,
International Small Cap, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds may invest, the yields and prices of such securities may tend
to fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
- -----------------
A Fund's investments in fixed income securities may include zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The discount approximates the total amount of interest the bonds
would have accrued and compounded over the period until maturity. Zero coupon
bonds do not require the periodic payment of interest. Such investments benefit
the issuer by mitigating its need for cash to meet debt service but also require
a higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments may experience greater volatility in market value
than debt obligations which provide for regular payments of interest. In
addition, if an issuer of zero coupon bonds held by a Fund defaults, the Fund
may obtain no return at all on its investment. Each Fund will accrue income on
such investments for each taxable year which (net of deductible expenses, if
any) is distributable to shareholders and which, because no cash is generally
received at the time of accrual, may require the liquidation of other portfolio
securities to obtain sufficient cash to satisfy the Fund's distribution
obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
- -------------------------------------
The interest rates payable on certain fixed income securities in which a Fund
may invest are not fixed and may fluctuate based upon changes in market rates.
A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
B-7
<PAGE>
CUSTODIAL RECEIPTS
- ------------------
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Municipal Securities
- --------------------
Balanced Fund may invest up to 5% of its net assets in municipal securities.
Municipal securities consist of bonds, notes and other instruments issued by or
on behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
tax. Municipal securities are often issued to obtain funds for various public
purposes. Municipal securities also include "private activity bonds" or
industrial development bonds, which are issued by or on behalf of public
authorities to obtain funds for privately operated facilities, such as airports
and waste disposal facilities, and, in some cases, commercial and industrial
facilities.
The yields and market values of municipal securities are determined primarily
by the general level of interest rates, the creditworthiness of the issuers of
municipal securities and economic and political conditions affecting such
issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
- --------------------------
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE Large
Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent that a Fund invests in mortgage-backed securities, the
Advisers may seek to manage these potential risks by investing in a variety of
mortgage-backed securities and by using certain hedging techniques.
B-8
<PAGE>
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types of
guaranteed mortgage-backed securities currently available, including guaranteed
mortgage pass-through certificates and multiple class securities, which include
guaranteed Real Estate Mortgage Investment Conduit Certificates ("REMIC
Certificates"), collateralized mortgage obligations and stripped mortgage-backed
securities. A Fund is permitted to invest in other types of mortgage-backed
securities that may be available in the future to the extent consistent with its
investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate (whether or not received on the underlying loans). Freddie Mac also
guarantees to each registered Certificate holder ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal. The
obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are
obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity ,
CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government
B-9
<PAGE>
guaranteed and privately issued mortgage pass-through securities ("Mortgage
Pass-Throughs"); the is, fixed or adjustable rate mortgage-backed securities
which provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
--------
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
--------
when paid by the mortgagor in subsequent monthly payments or at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories: (i)
liquidity protection and (ii) protection against losses resulting from default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which
B-10
<PAGE>
generally declines over time) of all principal payments received during the
preceding prepayment period ("shifting interest credit enhancement"). This will
have the effect of accelerating the amortization of the senior certificates
while increasing the interest in the trust fund evidenced by the subordinate
certificates. Increasing the interest of the subordinate certificates relative
to that of the senior certificates is intended to preserve the availability of
the subordination provided by the subordinate certificates. In addition, because
the senior certificate-holders in a shifting interest credit enhancement
structure are entitled to receive a percentage of principal prepayments which is
greater than their proportionate interest in the trust fund, the rate of
principal prepayments on the mortgage loans will have an even greater effect on
the rate of principal payments and the amount of interest payments on, and the
yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior certificate-
holders to receive current distributions from the mortgage pool, a reserve fund
may be established relating to such certificates (the "Reserve Fund"). The
Reserve Fund may be created with an initial cash deposit by the originator or
servicer and augmented by the retention of distributions otherwise available to
the subordinate certificate-holders or by excess servicing fees until the
Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificate-holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate-holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificate-holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated pro rata among all
--------
certificate-holders in proportion to their respective outstanding interests in
the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments on
the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
B-11
<PAGE>
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage- backed securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate Securities
Funds may invest in stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities. Although the market for such
securities is increasingly liquid, certain SMBS may not be readily marketable
and will be considered illiquid for purposes of the Fund's limitation on
investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
B-12
<PAGE>
INVERSE FLOATING RATE SECURITIES
- --------------------------------
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
Asset-Backed Securities
- -----------------------
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans. A
Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity and CORE Large Cap Growth
Funds may only enter into such transactions with respect to the S&P 500 Index,
for the CORE U.S. Equity Fund and a representative index in the case of the CORE
Large Cap Growth Fund. The other Funds may purchase and sell futures contracts
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and other financial instruments and indices. Each
Fund will engage in futures and related options transactions, only for bona fide
hedging purposes as defined below or for purposes of seeking to increase total
return to the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). All futures contracts entered into by a Fund are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or
on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to
B-13
<PAGE>
deliver the final cash settlement price, in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading in
the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty than would otherwise be possible the effective price, rate
of return or currency exchange rate on portfolio securities or securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity
Funds) foreign currency rates that would adversely affect the dollar value of
such Fund's portfolio securities. Similarly, each Fund (other than CORE U.S.
Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may sell futures
contracts on a currency in which its portfolio securities are quoted or
denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the applicable Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract if the option is exercised, which may have a value higher than
the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that a Fund intends to purchase. However, a Fund becomes
obligated to purchase a futures contract if the option is exercised, which may
have a value lower than the exercise price. Thus, the loss incurred by a Fund
in writing options on futures is potentially unlimited
B-14
<PAGE>
and may exceed the amount of the premium received. A Fund will incur transaction
costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and will
engage in related options transactions only for bona fide hedging as defined in
the regulations of the CFTC or to seek to increase total return to the extent
permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. A Fund will engage in transactions in currency forward
contracts futures contracts and, for a Fund permitted to do so, related options
transactions only to the extent such transactions are consistent with the
requirements of the Code for maintaining its qualification as a regulated
investment company for federal income tax purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio positions
will be difficult to achieve because no futures contracts based on individual
equity or corporate fixed-income securities are currently available. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In
addition, it is not possible for a Fund to hedge fully or perfectly against
currency fluctuations affecting the value of securities quoted or denominated in
foreign currencies because the value of such securities is likely to fluctuate
as a result of independent factors not related to currency fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
- --------------------------------------------
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
B-15
<PAGE>
A put option written by a Fund would obligate such Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
Fund would be covered, which means that such Fund would have deposited with its
custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be covered
to the extent that the Fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the Fund.
In addition, a written call option or put option may be covered by maintaining
cash or liquid assets (either of which may be quoted or denominated in any
currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE Large
Cap Growth Funds) may purchase put and call options on any securities in which
it may invest or options on any securities index composed of securities in which
it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a Fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle a Fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a Fund's securities. Put
options may also be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise such a Fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the same
purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
B-16
<PAGE>
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, may enter into options on the yield "spread" or differential between two
securities. Such transactions are referred to as "yield curve" options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Balanced Fund may purchase or write yield curve options for the same purposes
as other options on securities. For example, Balanced Fund may purchase a call
option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the Balanced
Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded over-
the-counter, and because they have been only recently introduced, established
trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of
B-17
<PAGE>
trade or other trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate share
of any expenses paid by REITs in which it invests in addition to the expenses
paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE U.S. Equity, CORE Large Cap Growth, CORE Small
Cap Equity and CORE International Equity Funds have no present intention of
acquiring warrants or rights. Warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
FOREIGN SECURITIES
- ------------------
Investments in foreign securities may offer potential benefits not available
from investments solely in U.S. dollar-denominated or quoted securities of
domestic issuers. Such benefits may include the opportunity to invest in
foreign issuers that appear, in the opinion of the applicable Adviser, to offer
better opportunity for long-term growth of capital and income than investments
in U.S. securities, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may be subject to currency exposure independent of their securities
positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of
B-18
<PAGE>
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds) may also invest in European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign issuers
(together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges
or in the U.S. over-the-counter market and, generally, are in registered form.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in the non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
To the extent a Fund acquires Depository Receipts through banks which do not
have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in securities of issuers domiciled in a country other
than the country in whose currency the instrument is denominated or quoted. The
Funds may also invest in securities quoted or denominated in the European
Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of
the currencies of certain of the member states of the European Community. The
specific amounts of currencies comprising
B-19
<PAGE>
the ECU may be adjusted by the Council of Ministers of the European Community
from time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities quoted or
denominated in other currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International Equity,
International Equity, International Small Cap, Asia Growth and Emerging Markets
Equity Funds are intended for long-term investors who can accept the risks
associated with investing primarily in equity and equity-related securities of
foreign issuers, including Emerging Countries issuers (in the case of
International Small Cap, Emerging Markets Equity and International Equity Funds)
and Asian Companies (as defined in the Prospectus) (in the case of Asia Growth
Fund), as well as the risks associated with investments quoted or denominated in
foreign currencies. Balanced, Growth and Income, CORE International Equity,
Small Cap Value, Mid Cap Equity and Capital Growth Funds may invest, to a lesser
extent, in equity and equity-related securities of foreign issuers; including
Emerging Countries issuers. In addition, certain of Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Fund's
potential investment and management techniques entail special risks. Asia
Growth Fund concentrates on companies that the Advisers believe are taking full
advantage of the region's growth and that have the potential for long-term
capital appreciation. The Advisers believe that Asia offers an attractive
investment environment and that new opportunities will continue to emerge in the
years ahead.
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian countries
is restricted or controlled to varying degrees. These restrictions may limit a
Fund's investment in certain of the Asian countries and may increase the
expenses of the Fund. Certain Emerging Countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, International Small Cap, Emerging Markets
B-20
<PAGE>
Equity and Asia Growth Funds. A Fund may be required to establish special
custodial or other arrangements before investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and most Western European countries. Such instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which the Funds may invest and adversely affect
the value of the Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
INVESTING IN JAPAN. The Japanese Equity Fund Invests in Japan's economy, the
second-largest in the world, has grown substantially over the last three
decades. The boom in Japan's equity and property markets during the expansion
of the late 1980's supported high rates of investment and consumer spending on
durable goods, but both of these components of demand have now retreated sharply
following the decline in asset prices. Profits have fallen sharply,
unemployment has reached a historical high and consumer confidence is low. The
banking sector continues to suffer from non-performing loans. Numerous
discount-rate cuts since its peak in 1991, a succession of fiscal stimulus
packages, support plans for the debt-burdened financial system ad spending for
reconstruction following the Kobe earthquake may help to contain the
recessionary forces, but substantial uncertainties remain.
In addition to the cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of
their competitiveness due to high wages, a strong currency and structural
rigidities. Finally, Japan is reforming its political process and deregulating
its economy. This has brought about turmoil, uncertainty and a crisis of
confidence.
While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason
for anticipating civic unrest, it is impossible to know when the political
instability will end and what trade and fiscal policies might be pursued by the
government that emerges.
Japan's heavy dependence on international trade has been adversely affected by
trade tariffs and other protectionist measures as well as the economic condition
of its trading partners. While Japan subsidizes its agricultural industry, only
19% of its land is suitable for cultivation and it is only 50% self-sufficient
in food production. Accordingly, it is highly dependent on large imports of
wheat, sorghum and
B-21
<PAGE>
soybeans. In addition, industry, its most important economic sector, depends
on imported raw materials and fuels, including iron ore, copper, oil and many
forest products. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, have caused trade tensions, particularly with the
United States. Some trade agreements, however, have been implemented to reduce
these tensions. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. A substantial rise in world oil or commodity prices
could also have a negative affect. The strength of the yen itself may prove an
impediment to strong continued exports and economic recovery, because it makes
Japanese goods sold in other countries more expensive and reduces the value of
foreign earnings repatriated to Japan. Because the Japanese economy is so
dependent on exports, any fall-off in exports may be seen as a sign of economic
weakness, which may adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's
economy.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may enter into forward foreign currency
exchange contracts for hedging purposes and to seek to increase total return. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated or quoted in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia
B-22
<PAGE>
Growth Funds may also purchase and sell forward contracts to seek to increase
total return when GSAM or GSAMI anticipates that the foreign currency will
appreciate or depreciate in value, but securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated account
of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds forward contracts
entered into to seek to increase total return. If the value of the securities
placed in the segregated account declines, additional cash or liquid assets will
be placed in the account on a daily basis so that the value of the account will
equal the amount of a Fund's commitments with respect to such contracts. The
segregated account will be marked-to-market on a daily basis. Although the
contracts are not presently regulated by the CFTC, the CFTC may in the future
assert authority to regulate these contracts. In such event, a Fund's ability
to utilize forward foreign currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less protection
against defaults than is available when trading in currency instruments on an
exchange. Since a forward foreign currency exchange contract is not guaranteed
by an exchange or clearinghouse, a default on the contract would deprive a Fund
of unrealized profits or force the Fund to cover its commitments for purchase or
resale, if any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except CORE
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may write
covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to hedge against changes in exchange rates for a different
currency with a pattern of correlation. In addition, Balanced, International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may purchase call options on currency to seek to increase
total return when the Adviser anticipates that the currency will appreciate in
value, but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency to
the holder of the option at a specified price if the option is exercised at any
time before the expiration date. A put option written by a Fund would obligate
a Fund to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date. The
writing of currency options involves a risk that a Fund will, upon exercise of
the option, be required to sell currency subject to a call at a price that is
less than the currency's market value or be required to purchase currency
subject to a put at a price that exceeds the currency's market value. For a
description of how to cover written put and call options, see "Written Covered
Options" above.
B-23
<PAGE>
A Fund may terminate its obligations under a call or put option by purchasing
an option identical to the one it has written. Such purchases are referred to
as "closing purchase transactions." A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
U.S. dollar value of currency in which securities in its portfolio are quoted or
denominated ("protective puts"). The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to seek to increase total return. Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds may write (sell) covered put
and call options on any currency in order to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may forego the opportunity to profit from an
increase in the market value of the underlying currency. Also, when writing put
options, Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
accept, in return for the option premium, the risk that they may be required to
purchase the underlying currency at a price in excess of the currency's market
value at the time of purchase.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds would
normally purchase call options to seek to increase total return in anticipation
of an increase in the market value of a currency. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds would realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by a
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. A Fund would ordinarily realize a gain if, during the
option period, the value of the underlying currency decreased below the exercise
price sufficiently to more than cover the premium and transaction costs.
Otherwise the Fund would realize either no gain or a loss on the purchase of the
put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to
B-24
<PAGE>
sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
- --------------------------------------------------------------------------
FLOORS AND COLLARS
- ------------------
The Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may, with respect to up to 5% of their net assets, enter into currency swaps for
both hedging purposes and to seek to increase total return. In addition, the
Balanced and Real Estate Securities Funds may, with respect to 5% of its net
assets, enter into mortgage, index and interest rate swaps and other interest
rate swap arrangements such as rate caps, floors and collars, for hedging
purposes or to seek to increase total return. Currency swaps involve the
exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by a Fund with another party of the respective amounts
payable with respect to a notional principal amount at interest rates equal to
two specified indices. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The investment advisers,
B-25
<PAGE>
under the supervision of the Board of Trustees, are responsible for determining
and monitoring the liquidity of the Funds' transactions in swaps, caps, floors
and collars.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A Fund would be required to
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. For the duration of a loan, a Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from investment of the collateral. A
Fund would not have the right to vote any securities having voting rights during
the existence of the loan, but a Fund would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovering, or even
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Advisers to be of good standing, and when, in the judgment of the Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Advisers determine to make securities
loans, it is intended that the value of the securities loaned would not exceed
one-third of the value of the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund 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 Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
OTHER INVESTMENT COMPANIES
- --------------------------
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory
B-26
<PAGE>
and administration fees payable by the Fund to an Adviser will be reduced by an
amount equal to the Fund's proportionate share of the advisory and
administration fees paid by such money market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in exchange
for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may also purchase shares of investment companies investing
primarily in foreign securities, including "country funds." Country funds have
portfolios consisting primarily of securities of issuers located in one foreign
country or region. Each Fund (other than CORE U.S. Equity, CORE Large Cap
Growth and CORE Small Cap Equity Funds) may invest in World Equity Benchmark
Shares ("WEBS") and similar securities that invest in securities included in
foreign securities indices.
REPURCHASE AGREEMENTS
- ---------------------
Each Fund may enter into repurchase agreements with selected broker-dealers,
banks or other financial institutions. A repurchase agreement is an arrangement
under which a Fund purchases securities and the seller agrees to repurchase the
securities within a particular time and at a specified price. Custody of the
securities is maintained by a Fund's custodian. The repurchase price may be
higher than the purchase price, the difference being income to a Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to a Fund together with the repurchase price on repurchase. In either case,
the income to a Fund is unrelated to the interest rate on the security subject
to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase agreement
is deemed to be a loan from a Fund to the seller of the security. For other
purposes, it is not clear whether a court would consider the security purchased
by a Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, a Fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If
the court characterizes the transaction as a loan and a Fund has not perfected
a security interest in the security, a Fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers seek
to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase
B-27
<PAGE>
agreement becomes less than the repurchase price (including accrued interest), a
Fund will direct the seller of the security to deliver additional securities so
that the market value of all securities subject to the repurchase agreement
equals or exceeds the repurchase price. Certain repurchase agreements which
provide for settlement in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
A Fund may not:
(1) make any investment inconsistent with the Fund'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 Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
B-28
<PAGE>
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund 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 objective, restrictions
and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-29
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth
below. Trustees and officers deemed to be "interested persons" of the Trust for
purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Ashok N. Bakhru, 54 Chairman Executive Vice President - Finance and
1325 Ave. of the Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN Associates
(June 1994 through march 1996); Senior Vice
President of Scott Paper Company (until June
1994); 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, 52 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management (since
December 1994).
*Douglas C. Grip, 36 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc. of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994 and
New York, NY 10004 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 61 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr., Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst
College (since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the Spenser
Foundation (since 1993); and member of PNC
Advisory Board (since 1993).
*Alan A. Shuch, 49 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs Funds
New York, NY 10004 Management Inc. (from April 1990 to November
1994); President and Chief Operating Officer, GSAM
(from September 1988 to November 1994).
</TABLE>
B-30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Jackson W. Smart, 67 Trustee Chairman, Executive Committee, First Commonwealth,
One Northfield Plaza #218 Inc. (a managed dental care company, since January
Northfield, IL 60093 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 (a venture capital
fund).
William H. Springer, 68 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company); Director, Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management
investment company) (April 1992 to present).
Richard P. Strubel, 58 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St., Suite 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening system and connectors) (January 1984 to
October 1994).
*Scott M. Gilman, 38 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice
President, Goldman Sachs (since March 1990).
*John M. Perlowski, 33 Assistant Treasurer Vice President, Goldman Sachs (since July 1995);
One New York Plaza Director, Investors Bank and Trust (November 1993
New York, NY 10004 to July 1995); Audit manager of Arthur Andersen
LLP (prior thereto).
*John W. Mosior, 59 Vice President Vice President, Goldman Sachs and Manager of
4900 Sears Tower Shareholder Servicing of GSAM (since November
Chicago, IL 60606 1989).
*Nancy L. Mucker, 48 Vice President Vice President, Goldman Sachs (since April 1985);
4900 Sears Tower Manager of Shareholder Servicing of GSAM since
Chicago, IL 60606 November 1989).
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
James A. Fitzpatrick, 33 Vice President Vice President of Goldman Sachs Asset Management
4900 Sears Tower (since April 1997); Vice President and General
Chicago, IL 60606 Manager, First Data Corporation - Investor
Services Group (prior thereto).
*Michael J. Richman, 37 Secretary Associate General Counsel of the Mutual Funds
85 Broad Street Group of Goldman Sachs Asset Management (since
New York, NY 10004 December 1997); Associate General Counsel of
Goldman Sachs Asset Management (February 1994 to
December 1997). Vice President and Assistant
General Counsel of Goldman Sachs (since June
1992); Counsel to the Funds Group, GSAM (since
1992); Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 32 Assistant Secretary Assistant General Counsel, Goldman Sachs Asset
85 Broad Street Management and Associate General Counsel to the
New York, NY 10004 Funds Group (since December 1997); Assistant
General Counsel and Vice President, Goldman Sachs
(since November 1993 and May 1994, respectively);
Associate of Shereff, Friedman, Hoffman & Goodman
(prior thereto).
*Valerie A. Zondorak,32 Assistant Secretary Vice President, Goldman Sachs (since March 1997);
85 Broad Street Assistant General Counsel, Goldman Sachs Asset
New York, NY 10004 Management and Assistant General Counsel to the
Funds Group (since December, 1997), Associate of
Shereff, Friedman, Hoffman, & Goodman (prior
thereto).
*Steven E. Hartstein, 34 Assistant Secretary Legal Products Analyst, Goldman Sachs (June 1993
85 Broad Street to present); Funds Compliance Officer, Citibank
New York, NY 10004 Global Asset Management (August 1991 to June 1993).
*Deborah Farrell, 26 Assistant Secretary Administrative Assistant, Goldman Sachs (January
85 Broad Street 1996 to present); Secretary, Goldman Sachs
New York, NY 10004 (January 1994 to January 1996); Secretary, Cleary,
Gottlieb, Steen and Hamilton (September 1990 to
January 1994).
*Kaysie P. Uniacke, 37 Assistant Secretary Managing Director (since November 1997); Vice
One New York Plaza President and Senior Portfolio Manager, Goldman
New York, NY 10004 Sachs Asset Management (1988 to present).
*Elizabeth D. Anderson, 28 Assistant Secretary Portfolio Manager, GSAM (April 1996 to present);
One New York Plaza Junior Portfolio Manager, Goldman Sachs Asset
New York, NY 10004 Management (1995 to April 1996); Funds Trading
Assistant, GSAM (1993 - 1995); Compliance Analyst,
Prudential Insurance (1991 through 1993).
</TABLE>
As of February1, 1998, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
B-32
<PAGE>
The Trust pays each Trustee, 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.
B-33
<PAGE>
[TO BE UPDATED]
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Pension or Retirement Benefits Total Compensation from Goldman Sachs
Name of Trustee from the Funds** Accrued as Part of Funds' Expenses Mutual Funds (including the Funds)*
--------------- ---------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Ashok N. Bakhru _________ 0 __________
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPhearson 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart _________ 0 __________
William H. Springer _________ 0 __________
Richard P. Strubel _________ 0 __________
</TABLE>
______________
* The Goldman Sachs Funds consisted of __ mutual funds on January 31,
1998.
** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-34
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds. See "Management" in
the Funds' Prospectus for a description of the applicable Adviser's duties to
the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds), the Advisers will have access to the
Global Asset Allocation Model. The model is based on the observation that the
prices of all financial assets, including foreign currencies, will adjust until
investors globally are comfortable holding the pool of outstanding assets.
Using the model, the Advisers will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
B-35
<PAGE>
The Japanese Equity and International Small Cap Funds' management agreement
were initially approved by the Trustees, including a majority of the non-
interested Trustees (as defined below) who are not parties to the management
agreement on January 28, 1998. The CORE Small Cap Equity, CORE International
Equity and Real Estate Securities Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on July 22,
1997. The CORE Large Cap Growth and Emerging Markets Equity Funds management
agreements were initially approved by the Trustees, including a majority of the
non-interested Trustees (as defined below) who are not parties to the management
agreement, on April 23, 1997. The other Funds' management agreements were most
recently approved by the Trustees, including a majority of the Trustees who are
not parties to the management agreement or "interested persons" (as such term is
defined in the Act) of any party thereto (the "non-interested Trustees"), on
April 30, 1997. These arrangements were most recently approved by the
shareholders of each Fund (other than CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity, Real Estate Securities, Japanese Equity,
International Small Cap and Emerging Markets Equity Funds) on April 21, 1997.
The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. The sole shareholder of the Japanese Equity and the International
Small Cap Funds approved these arrangements on _______, 1998. Each management
agreement will remain in effect until June 30, 1998 from year to year
thereafter provided such continuance is specifically approved at least annually
by (a) the vote of a majority of the outstanding voting securities of such Fund
or a majority of the Trustees, and (b) the vote of a majority of the non-
interested Trustees, cast in person at a meeting called for the purpose of
voting on such approval. Each management agreement will terminate automatically
if assigned (as defined in the Act) and is terminable at any time without
penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the affected Fund on 60 days' written notice to the Adviser and by
the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Japanese Equity Fund 0.90% 1.00%
International Small Cap Fund 1.10% 1.20%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
B-36
<PAGE>
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ $ 402,183 $ 193,041
Growth and Income Fund 3,541,318 2,225,553
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 8,697,265 9,335,745
Mid Cap Equity Fund 964,945 489,043
International Equity Fund 4,124,076/3/ 2,794,872/2/
Small Cap Value Fund 2,130,703 2,908,839
Japanese Equity Fund/4/ N/A N/A N/A
International Small Cap Fund/4/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/
Real Estate Securities Fund/4/ N/A N/A N/A
</TABLE>
- ----------------------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, December 15, 1997.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of the
CORE U.S. Equity, International Equity and Asia Growth Fund's average daily
net assets. For the fiscal year ended January 31, 1996, had limitations not
been in effect, CORE U.S. Equity Fund would have paid $1,019,639 in
investment management fees. For the fiscal year ended January 31, 1997, had
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees. For the fiscal year ended
January 31, 1998, had limitation not been in effect __________ Funds would
have paid ___________ respectively, in investment management fees.
4 Not Operational.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
B-37
<PAGE>
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Funds. The proprietary activities or portfolio strategies of Goldman Sachs and
its affiliates or the activities or strategies used for accounts managed by them
or other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
B-38
<PAGE>
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund 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 a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal year
ended January 31, 1996. No Class C Shares were outstanding during the fiscal
years ended January 31, 1996 and 1997.
B-39
<PAGE>
Goldman Sachs retained the following commissions on sales of Class A, Class
B and Class C Shares during the following periods:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000
Growth and Income Fund 555,000 771,000
CORE U.S. Equity Fund 380,000 108,000
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 323,000 523,000
International Equity Fund 1,563,000 211,000
Small Cap Value Fund 219,000 202,000
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 1,397,000 507,000
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, and Emerging Markets Equity Funds commenced operations on May 1,
1997, August 15, 1997, August 15, 1997, and December 15, 1997,
respectively.
2 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A, B & C Class A & B Class A
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067
Growth and Income Fund 870,527 542,671
CORE U.S. Equity Fund 319,246 103,682
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 908,310 549,844
International Equity Fund 586,243 129,313
Small Cap Value Fund 511,883 254,292
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 385,114 192,097
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Institutional Shares Service Shares Institutional Shares
1998 1997 1998 1997 1996
==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/3/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity N/A N/A N/A
Fund/1/
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/1/ 51,464 N/A 26,082
International Equity Fund/3/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/3/ N/A N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not Operational.
3 Contractually set to 0.
The Trust's distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit certain
"Other Expenses" (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses (and transfer agency fees in the case of each
Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Mid Cap Equity Funds) for the following funds to the
extent such expenses exceed the following percentage of average daily net
assets:
B-41
<PAGE>
<TABLE>
<CAPTION>
Other
Expenses
--------
<S> <C>
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Japanese Equity Fund 0.10%
International Small Cap Fund 0.30%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
</TABLE>
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405
Growth and Income Fund 0 0
CORE U.S. Equity Fund 104,833 110,581
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund N/A N/A
Mid Cap Equity Fund 72,441 85,515
International Equity Fund 144,265 N/A
Small Cap Value Fund N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 50,407 0
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not operational.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
B-42
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
_____________, independent public accountants, 225 Franklin Street, Boston,
Massachusetts 02110, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased
B-43
<PAGE>
or sold, as well as the expenses incurred in the transaction, will be made by
the applicable Adviser in the manner it considers to be equitable and consistent
with its fiduciary obligations to such Fund and such other customers. In some
instances, this procedure may adversely affect the price and size of the
position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-44
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
CORE International Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
International Equity Fund
Small Cap Value Fund
Emerging Markets Equity Fund
Asia Growth Fund
Real Estate Securities Fund
</TABLE>
B-45
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ================= ===========
Fiscal Year Ended
January 31, 1997:
<S> <C> <C> <C> <C>
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended
January 31, 1996:
<S> <C> <C> <C> <C>
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-47
<PAGE>
During the fiscal year ended January 31, 1998, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1998, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
[TO BE UPDATED]
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Balanced Fund
Growth and Income Fund
Core US Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
Small Cap Value Fund
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith the
fair value of securities of each Fund. In accordance with procedures adopted by
the Trustees, the net value per share of each class of each Fund is calculated
by determining the value of the net assets attributable to each class of that
Fund and dividing by the number of outstanding shares of that class. All
securities are valued as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each Business Day (as defined in
the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") will be valued at the last sale price on the
exchange or system in which they are principally traded, on the valuation date.
If there is no sale on the valuation day, securities traded principally: (i) on
a U.S. exchange or NASDAQ will be valued at the mean between the closing bid and
asked prices; and (ii) on a foreign exchange will be valued at the last sale
price (also referred to as the close price). The last sale price for securities
traded principally on a foreign exchange will be determined as of the close of
the London Stock Exchange or, for securities traded on exchanges located in the
Asia Pacific region, noon London time; (b) debt securities will be valued using
a pricing service approved by the Trustees if such prices are believed by the
investment adviser to accurately represent market value; (c) overnight
repurchase agreements will be valued by the investment adviser at cost; (d) term
repurchase agreements (i.e., those whose maturity exceeds seven days) and
interest rate
B-48
<PAGE>
swaps, caps, collars and floors will be valued at the average of the bid
quotations obtained daily from at least two dealers or, for term repurchase
agreements, recognized counterparties; (e) debt securities with a remaining
maturity of 60 days or less are valued by the investment adviser at amortized
cost, which the Trustees have determined to approximate fair value; (e) spot and
forward foreign currency exchange contracts will be valued using a pricing
service such as Reuters then calculating the mean between the last bid and asked
quotations supplied by certain independent dealers in such contracts; (g)
exchange-traded options and futures contracts will be valued by the custodian
bank at the last sale price on the exchange where such contracts and options are
principally traded; and (h) over-the-counter options will be valued by an
independent unaffiliated broker identified by the portfolio manager/trader and
contacted by the custodian bank; and (i) all other securities, including those
for which a pricing service supplies no exchange quotation or a quotation that
is believed by the portfolio manager/trader to be inaccurate; will be valued at
fair value as stated in the valuation procedures which were approved by the
Board of Trustees. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation. If accurate quotations are
not readily available, such contracts will be valued by an independent
unaffiliated broker identified by the portfolio manager/trader and contacted by
the custodian bank. If broker quotes are used, the portfolio manager/trader will
identify one independent unaffiliated broker from whom the custodian bank will
obtain prices daily and another independent unaffiliated broker from whom the
custodian bank will obtain quotes at least weekly. The custodian bank will
promptly notify the portfolio manager/trader and a member of the GSAM Valuation
Committee or a designee thereof of any deviations equal to or greater than 3%
between the weekly quote and the daily quotes for the date that the weekly
quotes were obtained. The investment adviser will promptly provide instructions
to the custodian bank. For all brokers used in this process, the custodian bank
will send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust from the
issue or sale of its shares, 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 Fund and constitute the underlying assets
of that Fund or series. The underlying assets of each Fund will be segregated
on the books of account, and will be charged with the liabilities in respect of
such Fund and with a share of the general liabilities of the Trust. Expenses of
the Trust with respect to the Funds and the other series of the Trust are
generally allocated in proportion to the net asset values of the respective
Funds or series except where allocations of direct expenses can otherwise be
fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return, yield and/or
distribution rate information in advertisements, shareholder reports or sales
literature. Average annual total return and yield are computed pursuant to
formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
B-49
<PAGE>
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by calculating
the actual dollar amount of the investment return on a $1,000 investment made at
the maximum public offering price at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount, assuming a redemption at the end of the period. This calculation
assumes a complete redemption of the investment. It also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified period
are each derived by calculating the percentage rate required to make a $1,000
investment (made at the maximum public offering price with all distributions
reinvested) at the beginning of such period equal to the actual total value of
such investment at the end of such period. The following table indicates the
total return (capital changes plus reinvestment of all distributions) on a
hypothetical investment of $1,000 in a Fund for the periods indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, 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
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) Donoghues' Money Fund Report (which provides industry averages for 7-day
annualized and compounded yields of taxable, tax-free and U.S. Government money
funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the NASDAQ OTC
Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell 2000
Index -Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the Value-
Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-Actuaries
Europe and Pacific Index, and (s) historical investment data supplied by the
research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
B-50
<PAGE>
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to
B-51
<PAGE>
Class A Shares (the class into which the separate account transferred) to
reflect the expenses expected to be incurred by the Fund as stated in the
expense table in the Prospectus. These expenses include any sales charges and
asset-based charges (i.e., fees under Distribution and Authorized Dealer Service
Plans) imposed and other operating expenses. Total return quotations will be
calculated pursuant to SEC approved methodology. Prior to May 1, 1997, the
separate account was a separate investment advisory account under discretionary
management by the Adviser and had substantially similar investment objectives,
policies and strategies as the Fund. Unlike the Fund, the separate account was
not registered as an investment company under the Act and therefore was not
subject to certain investment restrictions and operational requirements that are
imposed on investment companies by the Act. If the separate account had been
registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account (based on
Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-52
<PAGE>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund A 10/12/94-1/31/98 - Since inception
Balanced Fund A 2/1/97-1/31/98 - One year
Balanced Fund B 5/1/96-1/31/97 - Since inception
Balanced Fund B 2/1/97-1/31/98 - One year
Balanced Fund C 8/15/97-1/31/98 - Since inception*
Balanced Fund Institutional 8/15/97-1/31/98 - Since inception*
Balanced Fund Service 10/24/94-1/31/98 - Since inception
Balanced Fund Service 2/1/97-1/31/98 - One year
Growth and Income A 2/5/93-1/31/98 - Since inception
Growth and Income A 2/1/97-1/31/98 - One year
Growth and Income B 5/1/96-1/31/98 - Since inception
Growth and Income B 2/1/97-1/31/98 - One year
Growth and Income C 8/15/97-1/31/98 - Since inception*
Growth and Income Institutional 6/3/96-1/31/98 - Since inception
Growth and Income Institutional 2/1/97-1/31/98 - One year
Growth and Income Service 3/6/96-1/31/98 - Since inception
Growth and Income Service 2/1/97-1/31/98 - One year
CORE U.S. Equity A 5/24/91-1/31/98 - Since inception
CORE U.S. Equity A 2/1/93-1/31/98 - Five year
CORE U.S. Equity A 2/1/97-1/31/98 - One year
CORE U.S. Equity B 5/1/96-1/31/98 - Since inception
CORE U.S. Equity B 2/1/97-1/31/98 - One year
CORE U.S. Equity C 8/15/97-1/31/98 - Since inception*
CORE U.S. Equity Institutional 6/15/95-1/31/98 - Since inception
CORE U.S. Equity Institutional 2/1/97-1/31/98 - One year
CORE U.S. Equity Service 6/7/96-1/31/98 - Since inception
CORE U.S. Equity Service 2/1/97-1/31/98 - One year
CORE Large Cap Growth A 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth A 2/1/93-1/31/98 - Five year
CORE Large Cap Growth A 2/1/97-1/31/98 - One year
CORE Large Cap Growth B 5/1/97-1/31/98 - Since inception*
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CORE Large Cap Growth C 8/15/97-1/31/98 - Since inception*
CORE Large Cap Growth Institutional 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth Institutional 2/1/93-1/31/98 - Five year
CORE Large Cap Growth Institutional 2/1/97-1/31/98 - One year
CORE Large Cap Growth Service 5/1/97-1/31/98 - Since inception*
Capital Growth A 4/20/90-1/31/98 - Since inception
Capital Growth A 2/1/93-1/31/98 - Five year
Capital Growth A 2/1/97-1/31/98 - One year
Capital Growth B 5/1/96-1/31/98 - Since inception
Capital Growth B 2/1/97-1/31/98 - One year
Capital Growth C 8/15/97-1/31/98 - Since inception*
Capital Growth Institutional 8/15/97-1/31/98 - Since inception*
Capital Growth Service 4/20/90-1/31/98 - Since inception
Capital Growth Service 2/1/93-1/31/98 - Five year
Capital Growth Service 2/1/97-1/31/98 - One year
Mid Cap Equity A 8/15/97-1/31/98 - Since inception*
Mid Cap Equity B 8/15/97-1/31/98 - Since inception*
Mid Cap Equity C 8/15/97-1/31/98 - Since inception*
Mid Cap Equity Institutional 8/1/95-1/31/98 - Since inception
Mid Cap Equity Institutional 2/1/97-1/31/98 - One year
Mid Cap Equity Service 8/15/97-1/31/98 - Since inception
International Equity A 12/1/92-1/31/98 - Since inception
International Equity A 2/1/93-1/31/98 - Five year
International Equity A 2/1/97-1/31/98 - One year
International Equity B 5/1/96-1/31/98 - Since inception
International Equity B 2/1/97-1/31/98 - One year
International Equity C 8/15/97-1/31/98 - Since inception*
International Equity Institutional 2/7/96-1/31/98 - Since inception
International Equity Institutional 2/1/97-1/31/98 - One year
</TABLE>
B-54
<PAGE>
<TABLE>
<S> <C> <C>
International Equity Service 3/6/96-1/31/98 - Since inception
International Equity Service 2/1/97-1/31/98 - One year
Small Cap Value A 10/22/92-1/31/98 - Since inception
Small Cap Value A 2/1/93-1/31/98 - Five year
Small Cap Value A 2/1/97-1/31/98 - One year
Small Cap Value B 5/1/96-1/31/98 - Since inception
Small Cap Value B 2/1/97-1/31/98 - One year
Small Cap Value C 8/15/97-1/31/98 - Since inception*
Small Cap Value Institutional 8/15/97-1/31/98 - Since inception*
Small Cap Value Service 10/22/92-1/31/98 - Since inception*
Small Cap Value Service 2/1/93-1/31/98 - Five year
Small Cap Value Service 2/1/97-1/31/98 - One year
Asia Growth A 7/8/94-1/31/98 - Since inception
Asia Growth A 2/1/97-1/31/98 - One year
Asia Growth B 5/1/96-1/31/98 - Since inception
Asia Growth B 2/1/97-1/31/98 - One year
Asia Growth C 8/15/97-1/31/98 - Since inception*
Asia Growth Institutional 2/2/96-1/31/98 - Since inception
Asia Growth Institutional 2/1/97-1/31/98 - One year
Asia Growth Service 7/8/94-1/31/98 - Since inception
Asia Growth Service 2/1/97-1/31/98 - One year
</TABLE>
__________________________
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
B-55
<PAGE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail in the
communication.
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 asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not be
intended to indicate future performance. A Fund's total return and yield will
vary based on market conditions, portfolio expenses, portfolio investments and
other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Trust may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds except the CORE International Equity, CORE Small Cap Equity, CORE
Large Cap Growth, Japanese Equity and International Small Cap were reorganized
from series of a Maryland corporation 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 shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated to such class or series. The Trustees
also have authority to classify and reclassify any series of shares into one or
more classes of shares. As of the date of this Additional Statement, the
Trustees have classified the shares of the Funds into five classes:
Institutional Shares, Service Shares, Class A Shares, Class B Shares and Class C
Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales charge for
accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration
B-56
<PAGE>
fees at the annual rate of up to 0.50% of the average daily net assets of the
Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Class A Shares also bear the cost of an
Authorized Dealer Service Plan at an annual rate of up to 0.25% of the average
daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class B Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class B Shares. Class B Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 1.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class C Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class C Shares. Class C Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by
each Fund, if any with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of February 1, 1998 State Street Bank & Trust Company as Trustee (GS Profit
Sharing Master Trust), P.O. Box 1992, Boston, MA 02105, was recordholder of
59.3% of Mid Cap Equity Fund's outstanding shares; Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 27.9% CORE Large Cap Growth Fund's outstanding
shares; State Street Bank and Trust Company as Trustee for Goldman Sachs Profit
Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-1992 was recordholder of
13.4% and Marine Midland Bank as Trustee for Mark IV Ind. & Subs Employees
Retirement Income Fund, P.O. Box 1329, Attention: Mutual Fund Processing,
Buffalo, NY 14240-1329 was recordholder of 6.2% of CORE U.S. Equity Fund's
outstanding shares; The Goldman Sachs Group LP Seed Account, 85 Broad Street,
New York, New York 10004, was recordholder of 15.7% of CORE Small Cap Equity
Funds outstanding shares; Goldman Sachs CORE International Omnibus A/C - Growth
& Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of
14.9%, Goldman Sachs CORE International Omnibus A/C - Growth Strategy, 4900
Sears Tower, Chicago, IL 60606, was recordholder of 12.8% and Goldman Sachs
Group LP Seed Account, 85 Broad Street, New York, New York 10004 was
recordholder of 29.9% of CORE International Equity Fund's outstanding shares.
State Street Bank & Trust Company as Trustee (FBO Goldman Sachs Employee Pension
Plan) 200 Newport Ave., N. Quincy, MA 02170 was recordholder of 6.47% of Asia
Growth Fund's outstanding shares; BJ McCloskey, WR Jordan, RL Brandstein
Trustees McCloskey Trust, P.O. Box 7846, Aspen CO 81612 was recordholder of
21.1%, Goldman Sachs Seed Account, 4900 Sears Tower, Chicago, IL 60606 was
recordholder of 6.5%, Ralph Lauren 1997 Crut 111 W 40th Street, NY, NY 10018 was
recordholder of 23.9% and GTE Investment Management Corp., One Stamford Forum,
Stamford, CT 06904 was recordholder of 15.6% of the Emerging Markets Fund's
outstanding shares; Goldman, Sachs & Co. FBO Acct# 029108412 c/o Mutual Fund
Ops, 85 Broad Street, NY, NY 10004 was recordholder of 5% of the CORE Small Cap
Equity Fund's outstanding shares.
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
B-57
<PAGE>
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, Rule 18f-2 exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of Rule 18f-
2.
The Trust is not required to hold annual meetings of shareholders and does not
intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees,
either to one vote for each share or to one vote for each dollar of net asset
value represented by such shares on all matters presented to shareholders
including the elections of Trustees (this method of voting being referred to as
"dollar based voting"). However, to the extent required by the Act or otherwise
determined by the Trustees, series and classes of the Trust will vote separately
from each other. Shareholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meetings. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising form 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 their 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
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more series
or classes of the Trust's shares (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other series or
class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable
B-58
<PAGE>
for the debts or obligations of any other series of the Trust. However, no
similar statutory or other authority limiting business trust shareholder
liability exists in other states. As a result, to the extent that a Delaware
business trust or a shareholder is subject to the jurisdiction of courts of such
other states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification by
the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series 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 error of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in each Fund of the Trust. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund.
The summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. Japanese Equity and International
Small Cap Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) a Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, 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 such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S. tax
purposes will generally have the same character for such Fund as in the hands of
such an entity; consequently, a Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In
B-59
<PAGE>
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
and may therefore make it more difficult for such a Fund to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, each Fund generally expects
to be able to obtain sufficient cash to satisfy such requirements from new
investors, the sale of securities or other sources. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carry forwards expiring in 2002, 2003, and
2004, respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts,
B-60
<PAGE>
or options will (except for certain foreign currency options, forward contracts,
and futures contracts) be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. As a result of certain hedging transactions
entered into by a Fund, the Fund may be required to defer the recognition of
losses on futures contracts, forward contracts, and options or underlying
securities or foreign currencies to the extent of any unrecognized gains on
related positions held by such Fund and the characterization of gains or losses
as long-term or short-term may be changed. The tax provisions described above
applicable to options, futures and forward contracts may affect the amount,
timing and character of a Fund's distributions to shareholders. Application of
certain requirements for qualification as a regulated investment company and/or
these tax rules to certain investment practices, such as dollar rolls, or
certain derivatives such as interest rate swaps, floors, caps and collars and
currency, mortgage or index swaps may be unclear in some respects, and a Fund
may therefore be required to limit its participation in such transactions.
Certain tax elections may be available to a Fund to mitigate some of the
unfavorable consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foregoing currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result being either no dividends being paid or a portion of a Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest securities,
certain structured securities or other securities bearing original issue
discount or, if a Fund elects to include market discount in income currently,
market discount, as well as any "mark to market" gain from certain options,
futures or forward contracts, as described above, will generally cause it to
realize income or gain prior to the receipt of cash payments with respect to
these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) anticipates that it will be subject to foreign taxes on its
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds make this
election, its respective shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable limitations, against
their U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by a Fund, although such shareholders will be
required to include their shares of such taxes in gross income if the election
is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid by
such shareholder as a result of any such election by CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity or Asia Growth Funds, the amount of the credit that may be claimed in any
year may not exceed the same proportion of the U.S. tax against which such
credit is taken which the shareholder's taxable income from foreign sources (but
not in excess of the shareholder's entire taxable income) bears to his entire
taxable income. For this purpose, distributions from long-term and short-term
B-61
<PAGE>
capital gains or foreign currency gains by a Fund will generally not be treated
as income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may not be able to claim a credit for the full amount of their proportionate
share of the foreign taxes paid by such Fund even if the election is made by
such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year,
if any, that the CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by a Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. The other Funds will not be entitled to elect to pass
foreign taxes and associated credits or deductions through to their shareholders
because they will not satisfy the 50% requirement described above. If a Fund
cannot or does not make this election, it may deduct such taxes in computing the
amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. In some cases, elections may be
available that would ameliorate these adverse tax consequences, but such
elections would require the Fund to include certain amounts as income or gain
(subject to the distribution requirements described above) without a concurrent
receipt of cash. Each Fund may limit and/or manage its holdings in passive
foreign investment companies to minimize its tax liability or maximize its
return from these investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends received deduction for corporate shareholders. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Asia Growth and Emerging Markets Equity Funds will qualify for the
dividends-received deduction. The entire dividend, including the deducted
amount, is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its liability for the federal alternative minimum
tax, and the dividend may, if it is treated as an "extraordinary dividend" under
the
B-62
<PAGE>
Code, reduce such shareholder's tax basis in its shares of a Fund. Capital
gain dividends (i.e., dividends from net capital gain) if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as long-term capital gain
regardless of how long shares have been held by shareholders, but are not
eligible for the dividends received deduction for corporations. Such long-term
capital gain will be 20% or 28% rate gain, depending upon the Fund's holding
period for the assets the sale of which generated the capital gain.
Distributions, if any, that are in excess of a Fund's current and accumulated
earnings and profits will first reduce a shareholder's tax basis in his shares
and, after such basis is reduced to zero, will generally constitute capital
gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. In general, the maximum long-term capital gain rate will be
20% (for gains on capital assets held more than 18 months) or 28% (for gains on
capital gains held more than one year but not more than 18 months).
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Fund will not
be taken into account in determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the newly-acquired
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including capital gain dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends
B-63
<PAGE>
will be subject to tax on a net income basis at the graduated rates applicable
to U.S. individuals or domestic corporations. Distributions of net capital gain,
including amounts retained by a Fund which are designated as undistributed
capital gains, to a non-U.S. shareholder will not be subject to U.S. federal
income or withholding tax unless the distributions are effectively connected
with the shareholder's trade or business in the United States or, in the case of
a shareholder who is a nonresident alien individual, the shareholder is present
in the United States for 183 days or more during the taxable year and certain
other conditions are met. Non-U.S. shareholders may also be subject to U.S.
federal withholding tax on deemed income resulting from any election by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity or Asia Growth Funds to treat qualified foreign
taxes it pays as passed through to shareholders (as described above), but they
may not be able to claim a U.S. tax credit or deduction with respect to such
taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the U.S., or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the U.S. for 183 days or more during
the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent Public
Accountants, contained in the 1998 Annual Report of each of the Funds (except
Real Estate Securities, Japanese Equity and International Small Cap Funds), are
incorporated herein by reference into this Additional Statement and attached
hereto. No other part of the Annual or Semi-Annual Report is incorporated by
reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this
B-64
<PAGE>
Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
B-65
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
CLASS A DISTRIBUTION PLANS. As described in the Prospectus, the Trust with
respect to Class A Shares of each Fund has adopted a distribution plan (the
"Class A Plans") pursuant to Rule 12b-1 under the Act. See "Distribution and
Authorized Dealer Service Plan" in the Prospectus.
The Class A Plan for each Fund was most recently approved on January 28,
1998 by a majority vote of the Trustees, including a majority of the non-
interested Trustees who have no direct or indirect financial interest in the
Class A Plan, cast in person at a meeting called for the purpose of approving
the Class A Plan. The compensation payable under the Class A Plan may not
exceed 0.25% per annum of each Fund's average daily net assets.
Currently, Goldman Sachs has voluntarily agreed to waive the entire amount
of such fee for the Balanced, CORE Large Cap Growth, Capital Growth and Small
Cap Value Funds and to limit the amount of such fee to 0.21% of average daily
net asset attributable to Class A Shares of CORE U.S. Equity, International
Equity and Asia Growth Funds; and to limit the amount of such fee to 0.04% of
the average daily net asset attributable to Class A shares of the Growth and
Income Fund. Goldman Sachs has no current intention of modifying or
discontinuing such waiver but may do so in the future at its discretion.
Each Class A Plan was amended effective April 30, 1997 for each of the Funds
then in existence to reduce the fee payable under the Plan from 0.50% of average
daily net assets attributable to Class A Shares. At the time of such amendment
the Trustees approved the Authorized Dealer Service Plan pursuant to which
personal and account maintenance services are provided. See "Management --
Authorized Dealer Service Plans."
For the fiscal years ended January 31, 1998 the amounts paid to Goldman
Sachs pursuant to its Class A Plan by each Fund then in existence were as
follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund/1/
CORE Small Cap Equity Fund/1/
CORE International Equity Fund/1/
Capital Growth Fund
Mid Cap Equity Fund/1/
International Equity Fund
Small Cap Value Fund
Japanese Equity Fund/1/ N/A
International Small Cap Fund/1/ N/A
Emerging Markets Equity Fund/1/
Asia Growth Fund
Real Estate Securities Fund/1/
________________________________
1 Not operational.
</TABLE>
B-66
<PAGE>
Had Goldman Sachs' voluntary limitations not been in effect the Funds would
have paid Goldman Sachs the following fees during the fiscal year ended January
31, 1998 pursuant to their respective Class A Plans:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund/1/
CORE Small Cap Equity Fund/1/
CORE International Equity Fund/1/
Capital Growth Fund
Mid Cap Equity Fund/1/
International Equity Fund
Small Cap Value Fund
Japanese Equity Fund/1/ N/A
International Small Cap Fund/1/ N/A
Emerging Markets Equity Fund/1/
Asia Growth Fund
Real Estate Securities Fund/1/
________________________________
1 Not operational.
</TABLE>
B-68
<PAGE>
Had Goldman Sachs' voluntary limitations not been in effect the Funds would
have paid Goldman Sachs the following fees during the fiscal year ended January
31, 1998 pursuant to their respective Class A Plans:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund/1/
CORE Small Cap Equity Fund/1/
CORE International Equity Fund/1/
Capital Growth Fund
Mid Cap Equity Fund/1/
International Equity Fund
Small Cap Value Fund
Japanese Equity Fund/1/ N/A
International Small Cap Fund/1/ N/A
Emerging Markets Equity Fund/1/
Asia Growth Fund
Real Estate Securities Fund/1/
________________________________
1 Not operational.
</TABLE>
B-68
<PAGE>
[TO BE UPDATED]
During the fiscal year ended January 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan of
each applicable Fund then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
to Dealers Personnel Expenses Shareholders Advertising
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund1
Growth and Income Fund/1/
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
CORE International Equity Fund
Capital Growth Fund/1/
Mid Cap Equity
International Equity Fund/1/
Japanese Equity Fund/2/ N/A N/A N/A N/A N/A
International Small Cap/2/ N/A N/A N/A N/A N/A
Small Cap Value Fund/1/
Asia Growth Fund/1/
Emerging Market Equity Fund
Real Estate Securities Fund/2/
</TABLE>
The table above reflects amounts expended by Goldman Sachs, which amounts are in
excess of the compensation received by Goldman Sachs under the Class A Plans.
The payments under the Class A Plan were used by Goldman Sachs to compensate it
for the expenses shown above on a pro-rata basis.
1 COMMENCING JUNE 1, 1995, GOLDMAN SACHS IS NOT IMPOSING THE 0.25% 12B-1 FEE
FOR THESE FUNDS. AS NO DISTRIBUTION REVENUE HAS BEEN EARNED AFTER THIS
DATE FOR THESE FUNDS, NO EXPENSES ARE REFLECTED ABOVE.
2 NOT OPERATIONAL.
B-69
<PAGE>
The Class A Plan is a compensation plan which provide for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. If the Class A Plan was terminated by the Trustees and
no successor plans were adopted, each Fund would cease to make payments to
Goldman Sachs under the Class A Plan and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
Under the Class A Plan, Goldman Sachs, as distributor of each Fund's Class
A shares, will provide to the Trustees for their review, and the Trustees will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class A Plans and the purposes for which
such services were performed and expenditures were made.
The Class A Plans will remain in effect until May 1, 1999 and from year to
year thereafter, provided that such continuance is approved annually by a
majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Class A Plans.
A Class A Plan may not be amended to increase materially the amount to be spent
for the services described therein as to a Fund without approval of a majority
of the outstanding voting securities of the affected Fund. All material
amendments of the Class A Plan must also be approved by the Trustees in the
manner described above. A Class A Plan may be terminated at any time as to any
Fund without payment of any penalty by a vote of a majority of the non-
interested Trustees or by vote of a majority of the Class A Shares of the
applicable Fund. So long as the Class A Plans are in effect, the selection and
nomination of non-interested Trustees shall be committed to the discretion of
the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class A Plans will benefit
the Funds and their Class A shareholders.
CLASS B DISTRIBUTION PLANS. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class B Plan") pursuant
to Rule 12b-1 under the Act with respect to the Class B shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class B Plan was most recently approved for the Fund on January 28,
1998, by a majority vote of the Trustees, including a majority of the non-
interested Trustees who have no direct or indirect financial interest in the
Class B Plan, cast in person at a meeting called for the purpose of approving
the Class B Plan.
With respect to each Fund, the compensation payable under the Class B Plans
is equal to 0.75% per annum of the average daily net assets attributable to
Class B Shares of that Fund. The fees received by Goldman Sachs under the Class
B Plan and contingent deferred sales charge on Class B Shares may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of Class B Shares. To the extent such
fee is not paid to such dealers, Goldman Sachs may retain such fee as
compensation for its services and expenses of distributing the Funds' Class B
Shares. If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize
a profit from these arrangements.
During the fiscal year ended January 31, 1998, Goldman Sachs incurred the
following fees under the Class B Plan of each applicable Fund then in existence:
[TO BE UPDATED]
<TABLE>
<S> <C>
Balanced Fund $ 3,861
Growth and Income Fund 28,075
CORE U.S. Equity Fund 36,508
CORE Large Cap Growth Fund/1/ N/A
CORE Small Cap Equity Fund/1/ N/A
CORE International Equity Fund/1/ N/A
Capital Growth Fund 7,632
Mid Cap Equity Fund/1/ N/A
International Equity Fund 44,148
Small Cap Value Fund 8,973
Japanese Equity Fund N/A
International Small Cap Fund N/A
Emerging Markets Equity Fund/1/ N/A
Asia Growth Fund 10,229
Real Estate Securities Fund/1/ N/A
________________________________
1 Not operational.
</TABLE>
B-70
<PAGE>
The Class B Plan is compensation plan which provides for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class B Plan was terminated by the Trustees
and no successor plan was adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class B Plan, Goldman Sachs, as distributor of the Funds' shares,
will provide to the Board of Trustees for its review, and the Board will review
at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class B Plan and the purposes for which such
services were performed and expenditures were made.
The Class B Plans will remain in effect until May 1, 1999 and from year to
year, provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. The Class B Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class B Shares of that Fund. All material amendments of the Class B
Plan must also be approved by the Trustees in the manner described above. With
respect to any Fund, the Class B Plan may be terminated at any time without
payment of any penalty by a vote of the majority of the non-interested Trustees
or by vote of a majority of the outstanding voting securities of the Class B
Shares of that Fund. So long as a Class B Plan is in effect, the selection and
nomination of non-interested Trustees shall be committed to the discretion of
the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class B Plan will benefit
each Fund and their respective Class B shareholders.
CLASS C DISTRIBUTION PLANS. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class C Plan") pursuant
to Rule 12b-1 under the Act with respect to the Class C shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class C Plan of each Fund were most recently approved for the Funds on
January 28, 1998, on behalf of the Trust by a majority vote of the Trustees,
including a majority of the non-interested Trustees who have no direct or
indirect financial interest in the Class C Plan, cast in person at a meeting
called for the purpose of approving the Class C Plan.
With respect to each Fund, the compensation payable under the Class C Plan
is equal to 0.75% per annum of the average daily net assets attributable to
Class C Shares of that Fund. To the extent such fee is not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Funds' Class C Shares.
No fees were paid to Goldman Sachs under the Class C Plan during the fiscal
year ended January 31, 1997.
The Class C Plan is a compensation plans which provide for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class C Plan was terminated by the Trustees
and no successor plan were adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class C Plan, Goldman Sachs, as distributor of the Funds' shares,
will provide to the Board of Trustees for its review, and the Board will review
at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class C Plan and the purposes for which such
services were performed and expenditures were made.
The Class C Plan will remain in effect until May 1, 1999 and from year to
year, provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. The Class C Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class C Shares of that Fund. All material amendments of the Class C
Plan must also be approved by the Trustees in the manner described above. With
respect to any Fund, the Class C Plan may be terminated at any time without
payment of any penalty by a vote of the majority of the non-interested Trustees
or by vote of a majority of the outstanding voting securities of the Class C
Shares of that Fund. So long as the Class C Plan is in effect, the selection
and nomination of non-interested Trustees shall be committed to the discretion
of the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class C Plan will benefit
each Fund and their respective Class C shareholders.
B-71
<PAGE>
AUTHORIZED DEALER SERVICE PLANS. As described in the prospectus, each
Fund's Class A, Class B and Class C Shares have adopted a non-Rule 12b-1
Authorized Dealer Service Plan (each a "Service Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for the provision of personal and
account maintenance services. The Service Plan of Japanese Equity and
International Small Cap were in initially approved on January 28, 1998, CORE
Small Cap Equity, CORE International Equity and Real Estate Securities Funds
were initially approved on July 22, 1997, Emerging Markets Equity Fund was
initially approved on January 28, 1997 and the Service Plan of CORE Large Cap
Growth Fund were initially approved on April 23, 1997 by a majority vote of the
Trustees, including a majority of the non-interested Trustees who have no direct
or indirect financial interest in the Service Plan. Each Service Plan of each
other Fund was most recently approved by the Trustees, including a majority of
the non-interested Trustees who have no direct or indirect financial interest in
the Service Plan, at a meeting held on April 23, 1997. Each Fund's Service Plan
provides for the compensation for personal and account maintenance services at
an annual rate of up to 0.25% of the Fund's average daily net assets
attributable to Class A or Class B shares.
For the fiscal year ended January 31, 1998, January 31, 1997 and for the
period June 1, 1995 (commencement of each Service Plan) through January 31,
1996, each Fund that was operational paid Authorized Dealer Service fees at the
foregoing rate for each Fund's Class A shares. During the period May 1, 1996
(commencement of each Class B Service Plan) through January 31, 1997, Authorized
Dealer Service fees were paid with respect to each Fund's Class B shares which
were then in operation at the foregoing rate.
For the fiscal year ended January 31, 1998, January 31, 1997 and for the
period June 1, 1995 through January 31, 1996, the amounts paid to Goldman Sachs
pursuant to its Class A Authorized Dealer Service Plan and for the fiscal year
ended January 31, 1998 and the period May 1, 1996 (commencement of Class B
Service Plan) through January 31, 1997, the amounts paid to Goldman Sachs
pursuant to its Class B Service Plan was:
<TABLE>
<CAPTION>
Class A Class A Class B Class B Class A
1998 1997 1998 1997 1996
--------------- ---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balanced Fund $ 153,392 $ 1,294 $ 64,145
Growth and Income Fund 1,252,257 9,358 603,426
CORE U.S. Equity Fund 432,457 12,169 182,881
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 2,171,462 2,854 1,563,448
Mid Cap Equity Fund/1/ N/A N/A N/A
International Equity Fund 1,071,755 14,733 470,027
Small Cap Value Fund 569,684 2,992 458,857
Japanese Equity Fund/2/ N/A N/A N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 626,724 3,410 276,754
Real Estate Securities Fund/2/ N/A N/A N/A
___________________
1 The CORE Large Cap Growth, CORE Small Equity, CORE International Equity and Emerging Markets Equity Funds commenced operations
on May 1, 1997, August 15, 1997, August 15, 1997 and December 15, 1997 respectively.
2 Not operational
</TABLE>
The Service Plans of each Fund will remain in effect until May 1, 1999, and
from year to year thereafter, provided that the continuance of each service plan
is approved annually by a majority vote of the Trustees, including a majority of
the non-interested Trustees who have no direct or indirect financial interest in
the Service Plans. All material amendments of the Service Plans must also be
approved by the Trustees in the manner described above. The Service Plans may
be terminated at any time as to any Fund without payment of any penalty by a
vote of a majority of the non-interested Trustees or by vote of a majority of
the outstanding voting securities of the affected Fund. The Trustees have
determined that in their judgment there is a reasonable likelihood that the
Service Plans will benefit the Funds and their shareholders.
B-72
<PAGE>
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES,
REDEMPTIONS,EXCHANGES AND DIVIDENDS
MAXIMUM SALES CHARGES
- ---------------------
Class A Shares of each Fund are sold at a maximum sales charge of 5.5%.
Using the initial offering price per share, as of January 31, 1998 and $10.00
for the Japanese Equity and International Small Cap Funds, the maximum offering
price of each Fund's Class A shares would be as follows:
<TABLE>
<CAPTION>
Maximum Offering
Net Asset Sales Price to
Value Charge Public
----- ------ ------
<S> <C> <C> <C>
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
CORE International Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
International Equity Fund
Small Cap Value Fund
Japanese Equity Fund
International Small Cap Fund
Emerging Market Equity Fund
Asia Growth Fund
Real Estate Securities Fund/1/
- -------------------
1. Not Operational.
</TABLE>
The following information supplements the information in the Prospectus under
the captions "How to Invest," "How to Sell Shares of the Funds" and "Dividends."
Please see the Prospectus for more complete information.
OTHER PURCHASE INFORMATION
- --------------------------
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have
no record of the beneficial owner's transactions, a beneficial owner should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain information
about the account. The transfer of shares in a "street name" account to an
account with another dealer or to an account directly with the Fund involves
special procedures and will require the beneficial owner to obtain historical
purchase information about the shares in the account from the Authorized Dealer.
RIGHT OF ACCUMULATION (CLASS A)
- -------------------------------
A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A shares (acquired by purchase or exchange) of the
Funds and Class A shares of any other Goldman Sachs Fund (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example, if
a shareholder owns shares with a current market value of $35,000 and purchases
additional Class A shares of any Fund with a purchase price of $25,000, the
sales charge for the $25,000 purchase would be 4.75% (the rate applicable to a
single purchase of more than $60,000). Class A shares purchased without the
imposition of a sales charge may not be aggregated with Class A shares purchased
subject to a sales charge. Class A shares of the Funds and any other Goldman
Sachs Fund purchased (i) by an individual, his spouse and his children, and (ii)
by a trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the
applicable sales charge level. For purposes of applying the right of
accumulation, shares of the Funds and any other Goldman Sachs Fund purchased by
an existing client of the Private Client Services
B-73
<PAGE>
Division of Goldman Sachs will be combined with Class A shares held by any other
Private Client Services account. In addition, Class A shares of the Funds and
Class A shares of any other Goldman Sachs Fund purchased by partners, directors,
officers or employees of the same business organization, groups of individuals
represented by and investing on the recommendation of the same accounting firm,
certain affinity groups or other similar organizations (collectively, "eligible
persons") may be combined for the purpose of determining whether a purchase will
qualify for the right of accumulation and, if qualifying, the applicable sales
charge level. This right of accumulation is subject to the following conditions:
(i) the business organization's, group's or firm's agreement to cooperate in the
offering of the Funds' shares to eligible persons; and (ii) notification to the
Funds at the time of purchase that the investor is eligible for this right of
accumulation.
STATEMENT OF INTENTION (CLASS A)
- --------------------------------
If a shareholder anticipates purchasing at least $50,000 of Class A shares of
a Fund alone or in combination with Class A shares of any other Goldman Sachs
Fund within a 13-month period, the shareholder may purchase shares of the Fund
at a reduced sales charge by submitting a Statement of Intention (the
"Statement"). Shares purchased pursuant to a Statement will be eligible for the
same sales charge discount that would have been available if all of the
purchases had been made at the same time. The shareholder or his Authorized
Dealer must inform Goldman Sachs that the Statement is in effect each time
shares are purchased. There is no obligation to purchase the full amount of
shares indicated in the Statement. A shareholder may include the value of all
Class A shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------
A Fund shareholder should obtain and read the prospectus relating to any other
Fund, Goldman Sachs Fund or ILA Portfolio (as defined in the Prospectus) and its
shares or units and consider its investment objective, policies and applicable
fees before electing cross-reinvestment into that Fund or Portfolio. The
election to cross-reinvest dividends and capital gain distributions will not
affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
acquired fund. Such reinvestment of dividends and distributions in shares of
other Goldman Sachs Funds or in units of ILA Portfolios is available only in
states where such reinvestment may legally be made.
AUTOMATIC EXCHANGE PROGRAM
- --------------------------
A Fund shareholder may elect cross-reinvestment into an identical account or
an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus relating to any other
Goldman Sachs Portfolio and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is available
to shareholders of a Fund whose shares are worth at least $5,000. The
Systematic Withdrawal Plan provides for monthly payments to the participating
shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the Systematic
Withdrawal Plan are reinvested in additional full and fractional shares of the
applicable Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any time. Goldman Sachs reserves the right to initiate a fee
of up to $5 per withdrawal, upon thirty (30) days written notice to the
shareholder. Withdrawal payments should not be considered to be dividends,
yield or income. If periodic withdrawals continuously exceed new purchases and
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately
B-74
<PAGE>
exhausted. The maintenance of a withdrawal plan concurrently with purchases of
additional Class A or Class B shares would be disadvantageous because of the
sales charge imposed on purchases of Class A shares or the imposition of a CDSC
on redemptions of Class A and Class B shares. The CDSC applicable to Class B
shares redeemed under a systematic withdrawal plan may be waived. See "How to
Invest -- Waiver or Reduction of Continent Deferred Sales Charge" in the
Prospectus. In addition, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be reported for federal and state income tax
purposes. A shareholder should consult his or her own tax adviser with regard to
the tax consequences of participating in the Systematic Withdrawal Plan. For
further information or to request a Systematic Withdrawal Plan, please write or
call the Transfer Agent.
B-75
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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 in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ---------------------------
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and
Poor's Ratings Group at the date of this Additional Statement 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 Fund's fiscal year end.
1-A
<PAGE>
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: An obligation rated AAA have the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: The obligor's capacity to meet its financial commitment on the obligation
is very strong and differs from the higher rated issues only in small
degree.
A: An obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation is adequate protection parameter. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments on the
obligation.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
D: Obligations rated D are in payment default. The D rating category is used
when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of similar action if
payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
2-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
* Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November
29, 1996.
* With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
* The number one underwriter of all international equity issuers from
(1993-1996).
* A research budget of $200 million for 1997.
* Premier lead manager of negotiated municipal bond offerings over the
past six years (1990-1996).
* The number one lead manager of U.S. common stock offerings for the
past eight years (1989-1996).*
* The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1996).
- ------------------------
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-
standing client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest to
date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over
1996
2-B
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS
SUBJECT TO COMPLETION
FEBRUARY 13, 1998
PART B
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SAHCS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS JAPANESE EQUITY FUND
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Institutional Shares of Goldman Sachs Balanced Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs Japanese Equity Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs Emerging Markets
Equity Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs Real Estate
Securities Fund dated __________, 1998 (the "Prospectus"), which may be obtained
without charge from Goldman, Sachs & Co. at the telephone number, or writing to
one of the addresses, listed below.
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
Introduction............................................... B-3
Investment Policies........................................ B-4
Investment Restrictions.................................... B-28
Management................................................. B-30
Portfolio Transactions and Brokerage....................... B-43
Net Asset Value............................................ B-48
Performance Information.................................... B-49
Shares of the Trust........................................ B-57
Taxation................................................... B-60
Financial Statements....................................... B-65
Other Information.......................................... B-65
Appendix A:................................................ 1-A
Appendix B:................................................ 1-B
</TABLE>
The date of this Additional Statement is _______________, 1998.
<PAGE>
<TABLE>
<S> <C>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Distributor Investment Adviser to:
85 Broad Street Goldman Sachs CORE U.S. Equity Fund and
New York, New York 10004 Goldman Sachs Capital Growth Fund
One New York Plaza
GOLDMAN, SACHS & CO. New York, New York 10004
Transfer Agent
4900 Sears Tower GOLDMAN SACHS ASSET MANAGEMENT
Chicago, Illinois 60606 Investment Adviser to:
Goldman Sachs Balanced Fund,
GOLDMAN SACHS ASSET MANAGEMENT Goldman Sachs CORE Large Cap Growth Fund,
INTERNATIONAL Goldman Sachs CORE Small Cap Equity Fund,
Investment Adviser to: Goldman Sachs CORE International Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Asia Growth Fund, Goldman Sachs Mid Cap Equity Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs Small Cap Value Fund, and
Goldman Sachs International Small Cap Fund, and Goldman Sachs Real Estate Securities Fund
Goldman Sachs Emerging Markets Equity Fund One New York Plaza
133 Peterborough Court New York, New York 10004
London, England EC4A 2BB
</TABLE>
Toll free (in U.S.).......800-621-2550
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Japanese Equity Fund ("Japanese Equity Fund"),
Goldman Sachs International Small Cap Fund ("International Small Cap Fund"),
Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets Equity Fund"),
Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman Sachs Real
Estate Securities Fund ("Real Estate Securities Fund") (collectively referred to
herein as the "Funds").
The Funds except the Japanese Equity, International Small Cap, CORE Large Cap
Growth, CORE International, CORE Small Cap Equity and Emerging Markets Equity
Funds were initially organized as a series of a corporation formed under the
laws of the State of Maryland on September 27, 1989 and were reorganized as a
Delaware business trust as of April 30, 1997. The Trustees have authority under
the Trust's charter to create and classify shares into separate series and to
classify and reclassify any series or portfolio of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Funds and other series. Additional series may be added in the
future from time to time. The Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap Equity Fund, CORE
International Equity Fund, Capital Growth Fund, International Equity, Small Cap
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds currently offer five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Institutional Shares and Service
Shares. See "Shares of the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are sometimes referred to collectively
herein as the "Advisers." Goldman Sachs serves as each Fund's distributor and
transfer agent. Each Fund's custodian is State Street Bank and Trust Company
("State Street").
The following information relates to and supplements the description of each
Fund's investment policies contained in the Prospectus. See the Prospectus for
a fuller description of the Funds' investment objectives and policies. There is
no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
- -------------
The investment objective of the Balanced Fund is to provide shareholders with
long-term capital growth and current income. The Balanced Fund seeks to achieve
its investment objective by investing in a balanced portfolio diversified among
both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways. These
include diversifying the fixed income portion of the Balanced Fund's portfolio
among various types of fixed income securities and utilizing sophisticated
quantitative models to understand how the fixed income portion of the portfolio
will perform under a variety of market and economic scenarios. In addition,
GSAM uses extensive credit analysis to select and to monitor any investment-
grade or non-investment grade bonds that may be included in the Balanced Fund's
portfolio. In employing this and other investment strategies, the GSAM team has
access to extensive fundamental research and analysis available through Goldman
Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers -those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low and
intermediate but improving credit quality -is intended to enhance total returns
in two stages. Initially, these securities are expected to provide incremental
yield. Eventually, price appreciation should occur relative to alternative
securities as credit quality improves, the nationally recognized statistical
rating organizations upgrade credit ratings, and credit spreads narrow.
Securities from the third type of
B-4
<PAGE>
issuers - issuers with deteriorating credit quality - will be avoided, since
total returns are typically enhanced by avoiding the widening of credit spreads
and the consequent relative price depreciation. Finally, total returns can be
enhanced by focusing on securities that are rated differently by different
rating organizations. If the securities are trading in line with the higher
published quality rating while GSAM concurs with the lower published quality
rating, the securities would generally be sold and any potential price
deterioration avoided. On the other hand, if the securities are trading in line
with the lower published quality rating while the higher published quality
rating is considered more realistic, the securities may be purchased in
anticipation of the expected market reevaluation and relative price
appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
- -----------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
- --------------------------
Under normal circumstances, the Funds will invest at least 90% of their total
assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds will be implemented to the
extent it is consistent with maintaining a Fund's qualification as a regulated
investment company under the Internal Revenue Code. A Fund's strategy may be
limited, in particular, by the requirement for such qualification that less than
30% of the Fund's gross income for its taxable year be derived from the sale or
other disposition of stocks or securities or certain other investments
(generally including options and futures contracts) held for less than three
months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For example, if
cash balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, a Fund may
enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a variety
of relevant factors to select securities, the Adviser believes that the Fund
will be better balanced and have more consistent performance than an investment
portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
B-5
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and company
research, GSAMI's equity team in London, Singapore and Tokyo seeks to identify
companies that may achieve superior long-term returns. Stocks are carefully
selected for International Equity Fund's portfolio through a three-stage
investment process. Because International Equity Fund is a long-term holder of
stocks, the portfolio managers adjust International Equity Fund's portfolio only
when expected returns fall below acceptable levels or when the portfolio
managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from other
sources in Europe and the Asia-Pacific region, the Adviser seeks to identify
attractive industries around the world. Such industries are expected to have
favorable underlying economics and allow companies to generate sustainable and
predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.
Within these industries the Adviser seeks to identify well-run companies that
enjoy a stable competitive advantage and are able to benefit from the favorable
dynamics of the industry. This stage includes analyzing the current and
expected financial performance of the company; contacting suppliers, customers
and competitors; and meeting with management. In particular, the portfolio
managers look for companies whose managers have a strong commitment to both
maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
- --------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap
B-6
<PAGE>
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds to dispose of a particular security when
necessary to meet their redemption requests or other liquidity needs. Under
adverse market or economic conditions, the secondary market for junk bonds could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Advisers could find it difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under such circumstances, may be less
than the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Japanese Equity,
International Small Cap, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds may invest, the yields and prices of such securities may tend
to fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
- -----------------
A Fund's investments in fixed income securities may include zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The discount approximates the total amount of interest the bonds
would have accrued and compounded over the period until maturity. Zero coupon
bonds do not require the periodic payment of interest. Such investments benefit
the issuer by mitigating its need for cash to meet debt service but also require
a higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments may experience greater volatility in market value
than debt obligations which provide for regular payments of interest. In
addition, if an issuer of zero coupon bonds held by a Fund defaults, the Fund
may obtain no return at all on its investment. Each Fund will accrue income on
such investments for each taxable year which (net of deductible expenses, if
any) is distributable to shareholders and which, because no cash is generally
received at the time of accrual, may require the liquidation of other portfolio
securities to obtain sufficient cash to satisfy the Fund's distribution
obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
- -------------------------------------
The interest rates payable on certain fixed income securities in which a Fund
may invest are not fixed and may fluctuate based upon changes in market rates.
A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
B-7
<PAGE>
CUSTODIAL RECEIPTS
- ------------------
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Municipal Securities
- --------------------
Balanced Fund may invest up to 5% of its net assets in municipal securities.
Municipal securities consist of bonds, notes and other instruments issued by or
on behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
tax. Municipal securities are often issued to obtain funds for various public
purposes. Municipal securities also include "private activity bonds" or
industrial development bonds, which are issued by or on behalf of public
authorities to obtain funds for privately operated facilities, such as airports
and waste disposal facilities, and, in some cases, commercial and industrial
facilities.
The yields and market values of municipal securities are determined primarily
by the general level of interest rates, the creditworthiness of the issuers of
municipal securities and economic and political conditions affecting such
issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
- --------------------------
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE Large
Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent that a Fund invests in mortgage-backed securities, the
Advisers may seek to manage these potential risks by investing in a variety of
mortgage-backed securities and by using certain hedging techniques.
B-8
<PAGE>
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types of
guaranteed mortgage-backed securities currently available, including guaranteed
mortgage pass-through certificates and multiple class securities, which include
guaranteed Real Estate Mortgage Investment Conduit Certificates ("REMIC
Certificates"), collateralized mortgage obligations and stripped mortgage-backed
securities. A Fund is permitted to invest in other types of mortgage-backed
securities that may be available in the future to the extent consistent with its
investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate (whether or not received on the underlying loans). Freddie Mac also
guarantees to each registered Certificate holder ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal. The
obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are
obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity ,
CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government
B-9
<PAGE>
guaranteed and privately issued mortgage pass-through securities ("Mortgage
Pass-Throughs"); the is, fixed or adjustable rate mortgage-backed securities
which provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
--------
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
--------
when paid by the mortgagor in subsequent monthly payments or at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories: (i)
liquidity protection and (ii) protection against losses resulting from default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which
B-10
<PAGE>
generally declines over time) of all principal payments received during the
preceding prepayment period ("shifting interest credit enhancement"). This will
have the effect of accelerating the amortization of the senior certificates
while increasing the interest in the trust fund evidenced by the subordinate
certificates. Increasing the interest of the subordinate certificates relative
to that of the senior certificates is intended to preserve the availability of
the subordination provided by the subordinate certificates. In addition, because
the senior certificate-holders in a shifting interest credit enhancement
structure are entitled to receive a percentage of principal prepayments which is
greater than their proportionate interest in the trust fund, the rate of
principal prepayments on the mortgage loans will have an even greater effect on
the rate of principal payments and the amount of interest payments on, and the
yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior certificate-
holders to receive current distributions from the mortgage pool, a reserve fund
may be established relating to such certificates (the "Reserve Fund"). The
Reserve Fund may be created with an initial cash deposit by the originator or
servicer and augmented by the retention of distributions otherwise available to
the subordinate certificate-holders or by excess servicing fees until the
Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificate-holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate-holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificate-holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated pro rata among all
--------
certificate-holders in proportion to their respective outstanding interests in
the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments on
the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
B-11
<PAGE>
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage- backed securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate Securities
Funds may invest in stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities. Although the market for such
securities is increasingly liquid, certain SMBS may not be readily marketable
and will be considered illiquid for purposes of the Fund's limitation on
investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
B-12
<PAGE>
INVERSE FLOATING RATE SECURITIES
- --------------------------------
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
Asset-Backed Securities
- -----------------------
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans. A
Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity and CORE Large Cap Growth
Funds may only enter into such transactions with respect to the S&P 500 Index,
for the CORE U.S. Equity Fund and a representative index in the case of the CORE
Large Cap Growth Fund. The other Funds may purchase and sell futures contracts
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and other financial instruments and indices. Each
Fund will engage in futures and related options transactions, only for bona fide
hedging purposes as defined below or for purposes of seeking to increase total
return to the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). All futures contracts entered into by a Fund are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or
on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to
B-13
<PAGE>
deliver the final cash settlement price, in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading in
the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty than would otherwise be possible the effective price, rate
of return or currency exchange rate on portfolio securities or securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity
Funds) foreign currency rates that would adversely affect the dollar value of
such Fund's portfolio securities. Similarly, each Fund (other than CORE U.S.
Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may sell futures
contracts on a currency in which its portfolio securities are quoted or
denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the applicable Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract if the option is exercised, which may have a value higher than
the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that a Fund intends to purchase. However, a Fund becomes
obligated to purchase a futures contract if the option is exercised, which may
have a value lower than the exercise price. Thus, the loss incurred by a Fund
in writing options on futures is potentially unlimited
B-14
<PAGE>
and may exceed the amount of the premium received. A Fund will incur transaction
costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and will
engage in related options transactions only for bona fide hedging as defined in
the regulations of the CFTC or to seek to increase total return to the extent
permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. A Fund will engage in transactions in currency forward
contracts futures contracts and, for a Fund permitted to do so, related options
transactions only to the extent such transactions are consistent with the
requirements of the Code for maintaining its qualification as a regulated
investment company for federal income tax purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio positions
will be difficult to achieve because no futures contracts based on individual
equity or corporate fixed-income securities are currently available. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In
addition, it is not possible for a Fund to hedge fully or perfectly against
currency fluctuations affecting the value of securities quoted or denominated in
foreign currencies because the value of such securities is likely to fluctuate
as a result of independent factors not related to currency fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
- --------------------------------------------
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
B-15
<PAGE>
A put option written by a Fund would obligate such Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
Fund would be covered, which means that such Fund would have deposited with its
custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be covered
to the extent that the Fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the Fund.
In addition, a written call option or put option may be covered by maintaining
cash or liquid assets (either of which may be quoted or denominated in any
currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE Large
Cap Growth Funds) may purchase put and call options on any securities in which
it may invest or options on any securities index composed of securities in which
it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a Fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle a Fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a Fund's securities. Put
options may also be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise such a Fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the same
purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
B-16
<PAGE>
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, may enter into options on the yield "spread" or differential between two
securities. Such transactions are referred to as "yield curve" options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Balanced Fund may purchase or write yield curve options for the same purposes
as other options on securities. For example, Balanced Fund may purchase a call
option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the Balanced
Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded over-
the-counter, and because they have been only recently introduced, established
trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of
B-17
<PAGE>
trade or other trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate share
of any expenses paid by REITs in which it invests in addition to the expenses
paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE U.S. Equity, CORE Large Cap Growth, CORE Small
Cap Equity and CORE International Equity Funds have no present intention of
acquiring warrants or rights. Warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
FOREIGN SECURITIES
- ------------------
Investments in foreign securities may offer potential benefits not available
from investments solely in U.S. dollar-denominated or quoted securities of
domestic issuers. Such benefits may include the opportunity to invest in
foreign issuers that appear, in the opinion of the applicable Adviser, to offer
better opportunity for long-term growth of capital and income than investments
in U.S. securities, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may be subject to currency exposure independent of their securities
positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of
B-18
<PAGE>
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds) may also invest in European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign issuers
(together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges
or in the U.S. over-the-counter market and, generally, are in registered form.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in the non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
To the extent a Fund acquires Depository Receipts through banks which do not
have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in securities of issuers domiciled in a country other
than the country in whose currency the instrument is denominated or quoted. The
Funds may also invest in securities quoted or denominated in the European
Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of
the currencies of certain of the member states of the European Community. The
specific amounts of currencies comprising
B-19
<PAGE>
the ECU may be adjusted by the Council of Ministers of the European Community
from time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities quoted or
denominated in other currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International Equity,
International Equity, International Small Cap, Asia Growth and Emerging Markets
Equity Funds are intended for long-term investors who can accept the risks
associated with investing primarily in equity and equity-related securities of
foreign issuers, including Emerging Countries issuers (in the case of
International Small Cap, Emerging Markets Equity and International Equity Funds)
and Asian Companies (as defined in the Prospectus) (in the case of Asia Growth
Fund), as well as the risks associated with investments quoted or denominated in
foreign currencies. Balanced, Growth and Income, CORE International Equity,
Small Cap Value, Mid Cap Equity and Capital Growth Funds may invest, to a lesser
extent, in equity and equity-related securities of foreign issuers; including
Emerging Countries issuers. In addition, certain of Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Fund's
potential investment and management techniques entail special risks. Asia
Growth Fund concentrates on companies that the Advisers believe are taking full
advantage of the region's growth and that have the potential for long-term
capital appreciation. The Advisers believe that Asia offers an attractive
investment environment and that new opportunities will continue to emerge in the
years ahead.
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian countries
is restricted or controlled to varying degrees. These restrictions may limit a
Fund's investment in certain of the Asian countries and may increase the
expenses of the Fund. Certain Emerging Countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, International Small Cap, Emerging Markets
B-20
<PAGE>
Equity and Asia Growth Funds. A Fund may be required to establish special
custodial or other arrangements before investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and most Western European countries. Such instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which the Funds may invest and adversely affect
the value of the Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
INVESTING IN JAPAN. The Japanese Equity Fund Invests in Japan's economy, the
second-largest in the world, has grown substantially over the last three
decades. The boom in Japan's equity and property markets during the expansion
of the late 1980's supported high rates of investment and consumer spending on
durable goods, but both of these components of demand have now retreated sharply
following the decline in asset prices. Profits have fallen sharply,
unemployment has reached a historical high and consumer confidence is low. The
banking sector continues to suffer from non-performing loans. Numerous
discount-rate cuts since its peak in 1991, a succession of fiscal stimulus
packages, support plans for the debt-burdened financial system ad spending for
reconstruction following the Kobe earthquake may help to contain the
recessionary forces, but substantial uncertainties remain.
In addition to the cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of
their competitiveness due to high wages, a strong currency and structural
rigidities. Finally, Japan is reforming its political process and deregulating
its economy. This has brought about turmoil, uncertainty and a crisis of
confidence.
While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason
for anticipating civic unrest, it is impossible to know when the political
instability will end and what trade and fiscal policies might be pursued by the
government that emerges.
Japan's heavy dependence on international trade has been adversely affected by
trade tariffs and other protectionist measures as well as the economic condition
of its trading partners. While Japan subsidizes its agricultural industry, only
19% of its land is suitable for cultivation and it is only 50% self-sufficient
in food production. Accordingly, it is highly dependent on large imports of
wheat, sorghum and
B-21
<PAGE>
soybeans. In addition, industry, its most important economic sector, depends
on imported raw materials and fuels, including iron ore, copper, oil and many
forest products. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, have caused trade tensions, particularly with the
United States. Some trade agreements, however, have been implemented to reduce
these tensions. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. A substantial rise in world oil or commodity prices
could also have a negative affect. The strength of the yen itself may prove an
impediment to strong continued exports and economic recovery, because it makes
Japanese goods sold in other countries more expensive and reduces the value of
foreign earnings repatriated to Japan. Because the Japanese economy is so
dependent on exports, any fall-off in exports may be seen as a sign of economic
weakness, which may adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's
economy.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may enter into forward foreign currency
exchange contracts for hedging purposes and to seek to increase total return. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated or quoted in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia
B-22
<PAGE>
Growth Funds may also purchase and sell forward contracts to seek to increase
total return when GSAM or GSAMI anticipates that the foreign currency will
appreciate or depreciate in value, but securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated account
of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds forward contracts
entered into to seek to increase total return. If the value of the securities
placed in the segregated account declines, additional cash or liquid assets will
be placed in the account on a daily basis so that the value of the account will
equal the amount of a Fund's commitments with respect to such contracts. The
segregated account will be marked-to-market on a daily basis. Although the
contracts are not presently regulated by the CFTC, the CFTC may in the future
assert authority to regulate these contracts. In such event, a Fund's ability
to utilize forward foreign currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less protection
against defaults than is available when trading in currency instruments on an
exchange. Since a forward foreign currency exchange contract is not guaranteed
by an exchange or clearinghouse, a default on the contract would deprive a Fund
of unrealized profits or force the Fund to cover its commitments for purchase or
resale, if any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except CORE
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may write
covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to hedge against changes in exchange rates for a different
currency with a pattern of correlation. In addition, Balanced, International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may purchase call options on currency to seek to increase
total return when the Adviser anticipates that the currency will appreciate in
value, but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency to
the holder of the option at a specified price if the option is exercised at any
time before the expiration date. A put option written by a Fund would obligate
a Fund to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date. The
writing of currency options involves a risk that a Fund will, upon exercise of
the option, be required to sell currency subject to a call at a price that is
less than the currency's market value or be required to purchase currency
subject to a put at a price that exceeds the currency's market value. For a
description of how to cover written put and call options, see "Written Covered
Options" above.
B-23
<PAGE>
A Fund may terminate its obligations under a call or put option by purchasing
an option identical to the one it has written. Such purchases are referred to
as "closing purchase transactions." A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
U.S. dollar value of currency in which securities in its portfolio are quoted or
denominated ("protective puts"). The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to seek to increase total return. Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds may write (sell) covered put
and call options on any currency in order to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may forego the opportunity to profit from an
increase in the market value of the underlying currency. Also, when writing put
options, Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
accept, in return for the option premium, the risk that they may be required to
purchase the underlying currency at a price in excess of the currency's market
value at the time of purchase.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds would
normally purchase call options to seek to increase total return in anticipation
of an increase in the market value of a currency. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds would realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by a
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. A Fund would ordinarily realize a gain if, during the
option period, the value of the underlying currency decreased below the exercise
price sufficiently to more than cover the premium and transaction costs.
Otherwise the Fund would realize either no gain or a loss on the purchase of the
put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to
B-24
<PAGE>
sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
- --------------------------------------------------------------------------
FLOORS AND COLLARS
- ------------------
The Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may, with respect to up to 5% of their net assets, enter into currency swaps for
both hedging purposes and to seek to increase total return. In addition, the
Balanced and Real Estate Securities Funds may, with respect to 5% of its net
assets, enter into mortgage, index and interest rate swaps and other interest
rate swap arrangements such as rate caps, floors and collars, for hedging
purposes or to seek to increase total return. Currency swaps involve the
exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by a Fund with another party of the respective amounts
payable with respect to a notional principal amount at interest rates equal to
two specified indices. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The investment advisers,
B-25
<PAGE>
under the supervision of the Board of Trustees, are responsible for determining
and monitoring the liquidity of the Funds' transactions in swaps, caps, floors
and collars.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A Fund would be required to
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. For the duration of a loan, a Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from investment of the collateral. A
Fund would not have the right to vote any securities having voting rights during
the existence of the loan, but a Fund would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovering, or even
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Advisers to be of good standing, and when, in the judgment of the Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Advisers determine to make securities
loans, it is intended that the value of the securities loaned would not exceed
one-third of the value of the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund 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 Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
OTHER INVESTMENT COMPANIES
- --------------------------
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory
B-26
<PAGE>
and administration fees payable by the Fund to an Adviser will be reduced by an
amount equal to the Fund's proportionate share of the advisory and
administration fees paid by such money market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in exchange
for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may also purchase shares of investment companies investing
primarily in foreign securities, including "country funds." Country funds have
portfolios consisting primarily of securities of issuers located in one foreign
country or region. Each Fund (other than CORE U.S. Equity, CORE Large Cap
Growth and CORE Small Cap Equity Funds) may invest in World Equity Benchmark
Shares ("WEBS") and similar securities that invest in securities included in
foreign securities indices.
REPURCHASE AGREEMENTS
- ---------------------
Each Fund may enter into repurchase agreements with selected broker-dealers,
banks or other financial institutions. A repurchase agreement is an arrangement
under which a Fund purchases securities and the seller agrees to repurchase the
securities within a particular time and at a specified price. Custody of the
securities is maintained by a Fund's custodian. The repurchase price may be
higher than the purchase price, the difference being income to a Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to a Fund together with the repurchase price on repurchase. In either case,
the income to a Fund is unrelated to the interest rate on the security subject
to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase agreement
is deemed to be a loan from a Fund to the seller of the security. For other
purposes, it is not clear whether a court would consider the security purchased
by a Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, a Fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If
the court characterizes the transaction as a loan and a Fund has not perfected
a security interest in the security, a Fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers seek
to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase
B-27
<PAGE>
agreement becomes less than the repurchase price (including accrued interest), a
Fund will direct the seller of the security to deliver additional securities so
that the market value of all securities subject to the repurchase agreement
equals or exceeds the repurchase price. Certain repurchase agreements which
provide for settlement in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
A Fund may not:
(1) make any investment inconsistent with the Fund'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 Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
B-28
<PAGE>
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund 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 objective, restrictions
and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-29
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth
below. Trustees and officers deemed to be "interested persons" of the Trust for
purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Ashok N. Bakhru, 54 Chairman Executive Vice President - Finance and
1325 Ave. of the Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN Associates
(June 1994 through march 1996); Senior Vice
President of Scott Paper Company (until June
1994); 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, 52 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management (since
December 1994).
*Douglas C. Grip, 36 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc. of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994 and
New York, NY 10004 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 61 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr., Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst
College (since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the Spenser
Foundation (since 1993); and member of PNC
Advisory Board (since 1993).
*Alan A. Shuch, 49 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs Funds
New York, NY 10004 Management Inc. (from April 1990 to November
1994); President and Chief Operating Officer, GSAM
(from September 1988 to November 1994).
</TABLE>
B-30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Jackson W. Smart, 67 Trustee Chairman, Executive Committee, First Commonwealth,
One Northfield Plaza #218 Inc. (a managed dental care company, since January
Northfield, IL 60093 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 (a venture capital
fund).
William H. Springer, 68 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company); Director, Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management
investment company) (April 1992 to present).
Richard P. Strubel, 58 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St., Suite 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening system and connectors) (January 1984 to
October 1994).
*Scott M. Gilman, 38 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice
President, Goldman Sachs (since March 1990).
*John M. Perlowski, 33 Assistant Treasurer Vice President, Goldman Sachs (since July 1995);
One New York Plaza Director, Investors Bank and Trust (November 1993
New York, NY 10004 to July 1995); Audit manager of Arthur Andersen
LLP (prior thereto).
*John W. Mosior, 59 Vice President Vice President, Goldman Sachs and Manager of
4900 Sears Tower Shareholder Servicing of GSAM (since November
Chicago, IL 60606 1989).
*Nancy L. Mucker, 48 Vice President Vice President, Goldman Sachs (since April 1985);
4900 Sears Tower Manager of Shareholder Servicing of GSAM since
Chicago, IL 60606 November 1989).
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
James A. Fitzpatrick, 33 Vice President Vice President of Goldman Sachs Asset Management
4900 Sears Tower (since April 1997); Vice President and General
Chicago, IL 60606 Manager, First Data Corporation - Investor
Services Group (prior thereto).
*Michael J. Richman, 37 Secretary Associate General Counsel of the Mutual Funds
85 Broad Street Group of Goldman Sachs Asset Management (since
New York, NY 10004 December 1997); Associate General Counsel of
Goldman Sachs Asset Management (February 1994 to
December 1997). Vice President and Assistant
General Counsel of Goldman Sachs (since June
1992); Counsel to the Funds Group, GSAM (since
1992); Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 32 Assistant Secretary Assistant General Counsel, Goldman Sachs Asset
85 Broad Street Management and Associate General Counsel to the
New York, NY 10004 Funds Group (since December 1997); Assistant
General Counsel and Vice President, Goldman Sachs
(since November 1993 and May 1994, respectively);
Associate of Shereff, Friedman, Hoffman & Goodman
(prior thereto).
*Valerie A. Zondorak,32 Assistant Secretary Vice President, Goldman Sachs (since March 1997);
85 Broad Street Assistant General Counsel, Goldman Sachs Asset
New York, NY 10004 Management and Assistant General Counsel to the
Funds Group (since December, 1997), Associate of
Shereff, Friedman, Hoffman, & Goodman (prior
thereto).
*Steven E. Hartstein, 34 Assistant Secretary Legal Products Analyst, Goldman Sachs (June 1993
85 Broad Street to present); Funds Compliance Officer, Citibank
New York, NY 10004 Global Asset Management (August 1991 to June 1993).
*Deborah Farrell, 26 Assistant Secretary Administrative Assistant, Goldman Sachs (January
85 Broad Street 1996 to present); Secretary, Goldman Sachs
New York, NY 10004 (January 1994 to January 1996); Secretary, Cleary,
Gottlieb, Steen and Hamilton (September 1990 to
January 1994).
*Kaysie P. Uniacke, 37 Assistant Secretary Managing Director (since November 1997); Vice
One New York Plaza President and Senior Portfolio Manager, Goldman
New York, NY 10004 Sachs Asset Management (1988 to present).
*Elizabeth D. Anderson, 28 Assistant Secretary Portfolio Manager, GSAM (April 1996 to present);
One New York Plaza Junior Portfolio Manager, Goldman Sachs Asset
New York, NY 10004 Management (1995 to April 1996); Funds Trading
Assistant, GSAM (1993 - 1995); Compliance Analyst,
Prudential Insurance (1991 through 1993).
</TABLE>
As of February1, 1998, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
B-32
<PAGE>
The Trust pays each Trustee, 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.
B-33
<PAGE>
[TO BE UPDATED]
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Pension or Retirement Benefits Total Compensation from Goldman Sachs
Name of Trustee from the Funds** Accrued as Part of Funds' Expenses Mutual Funds (including the Funds)*
--------------- ---------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Ashok N. Bakhru _________ 0 __________
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPhearson 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart _________ 0 __________
William H. Springer _________ 0 __________
Richard P. Strubel _________ 0 __________
</TABLE>
______________
* The Goldman Sachs Funds consisted of __ mutual funds on January 31,
1998.
** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-34
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds. See "Management" in
the Funds' Prospectus for a description of the applicable Adviser's duties to
the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds), the Advisers will have access to the
Global Asset Allocation Model. The model is based on the observation that the
prices of all financial assets, including foreign currencies, will adjust until
investors globally are comfortable holding the pool of outstanding assets.
Using the model, the Advisers will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
B-35
<PAGE>
The Japanese Equity and International Small Cap Funds' management agreement
were initially approved by the Trustees, including a majority of the non-
interested Trustees (as defined below) who are not parties to the management
agreement on January 28, 1998. The CORE Small Cap Equity, CORE International
Equity and Real Estate Securities Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on July 22,
1997. The CORE Large Cap Growth and Emerging Markets Equity Funds management
agreements were initially approved by the Trustees, including a majority of the
non-interested Trustees (as defined below) who are not parties to the management
agreement, on April 23, 1997. The other Funds' management agreements were most
recently approved by the Trustees, including a majority of the Trustees who are
not parties to the management agreement or "interested persons" (as such term is
defined in the Act) of any party thereto (the "non-interested Trustees"), on
April 30, 1997. These arrangements were most recently approved by the
shareholders of each Fund (other than CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity, Real Estate Securities, Japanese Equity,
International Small Cap and Emerging Markets Equity Funds) on April 21, 1997.
The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. The sole shareholder of the Japanese Equity and the International
Small Cap Funds approved these arrangements on _______, 1998. Each management
agreement will remain in effect until June 30, 1998 from year to year
thereafter provided such continuance is specifically approved at least annually
by (a) the vote of a majority of the outstanding voting securities of such Fund
or a majority of the Trustees, and (b) the vote of a majority of the non-
interested Trustees, cast in person at a meeting called for the purpose of
voting on such approval. Each management agreement will terminate automatically
if assigned (as defined in the Act) and is terminable at any time without
penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the affected Fund on 60 days' written notice to the Adviser and by
the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Japanese Equity Fund 0.90% 1.00%
International Small Cap Fund 1.10% 1.20%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
B-36
<PAGE>
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ $ 402,183 $ 193,041
Growth and Income Fund 3,541,318 2,225,553
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 8,697,265 9,335,745
Mid Cap Equity Fund 964,945 489,043
International Equity Fund 4,124,076/3/ 2,794,872/2/
Small Cap Value Fund 2,130,703 2,908,839
Japanese Equity Fund/4/ N/A N/A N/A
International Small Cap Fund/4/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/
Real Estate Securities Fund/4/ N/A N/A N/A
</TABLE>
- ----------------------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, December 15, 1997.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of the
CORE U.S. Equity, International Equity and Asia Growth Fund's average daily
net assets. For the fiscal year ended January 31, 1996, had limitations not
been in effect, CORE U.S. Equity Fund would have paid $1,019,639 in
investment management fees. For the fiscal year ended January 31, 1997, had
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees. For the fiscal year ended
January 31, 1998, had limitation not been in effect __________ Funds would
have paid ___________ respectively, in investment management fees.
4 Not Operational.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
B-37
<PAGE>
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Funds. The proprietary activities or portfolio strategies of Goldman Sachs and
its affiliates or the activities or strategies used for accounts managed by them
or other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
B-38
<PAGE>
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund 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 a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal year
ended January 31, 1996. No Class C Shares were outstanding during the fiscal
years ended January 31, 1996 and 1997.
B-39
<PAGE>
Goldman Sachs retained the following commissions on sales of Class A, Class
B and Class C Shares during the following periods:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000
Growth and Income Fund 555,000 771,000
CORE U.S. Equity Fund 380,000 108,000
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 323,000 523,000
International Equity Fund 1,563,000 211,000
Small Cap Value Fund 219,000 202,000
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 1,397,000 507,000
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, and Emerging Markets Equity Funds commenced operations on May 1,
1997, August 15, 1997, August 15, 1997, and December 15, 1997,
respectively.
2 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A, B & C Class A & B Class A
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067
Growth and Income Fund 870,527 542,671
CORE U.S. Equity Fund 319,246 103,682
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 908,310 549,844
International Equity Fund 586,243 129,313
Small Cap Value Fund 511,883 254,292
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 385,114 192,097
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Institutional Shares Service Shares Institutional Shares
1998 1997 1998 1997 1996
==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/3/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity N/A N/A N/A
Fund/1/
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/1/ 51,464 N/A 26,082
International Equity Fund/3/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/3/ N/A N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not Operational.
3 Contractually set to 0.
The Trust's distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit certain
"Other Expenses" (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses (and transfer agency fees in the case of each
Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Mid Cap Equity Funds) for the following funds to the
extent such expenses exceed the following percentage of average daily net
assets:
B-41
<PAGE>
<TABLE>
<CAPTION>
Other
Expenses
--------
<S> <C>
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Japanese Equity Fund 0.10%
International Small Cap Fund 0.30%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
</TABLE>
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405
Growth and Income Fund 0 0
CORE U.S. Equity Fund 104,833 110,581
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund N/A N/A
Mid Cap Equity Fund 72,441 85,515
International Equity Fund 144,265 N/A
Small Cap Value Fund N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 50,407 0
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not operational.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
B-42
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
_____________, independent public accountants, 225 Franklin Street, Boston,
Massachusetts 02110, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased
B-43
<PAGE>
or sold, as well as the expenses incurred in the transaction, will be made by
the applicable Adviser in the manner it considers to be equitable and consistent
with its fiduciary obligations to such Fund and such other customers. In some
instances, this procedure may adversely affect the price and size of the
position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-44
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
CORE International Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
International Equity Fund
Small Cap Value Fund
Emerging Markets Equity Fund
Asia Growth Fund
Real Estate Securities Fund
</TABLE>
B-45
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ================= ===========
Fiscal Year Ended
January 31, 1997:
<S> <C> <C> <C> <C>
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended
January 31, 1996:
<S> <C> <C> <C> <C>
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-47
<PAGE>
During the fiscal year ended January 31, 1998, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1998, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
[TO BE UPDATED]
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Balanced Fund
Growth and Income Fund
Core US Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
Small Cap Value Fund
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith the
fair value of securities of each Fund. In accordance with procedures adopted by
the Trustees, the net value per share of each class of each Fund is calculated
by determining the value of the net assets attributable to each class of that
Fund and dividing by the number of outstanding shares of that class. All
securities are valued as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each Business Day (as defined in
the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") will be valued at the last sale price on the
exchange or system in which they are principally traded, on the valuation date.
If there is no sale on the valuation day, securities traded principally: (i) on
a U.S. exchange or NASDAQ will be valued at the mean between the closing bid and
asked prices; and (ii) on a foreign exchange will be valued at the last sale
price (also referred to as the close price). The last sale price for securities
traded principally on a foreign exchange will be determined as of the close of
the London Stock Exchange or, for securities traded on exchanges located in the
Asia Pacific region, noon London time; (b) debt securities will be valued using
a pricing service approved by the Trustees if such prices are believed by the
investment adviser to accurately represent market value; (c) overnight
repurchase agreements will be valued by the investment adviser at cost; (d) term
repurchase agreements (i.e., those whose maturity exceeds seven days) and
interest rate
B-48
<PAGE>
swaps, caps, collars and floors will be valued at the average of the bid
quotations obtained daily from at least two dealers or, for term repurchase
agreements, recognized counterparties; (e) debt securities with a remaining
maturity of 60 days or less are valued by the investment adviser at amortized
cost, which the Trustees have determined to approximate fair value; (e) spot and
forward foreign currency exchange contracts will be valued using a pricing
service such as Reuters then calculating the mean between the last bid and asked
quotations supplied by certain independent dealers in such contracts; (g)
exchange-traded options and futures contracts will be valued by the custodian
bank at the last sale price on the exchange where such contracts and options are
principally traded; and (h) over-the-counter options will be valued by an
independent unaffiliated broker identified by the portfolio manager/trader and
contacted by the custodian bank; and (i) all other securities, including those
for which a pricing service supplies no exchange quotation or a quotation that
is believed by the portfolio manager/trader to be inaccurate; will be valued at
fair value as stated in the valuation procedures which were approved by the
Board of Trustees. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation. If accurate quotations are
not readily available, such contracts will be valued by an independent
unaffiliated broker identified by the portfolio manager/trader and contacted by
the custodian bank. If broker quotes are used, the portfolio manager/trader will
identify one independent unaffiliated broker from whom the custodian bank will
obtain prices daily and another independent unaffiliated broker from whom the
custodian bank will obtain quotes at least weekly. The custodian bank will
promptly notify the portfolio manager/trader and a member of the GSAM Valuation
Committee or a designee thereof of any deviations equal to or greater than 3%
between the weekly quote and the daily quotes for the date that the weekly
quotes were obtained. The investment adviser will promptly provide instructions
to the custodian bank. For all brokers used in this process, the custodian bank
will send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust from the
issue or sale of its shares, 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 Fund and constitute the underlying assets
of that Fund or series. The underlying assets of each Fund will be segregated
on the books of account, and will be charged with the liabilities in respect of
such Fund and with a share of the general liabilities of the Trust. Expenses of
the Trust with respect to the Funds and the other series of the Trust are
generally allocated in proportion to the net asset values of the respective
Funds or series except where allocations of direct expenses can otherwise be
fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return, yield and/or
distribution rate information in advertisements, shareholder reports or sales
literature. Average annual total return and yield are computed pursuant to
formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
B-49
<PAGE>
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by calculating
the actual dollar amount of the investment return on a $1,000 investment made at
the maximum public offering price at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount, assuming a redemption at the end of the period. This calculation
assumes a complete redemption of the investment. It also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified period
are each derived by calculating the percentage rate required to make a $1,000
investment (made at the maximum public offering price with all distributions
reinvested) at the beginning of such period equal to the actual total value of
such investment at the end of such period. The following table indicates the
total return (capital changes plus reinvestment of all distributions) on a
hypothetical investment of $1,000 in a Fund for the periods indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, 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
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) Donoghues' Money Fund Report (which provides industry averages for 7-day
annualized and compounded yields of taxable, tax-free and U.S. Government money
funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the NASDAQ OTC
Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell 2000
Index -Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the Value-
Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-Actuaries
Europe and Pacific Index, and (s) historical investment data supplied by the
research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
B-50
<PAGE>
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to
B-51
<PAGE>
Class A Shares (the class into which the separate account transferred) to
reflect the expenses expected to be incurred by the Fund as stated in the
expense table in the Prospectus. These expenses include any sales charges and
asset-based charges (i.e., fees under Distribution and Authorized Dealer Service
Plans) imposed and other operating expenses. Total return quotations will be
calculated pursuant to SEC approved methodology. Prior to May 1, 1997, the
separate account was a separate investment advisory account under discretionary
management by the Adviser and had substantially similar investment objectives,
policies and strategies as the Fund. Unlike the Fund, the separate account was
not registered as an investment company under the Act and therefore was not
subject to certain investment restrictions and operational requirements that are
imposed on investment companies by the Act. If the separate account had been
registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account (based on
Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-52
<PAGE>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund A 10/12/94-1/31/98 - Since inception
Balanced Fund A 2/1/97-1/31/98 - One year
Balanced Fund B 5/1/96-1/31/97 - Since inception
Balanced Fund B 2/1/97-1/31/98 - One year
Balanced Fund C 8/15/97-1/31/98 - Since inception*
Balanced Fund Institutional 8/15/97-1/31/98 - Since inception*
Balanced Fund Service 10/24/94-1/31/98 - Since inception
Balanced Fund Service 2/1/97-1/31/98 - One year
Growth and Income A 2/5/93-1/31/98 - Since inception
Growth and Income A 2/1/97-1/31/98 - One year
Growth and Income B 5/1/96-1/31/98 - Since inception
Growth and Income B 2/1/97-1/31/98 - One year
Growth and Income C 8/15/97-1/31/98 - Since inception*
Growth and Income Institutional 6/3/96-1/31/98 - Since inception
Growth and Income Institutional 2/1/97-1/31/98 - One year
Growth and Income Service 3/6/96-1/31/98 - Since inception
Growth and Income Service 2/1/97-1/31/98 - One year
CORE U.S. Equity A 5/24/91-1/31/98 - Since inception
CORE U.S. Equity A 2/1/93-1/31/98 - Five year
CORE U.S. Equity A 2/1/97-1/31/98 - One year
CORE U.S. Equity B 5/1/96-1/31/98 - Since inception
CORE U.S. Equity B 2/1/97-1/31/98 - One year
CORE U.S. Equity C 8/15/97-1/31/98 - Since inception*
CORE U.S. Equity Institutional 6/15/95-1/31/98 - Since inception
CORE U.S. Equity Institutional 2/1/97-1/31/98 - One year
CORE U.S. Equity Service 6/7/96-1/31/98 - Since inception
CORE U.S. Equity Service 2/1/97-1/31/98 - One year
CORE Large Cap Growth A 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth A 2/1/93-1/31/98 - Five year
CORE Large Cap Growth A 2/1/97-1/31/98 - One year
CORE Large Cap Growth B 5/1/97-1/31/98 - Since inception*
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CORE Large Cap Growth C 8/15/97-1/31/98 - Since inception*
CORE Large Cap Growth Institutional 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth Institutional 2/1/93-1/31/98 - Five year
CORE Large Cap Growth Institutional 2/1/97-1/31/98 - One year
CORE Large Cap Growth Service 5/1/97-1/31/98 - Since inception*
Capital Growth A 4/20/90-1/31/98 - Since inception
Capital Growth A 2/1/93-1/31/98 - Five year
Capital Growth A 2/1/97-1/31/98 - One year
Capital Growth B 5/1/96-1/31/98 - Since inception
Capital Growth B 2/1/97-1/31/98 - One year
Capital Growth C 8/15/97-1/31/98 - Since inception*
Capital Growth Institutional 8/15/97-1/31/98 - Since inception*
Capital Growth Service 4/20/90-1/31/98 - Since inception
Capital Growth Service 2/1/93-1/31/98 - Five year
Capital Growth Service 2/1/97-1/31/98 - One year
Mid Cap Equity A 8/15/97-1/31/98 - Since inception*
Mid Cap Equity B 8/15/97-1/31/98 - Since inception*
Mid Cap Equity C 8/15/97-1/31/98 - Since inception*
Mid Cap Equity Institutional 8/1/95-1/31/98 - Since inception
Mid Cap Equity Institutional 2/1/97-1/31/98 - One year
Mid Cap Equity Service 8/15/97-1/31/98 - Since inception
International Equity A 12/1/92-1/31/98 - Since inception
International Equity A 2/1/93-1/31/98 - Five year
International Equity A 2/1/97-1/31/98 - One year
International Equity B 5/1/96-1/31/98 - Since inception
International Equity B 2/1/97-1/31/98 - One year
International Equity C 8/15/97-1/31/98 - Since inception*
International Equity Institutional 2/7/96-1/31/98 - Since inception
International Equity Institutional 2/1/97-1/31/98 - One year
</TABLE>
B-54
<PAGE>
<TABLE>
<S> <C> <C>
International Equity Service 3/6/96-1/31/98 - Since inception
International Equity Service 2/1/97-1/31/98 - One year
Small Cap Value A 10/22/92-1/31/98 - Since inception
Small Cap Value A 2/1/93-1/31/98 - Five year
Small Cap Value A 2/1/97-1/31/98 - One year
Small Cap Value B 5/1/96-1/31/98 - Since inception
Small Cap Value B 2/1/97-1/31/98 - One year
Small Cap Value C 8/15/97-1/31/98 - Since inception*
Small Cap Value Institutional 8/15/97-1/31/98 - Since inception*
Small Cap Value Service 10/22/92-1/31/98 - Since inception*
Small Cap Value Service 2/1/93-1/31/98 - Five year
Small Cap Value Service 2/1/97-1/31/98 - One year
Asia Growth A 7/8/94-1/31/98 - Since inception
Asia Growth A 2/1/97-1/31/98 - One year
Asia Growth B 5/1/96-1/31/98 - Since inception
Asia Growth B 2/1/97-1/31/98 - One year
Asia Growth C 8/15/97-1/31/98 - Since inception*
Asia Growth Institutional 2/2/96-1/31/98 - Since inception
Asia Growth Institutional 2/1/97-1/31/98 - One year
Asia Growth Service 7/8/94-1/31/98 - Since inception
Asia Growth Service 2/1/97-1/31/98 - One year
</TABLE>
__________________________
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
B-55
<PAGE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail in the
communication.
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 asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not be
intended to indicate future performance. A Fund's total return and yield will
vary based on market conditions, portfolio expenses, portfolio investments and
other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Trust may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds except the CORE International Equity, CORE Small Cap Equity, CORE
Large Cap Growth, Japanese Equity and International Small Cap were reorganized
from series of a Maryland corporation 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 shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated to such class or series. The Trustees
also have authority to classify and reclassify any series of shares into one or
more classes of shares. As of the date of this Additional Statement, the
Trustees have classified the shares of the Funds into five classes:
Institutional Shares, Service Shares, Class A Shares, Class B Shares and Class C
Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales charge for
accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration
B-56
<PAGE>
fees at the annual rate of up to 0.50% of the average daily net assets of the
Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Class A Shares also bear the cost of an
Authorized Dealer Service Plan at an annual rate of up to 0.25% of the average
daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class B Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class B Shares. Class B Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 1.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class C Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class C Shares. Class C Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by
each Fund, if any with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of February 1, 1998 State Street Bank & Trust Company as Trustee (GS Profit
Sharing Master Trust), P.O. Box 1992, Boston, MA 02105, was recordholder of
59.3% of Mid Cap Equity Fund's outstanding shares; Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 27.9% CORE Large Cap Growth Fund's outstanding
shares; State Street Bank and Trust Company as Trustee for Goldman Sachs Profit
Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-1992 was recordholder of
13.4% and Marine Midland Bank as Trustee for Mark IV Ind. & Subs Employees
Retirement Income Fund, P.O. Box 1329, Attention: Mutual Fund Processing,
Buffalo, NY 14240-1329 was recordholder of 6.2% of CORE U.S. Equity Fund's
outstanding shares; The Goldman Sachs Group LP Seed Account, 85 Broad Street,
New York, New York 10004, was recordholder of 15.7% of CORE Small Cap Equity
Funds outstanding shares; Goldman Sachs CORE International Omnibus A/C - Growth
& Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of
14.9%, Goldman Sachs CORE International Omnibus A/C - Growth Strategy, 4900
Sears Tower, Chicago, IL 60606, was recordholder of 12.8% and Goldman Sachs
Group LP Seed Account, 85 Broad Street, New York, New York 10004 was
recordholder of 29.9% of CORE International Equity Fund's outstanding shares.
State Street Bank & Trust Company as Trustee (FBO Goldman Sachs Employee Pension
Plan) 200 Newport Ave., N. Quincy, MA 02170 was recordholder of 6.47% of Asia
Growth Fund's outstanding shares; BJ McCloskey, WR Jordan, RL Brandstein
Trustees McCloskey Trust, P.O. Box 7846, Aspen CO 81612 was recordholder of
21.1%, Goldman Sachs Seed Account, 4900 Sears Tower, Chicago, IL 60606 was
recordholder of 6.5%, Ralph Lauren 1997 Crut 111 W 40th Street, NY, NY 10018 was
recordholder of 23.9% and GTE Investment Management Corp., One Stamford Forum,
Stamford, CT 06904 was recordholder of 15.6% of the Emerging Markets Fund's
outstanding shares; Goldman, Sachs & Co. FBO Acct# 029108412 c/o Mutual Fund
Ops, 85 Broad Street, NY, NY 10004 was recordholder of 5% of the CORE Small Cap
Equity Fund's outstanding shares.
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
B-57
<PAGE>
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, Rule 18f-2 exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of Rule 18f-
2.
The Trust is not required to hold annual meetings of shareholders and does not
intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees,
either to one vote for each share or to one vote for each dollar of net asset
value represented by such shares on all matters presented to shareholders
including the elections of Trustees (this method of voting being referred to as
"dollar based voting"). However, to the extent required by the Act or otherwise
determined by the Trustees, series and classes of the Trust will vote separately
from each other. Shareholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meetings. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising form 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 their 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
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more series
or classes of the Trust's shares (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other series or
class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable
B-58
<PAGE>
for the debts or obligations of any other series of the Trust. However, no
similar statutory or other authority limiting business trust shareholder
liability exists in other states. As a result, to the extent that a Delaware
business trust or a shareholder is subject to the jurisdiction of courts of such
other states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification by
the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series 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 error of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in each Fund of the Trust. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund.
The summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. Japanese Equity and International
Small Cap Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) a Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, 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 such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S. tax
purposes will generally have the same character for such Fund as in the hands of
such an entity; consequently, a Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In
B-59
<PAGE>
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
and may therefore make it more difficult for such a Fund to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, each Fund generally expects
to be able to obtain sufficient cash to satisfy such requirements from new
investors, the sale of securities or other sources. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carry forwards expiring in 2002, 2003, and
2004, respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts,
B-60
<PAGE>
or options will (except for certain foreign currency options, forward contracts,
and futures contracts) be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. As a result of certain hedging transactions
entered into by a Fund, the Fund may be required to defer the recognition of
losses on futures contracts, forward contracts, and options or underlying
securities or foreign currencies to the extent of any unrecognized gains on
related positions held by such Fund and the characterization of gains or losses
as long-term or short-term may be changed. The tax provisions described above
applicable to options, futures and forward contracts may affect the amount,
timing and character of a Fund's distributions to shareholders. Application of
certain requirements for qualification as a regulated investment company and/or
these tax rules to certain investment practices, such as dollar rolls, or
certain derivatives such as interest rate swaps, floors, caps and collars and
currency, mortgage or index swaps may be unclear in some respects, and a Fund
may therefore be required to limit its participation in such transactions.
Certain tax elections may be available to a Fund to mitigate some of the
unfavorable consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foregoing currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result being either no dividends being paid or a portion of a Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest securities,
certain structured securities or other securities bearing original issue
discount or, if a Fund elects to include market discount in income currently,
market discount, as well as any "mark to market" gain from certain options,
futures or forward contracts, as described above, will generally cause it to
realize income or gain prior to the receipt of cash payments with respect to
these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) anticipates that it will be subject to foreign taxes on its
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds make this
election, its respective shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable limitations, against
their U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by a Fund, although such shareholders will be
required to include their shares of such taxes in gross income if the election
is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid by
such shareholder as a result of any such election by CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity or Asia Growth Funds, the amount of the credit that may be claimed in any
year may not exceed the same proportion of the U.S. tax against which such
credit is taken which the shareholder's taxable income from foreign sources (but
not in excess of the shareholder's entire taxable income) bears to his entire
taxable income. For this purpose, distributions from long-term and short-term
B-61
<PAGE>
capital gains or foreign currency gains by a Fund will generally not be treated
as income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may not be able to claim a credit for the full amount of their proportionate
share of the foreign taxes paid by such Fund even if the election is made by
such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year,
if any, that the CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by a Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. The other Funds will not be entitled to elect to pass
foreign taxes and associated credits or deductions through to their shareholders
because they will not satisfy the 50% requirement described above. If a Fund
cannot or does not make this election, it may deduct such taxes in computing the
amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. In some cases, elections may be
available that would ameliorate these adverse tax consequences, but such
elections would require the Fund to include certain amounts as income or gain
(subject to the distribution requirements described above) without a concurrent
receipt of cash. Each Fund may limit and/or manage its holdings in passive
foreign investment companies to minimize its tax liability or maximize its
return from these investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends received deduction for corporate shareholders. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Asia Growth and Emerging Markets Equity Funds will qualify for the
dividends-received deduction. The entire dividend, including the deducted
amount, is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its liability for the federal alternative minimum
tax, and the dividend may, if it is treated as an "extraordinary dividend" under
the
B-62
<PAGE>
Code, reduce such shareholder's tax basis in its shares of a Fund. Capital
gain dividends (i.e., dividends from net capital gain) if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as long-term capital gain
regardless of how long shares have been held by shareholders, but are not
eligible for the dividends received deduction for corporations. Such long-term
capital gain will be 20% or 28% rate gain, depending upon the Fund's holding
period for the assets the sale of which generated the capital gain.
Distributions, if any, that are in excess of a Fund's current and accumulated
earnings and profits will first reduce a shareholder's tax basis in his shares
and, after such basis is reduced to zero, will generally constitute capital
gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. In general, the maximum long-term capital gain rate will be
20% (for gains on capital assets held more than 18 months) or 28% (for gains on
capital gains held more than one year but not more than 18 months).
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Fund will not
be taken into account in determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the newly-acquired
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including capital gain dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends
B-63
<PAGE>
will be subject to tax on a net income basis at the graduated rates applicable
to U.S. individuals or domestic corporations. Distributions of net capital gain,
including amounts retained by a Fund which are designated as undistributed
capital gains, to a non-U.S. shareholder will not be subject to U.S. federal
income or withholding tax unless the distributions are effectively connected
with the shareholder's trade or business in the United States or, in the case of
a shareholder who is a nonresident alien individual, the shareholder is present
in the United States for 183 days or more during the taxable year and certain
other conditions are met. Non-U.S. shareholders may also be subject to U.S.
federal withholding tax on deemed income resulting from any election by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity or Asia Growth Funds to treat qualified foreign
taxes it pays as passed through to shareholders (as described above), but they
may not be able to claim a U.S. tax credit or deduction with respect to such
taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the U.S., or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the U.S. for 183 days or more during
the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent Public
Accountants, contained in the 1998 Annual Report of each of the Funds (except
Real Estate Securities, Japanese Equity and International Small Cap Funds), are
incorporated herein by reference into this Additional Statement and attached
hereto. No other part of the Annual or Semi-Annual Report is incorporated by
reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this
B-64
<PAGE>
Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
B-65
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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 in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
- ----------
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement 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
Fund's fiscal year end.
1-A
<PAGE>
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: An obligation rated AAA have the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: The obligor's capacity to meet its financial commitment on the
obligation is very strong and differs from the higher rated issues only in small
degree.
A: An obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation is adequate protection parameter. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments on the
obligation.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
D: Obligations rated D are in payment default. The D rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of similar action if
payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
2-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November 29,
1996.
. With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issuers from
(1993-1996).
. A research budget of $200 million for 1997.
. Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1996).
. The number one lead manager of U.S. common stock offerings for the past
eight years (1989-1996).*
. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).
- ----------
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
------------------------------------
Investment Trusts and Rights.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing
client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over 1996
2-B
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES EFFECTIVE.
THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS
SUBJECT TO COMPLETION
FEBRUARY 13, 1998
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SAHCS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS JAPANESE EQUITY FUND
GOLDMAN SACHS INTERNATIONAL SMALL CAP FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(Equity Portfolios of Goldman Sachs Trust)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is not a
Prospectus. This Additional Statement should be read in conjunction with the
Prospectus for the Institutional Shares of Goldman Sachs Balanced Fund, Goldman
Sachs Growth and Income Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs
CORE Large Cap Growth Fund, Goldman Sachs CORE Small Cap Equity Fund, Goldman
Sachs CORE International Equity Fund, Goldman Sachs Capital Growth Fund, Goldman
Sachs Mid Cap Equity Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Small Cap Value Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs
International Small Cap Equity Fund, Goldman Sachs Emerging Markets Equity Fund,
Goldman Sachs Asia Growth Fund and Goldman Sachs Real Estate Securities Fund
dated _______________, 1998, (the "Prospectus"), which may be obtained without
charge from Goldman, Sachs & Co. at the telephone number, or writing to one of
the addresses, listed below.
TABLE OF CONTENTS
Page
----
Introduction.......................... B-3
Investment Policies................... B-4
Investment Restrictions............... B-28
Management............................ B-30
Portfolio Transactions and Brokerage.. B-43
Net Asset Value....................... B-48
Performance Information............... B-49
Shares of the Trust................... B-57
Taxation.............................. B-60
Financial Statements.................. B-65
Other Information..................... B-65
Service Plans......................... B-67
Appendix A:........................... 1-A
Appendix B:........................... 1-B
The date of this Additional Statement is _________, 1998.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Distributor Investment Adviser to:
85 Broad Street Goldman Sachs CORE U.S. Equity Fund and
New York, New York 10004 Goldman Sachs Capital Growth Fund
One New York Plaza
GOLDMAN, SACHS & CO. New York, New York 10004
Transfer Agent
4900 Sears Tower GOLDMAN SACHS ASSET MANAGEMENT
Chicago, Illinois 60606 Investment Adviser to:
Goldman Sachs Balanced Fund,
GOLDMAN SACHS ASSET MANAGEMENT Goldman Sachs CORE Large Cap Growth Fund,
INTERNATIONAL Goldman Sachs CORE Small Cap Equity Fund,
Investment Adviser to: Goldman Sachs CORE International Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs Mid Cap Equity Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs Small Cap Value Fund, and
Goldman Sachs Asia Growth Fund, and Goldman Sachs Real Estate Securities Fund
Goldman Sachs Emerging Markets Equity Fund One New York Plaza
133 Peterborough Court New York, New York 10004
London, England EC4A 2BB
Toll free (in U.S.).......800-621-2550
</TABLE>
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Japanese Equity Fund ("Japanese Equity Fund"),
Goldman Sachs International Small Cap Fund ("International Small Cap Fund"),
Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets Equity Fund"),
Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman Sachs Real
Estate Securities Fund ("Real Estate Securities Fund") (collectively referred to
herein as the "Funds").
The Funds except the Japanese Equity, International Small Cap, CORE Large Cap
Growth, CORE International, CORE Small Cap Equity and Emerging Markets Equity
Funds were initially organized as a series of a corporation formed under the
laws of the State of Maryland on September 27, 1989 and were reorganized as a
Delaware business trust as of April 30, 1997. The Trustees have authority under
the Trust's charter to create and classify shares into separate series and to
classify and reclassify any series or portfolio of shares into one or more
classes without further action by shareholders. Pursuant thereto, the Trustees
have created the Funds and other series. Additional series may be added in the
future from time to time. The Balanced, Growth and Income, CORE U.S. Equity,
CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap Equity Fund, CORE
International Equity Fund, Capital Growth Fund, International Equity, Small Cap
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds currently offer five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Institutional Shares and Service
Shares. See "Shares of the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are sometimes referred to collectively
herein as the "Advisers." Goldman Sachs serves as each Fund's distributor and
transfer agent. Each Fund's custodian is State Street Bank and Trust Company
("State Street").
The following information relates to and supplements the description of each
Fund's investment policies contained in the Prospectus. See the Prospectus for
a fuller description of the Funds' investment objectives and policies. There is
no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
- -------------
The investment objective of the Balanced Fund is to provide shareholders with
long-term capital growth and current income. The Balanced Fund seeks to achieve
its investment objective by investing in a balanced portfolio diversified among
both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways. These
include diversifying the fixed income portion of the Balanced Fund's portfolio
among various types of fixed income securities and utilizing sophisticated
quantitative models to understand how the fixed income portion of the portfolio
will perform under a variety of market and economic scenarios. In addition,
GSAM uses extensive credit analysis to select and to monitor any investment-
grade or non-investment grade bonds that may be included in the Balanced Fund's
portfolio. In employing this and other investment strategies, the GSAM team has
access to extensive fundamental research and analysis available through Goldman
Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers -those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low and
intermediate but improving credit quality -is intended to enhance total returns
in two stages. Initially, these securities are expected to provide incremental
yield. Eventually, price appreciation should occur relative to alternative
securities as credit quality improves, the nationally recognized statistical
rating organizations upgrade credit ratings, and credit spreads narrow.
Securities from the third type of
B-4
<PAGE>
issuers - issuers with deteriorating credit quality - will be avoided, since
total returns are typically enhanced by avoiding the widening of credit spreads
and the consequent relative price depreciation. Finally, total returns can be
enhanced by focusing on securities that are rated differently by different
rating organizations. If the securities are trading in line with the higher
published quality rating while GSAM concurs with the lower published quality
rating, the securities would generally be sold and any potential price
deterioration avoided. On the other hand, if the securities are trading in line
with the lower published quality rating while the higher published quality
rating is considered more realistic, the securities may be purchased in
anticipation of the expected market reevaluation and relative price
appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
- -----------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
- --------------------------
Under normal circumstances, the Funds will invest at least 90% of their total
assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds will be implemented to the
extent it is consistent with maintaining a Fund's qualification as a regulated
investment company under the Internal Revenue Code. A Fund's strategy may be
limited, in particular, by the requirement for such qualification that less than
30% of the Fund's gross income for its taxable year be derived from the sale or
other disposition of stocks or securities or certain other investments
(generally including options and futures contracts) held for less than three
months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For example, if
cash balances are equal to 10% of the net assets, the Fund may enter into long
futures contracts covering an amount equal to 10% of the Fund's net assets. As
cash balances fluctuate based on new contributions or withdrawals, a Fund may
enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a variety
of relevant factors to select securities, the Adviser believes that the Fund
will be better balanced and have more consistent performance than an investment
portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
B-5
<PAGE>
INTERNATIONAL EQUITY FUND
- -------------------------
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and company
research, GSAMI's equity team in London, Singapore and Tokyo seeks to identify
companies that may achieve superior long-term returns. Stocks are carefully
selected for International Equity Fund's portfolio through a three-stage
investment process. Because International Equity Fund is a long-term holder of
stocks, the portfolio managers adjust International Equity Fund's portfolio only
when expected returns fall below acceptable levels or when the portfolio
managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from other
sources in Europe and the Asia-Pacific region, the Adviser seeks to identify
attractive industries around the world. Such industries are expected to have
favorable underlying economics and allow companies to generate sustainable and
predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.
Within these industries the Adviser seeks to identify well-run companies that
enjoy a stable competitive advantage and are able to benefit from the favorable
dynamics of the industry. This stage includes analyzing the current and
expected financial performance of the company; contacting suppliers, customers
and competitors; and meeting with management. In particular, the portfolio
managers look for companies whose managers have a strong commitment to both
maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
- --------------------------
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap
B-6
<PAGE>
Value, Japanese Equity, International Small Cap, Emerging Markets Equity, Asia
Growth and Real Estate Securities Funds to dispose of a particular security when
necessary to meet their redemption requests or other liquidity needs. Under
adverse market or economic conditions, the secondary market for junk bonds could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Advisers could find it difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under such circumstances, may be less
than the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Japanese Equity,
International Small Cap, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds may invest, the yields and prices of such securities may tend
to fluctuate more than those for higher rated securities. In the lower quality
segments of the fixed-income securities market, changes in perceptions of
issuers' creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
- -----------------
A Fund's investments in fixed income securities may include zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The discount approximates the total amount of interest the bonds
would have accrued and compounded over the period until maturity. Zero coupon
bonds do not require the periodic payment of interest. Such investments benefit
the issuer by mitigating its need for cash to meet debt service but also require
a higher rate of return to attract investors who are willing to defer receipt of
such cash. Such investments may experience greater volatility in market value
than debt obligations which provide for regular payments of interest. In
addition, if an issuer of zero coupon bonds held by a Fund defaults, the Fund
may obtain no return at all on its investment. Each Fund will accrue income on
such investments for each taxable year which (net of deductible expenses, if
any) is distributable to shareholders and which, because no cash is generally
received at the time of accrual, may require the liquidation of other portfolio
securities to obtain sufficient cash to satisfy the Fund's distribution
obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
- -------------------------------------
The interest rates payable on certain fixed income securities in which a Fund
may invest are not fixed and may fluctuate based upon changes in market rates.
A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
B-7
<PAGE>
CUSTODIAL RECEIPTS
- ------------------
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
securities.
Municipal Securities
- --------------------
Balanced Fund may invest up to 5% of its net assets in municipal securities.
Municipal securities consist of bonds, notes and other instruments issued by or
on behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
tax. Municipal securities are often issued to obtain funds for various public
purposes. Municipal securities also include "private activity bonds" or
industrial development bonds, which are issued by or on behalf of public
authorities to obtain funds for privately operated facilities, such as airports
and waste disposal facilities, and, in some cases, commercial and industrial
facilities.
The yields and market values of municipal securities are determined primarily
by the general level of interest rates, the creditworthiness of the issuers of
municipal securities and economic and political conditions affecting such
issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
- --------------------------
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE Large
Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce yield to maturity and market
values. To the extent that a Fund invests in mortgage-backed securities, the
Advisers may seek to manage these potential risks by investing in a variety of
mortgage-backed securities and by using certain hedging techniques.
B-8
<PAGE>
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types of
guaranteed mortgage-backed securities currently available, including guaranteed
mortgage pass-through certificates and multiple class securities, which include
guaranteed Real Estate Mortgage Investment Conduit Certificates ("REMIC
Certificates"), collateralized mortgage obligations and stripped mortgage-backed
securities. A Fund is permitted to invest in other types of mortgage-backed
securities that may be available in the future to the extent consistent with its
investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate (whether or not received on the underlying loans). Freddie Mac also
guarantees to each registered Certificate holder ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal. The
obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are
obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity ,
CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government
B-9
<PAGE>
guaranteed and privately issued mortgage pass-through securities ("Mortgage
Pass-Throughs"); the is, fixed or adjustable rate mortgage-backed securities
which provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
--------
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
--------
when paid by the mortgagor in subsequent monthly payments or at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories: (i)
liquidity protection and (ii) protection against losses resulting from default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which
B-10
<PAGE>
generally declines over time) of all principal payments received during the
preceding prepayment period ("shifting interest credit enhancement"). This will
have the effect of accelerating the amortization of the senior certificates
while increasing the interest in the trust fund evidenced by the subordinate
certificates. Increasing the interest of the subordinate certificates relative
to that of the senior certificates is intended to preserve the availability of
the subordination provided by the subordinate certificates. In addition, because
the senior certificate-holders in a shifting interest credit enhancement
structure are entitled to receive a percentage of principal prepayments which is
greater than their proportionate interest in the trust fund, the rate of
principal prepayments on the mortgage loans will have an even greater effect on
the rate of principal payments and the amount of interest payments on, and the
yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior certificate-
holders to receive current distributions from the mortgage pool, a reserve fund
may be established relating to such certificates (the "Reserve Fund"). The
Reserve Fund may be created with an initial cash deposit by the originator or
servicer and augmented by the retention of distributions otherwise available to
the subordinate certificate-holders or by excess servicing fees until the
Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificate-holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate-holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificate-holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated pro rata among all
--------
certificate-holders in proportion to their respective outstanding interests in
the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments on
the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with respect
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
B-11
<PAGE>
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage- backed securities (the "Mortgage Assets").
The obligations of Fannie Mae or Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate Securities
Funds may invest in stripped mortgage-backed securities ("SMBS"), which are
derivative multiclass mortgage securities. Although the market for such
securities is increasingly liquid, certain SMBS may not be readily marketable
and will be considered illiquid for purposes of the Fund's limitation on
investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
B-12
<PAGE>
INVERSE FLOATING RATE SECURITIES
- --------------------------------
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
Asset-Backed Securities
- -----------------------
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans. A
Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity and CORE Large Cap Growth
Funds may only enter into such transactions with respect to the S&P 500 Index,
for the CORE U.S. Equity Fund and a representative index in the case of the CORE
Large Cap Growth Fund. The other Funds may purchase and sell futures contracts
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and other financial instruments and indices. Each
Fund will engage in futures and related options transactions, only for bona fide
hedging purposes as defined below or for purposes of seeking to increase total
return to the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC"). All futures contracts entered into by a Fund are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or
on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to
B-13
<PAGE>
deliver the final cash settlement price, in the case of a contract relating to
an index or otherwise not calling for physical delivery at the end of trading in
the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to establish
with more certainty than would otherwise be possible the effective price, rate
of return or currency exchange rate on portfolio securities or securities that a
Fund owns or proposes to acquire. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
(other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity
Funds) foreign currency rates that would adversely affect the dollar value of
such Fund's portfolio securities. Similarly, each Fund (other than CORE U.S.
Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may sell futures
contracts on a currency in which its portfolio securities are quoted or
denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If,
in the opinion of the applicable Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of a Fund's assets. By writing a
call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract if the option is exercised, which may have a value higher than
the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that a Fund intends to purchase. However, a Fund becomes
obligated to purchase a futures contract if the option is exercised, which may
have a value lower than the exercise price. Thus, the loss incurred by a Fund
in writing options on futures is potentially unlimited
B-14
<PAGE>
and may exceed the amount of the premium received. A Fund will incur transaction
costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and will
engage in related options transactions only for bona fide hedging as defined in
the regulations of the CFTC or to seek to increase total return to the extent
permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase. A Fund will engage in transactions in currency forward
contracts futures contracts and, for a Fund permitted to do so, related options
transactions only to the extent such transactions are consistent with the
requirements of the Code for maintaining its qualification as a regulated
investment company for federal income tax purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio positions
will be difficult to achieve because no futures contracts based on individual
equity or corporate fixed-income securities are currently available. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In
addition, it is not possible for a Fund to hedge fully or perfectly against
currency fluctuations affecting the value of securities quoted or denominated in
foreign currencies because the value of such securities is likely to fluctuate
as a result of independent factors not related to currency fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
- --------------------------------------------
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
B-15
<PAGE>
A put option written by a Fund would obligate such Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
Fund would be covered, which means that such Fund would have deposited with its
custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be covered
to the extent that the Fund's liabilities under such options are wholly or
partially offset by its rights under call and put options purchased by the Fund.
In addition, a written call option or put option may be covered by maintaining
cash or liquid assets (either of which may be quoted or denominated in any
currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE Large
Cap Growth Funds) may purchase put and call options on any securities in which
it may invest or options on any securities index composed of securities in which
it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest. The purchase
of a call option would entitle a Fund, in return for the premium paid, to
purchase specified securities at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or in securities
in which it may invest. The purchase of a put option would entitle a Fund, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of protective puts is designed to offset
or hedge against a decline in the market value of a Fund's securities. Put
options may also be purchased by a Fund for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. A
Fund would ordinarily realize a gain if, during the option period, the value of
the underlying securities decreased below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise such a Fund would
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the same
purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
B-16
<PAGE>
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, may enter into options on the yield "spread" or differential between two
securities. Such transactions are referred to as "yield curve" options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities, rather than the prices
of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Balanced Fund may purchase or write yield curve options for the same purposes
as other options on securities. For example, Balanced Fund may purchase a call
option on the yield spread between two securities if it owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the Balanced
Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded over-
the-counter, and because they have been only recently introduced, established
trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of
B-17
<PAGE>
trade or other trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate share
of any expenses paid by REITs in which it invests in addition to the expenses
paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE U.S. Equity, CORE Large Cap Growth, CORE Small
Cap Equity and CORE International Equity Funds have no present intention of
acquiring warrants or rights. Warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
FOREIGN SECURITIES
- ------------------
Investments in foreign securities may offer potential benefits not available
from investments solely in U.S. dollar-denominated or quoted securities of
domestic issuers. Such benefits may include the opportunity to invest in
foreign issuers that appear, in the opinion of the applicable Adviser, to offer
better opportunity for long-term growth of capital and income than investments
in U.S. securities, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that do not necessarily move in a manner parallel to U.S.
markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Japanese Equity, International Small Cap, Emerging Markets Equity and Asia
Growth Funds may be subject to currency exposure independent of their securities
positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of
B-18
<PAGE>
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds) may also invest in European Depository Receipts
("EDRs") or other similar instruments representing securities of foreign issuers
(together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges
or in the U.S. over-the-counter market and, generally, are in registered form.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in the non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
To the extent a Fund acquires Depository Receipts through banks which do not
have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) may invest in securities of issuers domiciled in a country other
than the country in whose currency the instrument is denominated or quoted. The
Funds may also invest in securities quoted or denominated in the European
Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of
the currencies of certain of the member states of the European Community. The
specific amounts of currencies comprising
B-19
<PAGE>
the ECU may be adjusted by the Council of Ministers of the European Community
from time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities quoted or
denominated in other currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International Equity,
International Equity, International Small Cap, Asia Growth and Emerging Markets
Equity Funds are intended for long-term investors who can accept the risks
associated with investing primarily in equity and equity-related securities of
foreign issuers, including Emerging Countries issuers (in the case of
International Small Cap, Emerging Markets Equity and International Equity Funds)
and Asian Companies (as defined in the Prospectus) (in the case of Asia Growth
Fund), as well as the risks associated with investments quoted or denominated in
foreign currencies. Balanced, Growth and Income, CORE International Equity,
Small Cap Value, Mid Cap Equity and Capital Growth Funds may invest, to a lesser
extent, in equity and equity-related securities of foreign issuers; including
Emerging Countries issuers. In addition, certain of Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Fund's
potential investment and management techniques entail special risks. Asia
Growth Fund concentrates on companies that the Advisers believe are taking full
advantage of the region's growth and that have the potential for long-term
capital appreciation. The Advisers believe that Asia offers an attractive
investment environment and that new opportunities will continue to emerge in the
years ahead.
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian countries
is restricted or controlled to varying degrees. These restrictions may limit a
Fund's investment in certain of the Asian countries and may increase the
expenses of the Fund. Certain Emerging Countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, International Small Cap, Emerging Markets
B-20
<PAGE>
Equity and Asia Growth Funds. A Fund may be required to establish special
custodial or other arrangements before investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and most Western European countries. Such instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which the Funds may invest and adversely affect
the value of the Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
INVESTING IN JAPAN. The Japanese Equity Fund Invests in Japan's economy, the
second-largest in the world, has grown substantially over the last three
decades. The boom in Japan's equity and property markets during the expansion
of the late 1980's supported high rates of investment and consumer spending on
durable goods, but both of these components of demand have now retreated sharply
following the decline in asset prices. Profits have fallen sharply,
unemployment has reached a historical high and consumer confidence is low. The
banking sector continues to suffer from non-performing loans. Numerous
discount-rate cuts since its peak in 1991, a succession of fiscal stimulus
packages, support plans for the debt-burdened financial system ad spending for
reconstruction following the Kobe earthquake may help to contain the
recessionary forces, but substantial uncertainties remain.
In addition to the cyclical downturn, Japan is suffering through structural
adjustments. Like the Europeans, the Japanese have seen a deterioration of
their competitiveness due to high wages, a strong currency and structural
rigidities. Finally, Japan is reforming its political process and deregulating
its economy. This has brought about turmoil, uncertainty and a crisis of
confidence.
While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason
for anticipating civic unrest, it is impossible to know when the political
instability will end and what trade and fiscal policies might be pursued by the
government that emerges.
Japan's heavy dependence on international trade has been adversely affected by
trade tariffs and other protectionist measures as well as the economic condition
of its trading partners. While Japan subsidizes its agricultural industry, only
19% of its land is suitable for cultivation and it is only 50% self-sufficient
in food production. Accordingly, it is highly dependent on large imports of
wheat, sorghum and
B-21
<PAGE>
soybeans. In addition, industry, its most important economic sector, depends
on imported raw materials and fuels, including iron ore, copper, oil and many
forest products. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, have caused trade tensions, particularly with the
United States. Some trade agreements, however, have been implemented to reduce
these tensions. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. A substantial rise in world oil or commodity prices
could also have a negative affect. The strength of the yen itself may prove an
impediment to strong continued exports and economic recovery, because it makes
Japanese goods sold in other countries more expensive and reduces the value of
foreign earnings repatriated to Japan. Because the Japanese economy is so
dependent on exports, any fall-off in exports may be seen as a sign of economic
weakness, which may adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's
economy.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may enter into forward foreign currency
exchange contracts for hedging purposes and to seek to increase total return. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are generally charged at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated or quoted in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on such a security which it holds, the Fund may desire to "lock in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, the Fund will attempt to
protect itself against an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date on
which the security is purchased or sold, or on which the dividend or interest
payment is declared, and the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia
B-22
<PAGE>
Growth Funds may also purchase and sell forward contracts to seek to increase
total return when GSAM or GSAMI anticipates that the foreign currency will
appreciate or depreciate in value, but securities quoted or denominated in that
currency do not present attractive investment opportunities and are not held in
the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated account
of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds forward contracts
entered into to seek to increase total return. If the value of the securities
placed in the segregated account declines, additional cash or liquid assets will
be placed in the account on a daily basis so that the value of the account will
equal the amount of a Fund's commitments with respect to such contracts. The
segregated account will be marked-to-market on a daily basis. Although the
contracts are not presently regulated by the CFTC, the CFTC may in the future
assert authority to regulate these contracts. In such event, a Fund's ability
to utilize forward foreign currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less protection
against defaults than is available when trading in currency instruments on an
exchange. Since a forward foreign currency exchange contract is not guaranteed
by an exchange or clearinghouse, a default on the contract would deprive a Fund
of unrealized profits or force the Fund to cover its commitments for purchase or
resale, if any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except CORE
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may write
covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to hedge against changes in exchange rates for a different
currency with a pattern of correlation. In addition, Balanced, International
Equity, Japanese Equity, International Small Cap, Emerging Markets Equity and
Asia Growth Funds may purchase call options on currency to seek to increase
total return when the Adviser anticipates that the currency will appreciate in
value, but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency to
the holder of the option at a specified price if the option is exercised at any
time before the expiration date. A put option written by a Fund would obligate
a Fund to purchase specified currency from the option holder at a specified
price if the option is exercised at any time before the expiration date. The
writing of currency options involves a risk that a Fund will, upon exercise of
the option, be required to sell currency subject to a call at a price that is
less than the currency's market value or be required to purchase currency
subject to a put at a price that exceeds the currency's market value. For a
description of how to cover written put and call options, see "Written Covered
Options" above.
B-23
<PAGE>
A Fund may terminate its obligations under a call or put option by purchasing
an option identical to the one it has written. Such purchases are referred to
as "closing purchase transactions." A Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in the
U.S. dollar value of currency in which securities in its portfolio are quoted or
denominated ("protective puts"). The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified currency at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds may use
options on currency to seek to increase total return. Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds may write (sell) covered put
and call options on any currency in order to realize greater income than would
be realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity and Asia Growth Funds may forego the opportunity to profit from an
increase in the market value of the underlying currency. Also, when writing put
options, Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
accept, in return for the option premium, the risk that they may be required to
purchase the underlying currency at a price in excess of the currency's market
value at the time of purchase.
Balanced, CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds would
normally purchase call options to seek to increase total return in anticipation
of an increase in the market value of a currency. Balanced, CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity and Asia Growth Funds would realize either no gain
or a loss on the purchase of the call option. Put options may be purchased by a
Fund for the purpose of benefiting from a decline in the value of currencies
which it does not own. A Fund would ordinarily realize a gain if, during the
option period, the value of the underlying currency decreased below the exercise
price sufficiently to more than cover the premium and transaction costs.
Otherwise the Fund would realize either no gain or a loss on the purchase of the
put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded options
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to
B-24
<PAGE>
sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
- --------------------------------------------------------------------------
FLOORS AND COLLARS
- ------------------
The Balanced, CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may, with respect to up to 5% of their net assets, enter into currency swaps for
both hedging purposes and to seek to increase total return. In addition, the
Balanced and Real Estate Securities Funds may, with respect to 5% of its net
assets, enter into mortgage, index and interest rate swaps and other interest
rate swap arrangements such as rate caps, floors and collars, for hedging
purposes or to seek to increase total return. Currency swaps involve the
exchange by a Fund with another party of their respective rights to make or
receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by a Fund with another party of the respective amounts
payable with respect to a notional principal amount at interest rates equal to
two specified indices. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The investment advisers,
B-25
<PAGE>
under the supervision of the Board of Trustees, are responsible for determining
and monitoring the liquidity of the Funds' transactions in swaps, caps, floors
and collars.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Each Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents or
U.S. Government securities maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A Fund would be required to
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. For the duration of a loan, a Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from investment of the collateral. A
Fund would not have the right to vote any securities having voting rights during
the existence of the loan, but a Fund would call the loan in anticipation of an
important vote to be taken among holders of the securities or the giving or
withholding of their consent on a material matter affecting the investment. As
with other extensions of credit there are risks of delay in recovering, or even
loss of rights in, the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by the
Advisers to be of good standing, and when, in the judgment of the Advisers, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Advisers determine to make securities
loans, it is intended that the value of the securities loaned would not exceed
one-third of the value of the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund 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 Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
- ----------------------------------
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
OTHER INVESTMENT COMPANIES
- --------------------------
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory
B-26
<PAGE>
and administration fees payable by the Fund to an Adviser will be reduced by an
amount equal to the Fund's proportionate share of the advisory and
administration fees paid by such money market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit investment
trust ("UIT") that may be obtained from the UIT or purchased in the secondary
market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in exchange
for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may also purchase shares of investment companies investing
primarily in foreign securities, including "country funds." Country funds have
portfolios consisting primarily of securities of issuers located in one foreign
country or region. Each Fund (other than CORE U.S. Equity, CORE Large Cap
Growth and CORE Small Cap Equity Funds) may invest in World Equity Benchmark
Shares ("WEBS") and similar securities that invest in securities included in
foreign securities indices.
REPURCHASE AGREEMENTS
- ---------------------
Each Fund may enter into repurchase agreements with selected broker-dealers,
banks or other financial institutions. A repurchase agreement is an arrangement
under which a Fund purchases securities and the seller agrees to repurchase the
securities within a particular time and at a specified price. Custody of the
securities is maintained by a Fund's custodian. The repurchase price may be
higher than the purchase price, the difference being income to a Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to a Fund together with the repurchase price on repurchase. In either case,
the income to a Fund is unrelated to the interest rate on the security subject
to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase agreement
is deemed to be a loan from a Fund to the seller of the security. For other
purposes, it is not clear whether a court would consider the security purchased
by a Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of commencement of
bankruptcy or insolvency proceedings with respect to the seller of the security
before repurchase of the security under a repurchase agreement, a Fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If
the court characterizes the transaction as a loan and a Fund has not perfected
a security interest in the security, a Fund may be required to return the
security to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers seek
to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase
B-27
<PAGE>
agreement becomes less than the repurchase price (including accrued interest), a
Fund will direct the seller of the security to deliver additional securities so
that the market value of all securities subject to the repurchase agreement
equals or exceeds the repurchase price. Certain repurchase agreements which
provide for settlement in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
A Fund may not:
(1) make any investment inconsistent with the Fund'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 Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
B-28
<PAGE>
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund 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 objective, restrictions
and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-29
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth
below. Trustees and officers deemed to be "interested persons" of the Trust for
purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Ashok N. Bakhru, 54 Chairman Executive Vice President - Finance and
1325 Ave. of the Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN Associates
(June 1994 through march 1996); Senior Vice
President of Scott Paper Company (until June
1994); 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, 52 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management (since
December 1994).
*Douglas C. Grip, 36 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc. of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994 and
New York, NY 10004 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 61 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr., Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst
College (since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the Spenser
Foundation (since 1993); and member of PNC
Advisory Board (since 1993).
*Alan A. Shuch, 49 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs Funds
New York, NY 10004 Management Inc. (from April 1990 to November
1994); President and Chief Operating Officer, GSAM
(from September 1988 to November 1994).
</TABLE>
B-30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
Jackson W. Smart, 67 Trustee Chairman, Executive Committee, First Commonwealth,
One Northfield Plaza #218 Inc. (a managed dental care company, since January
Northfield, IL 60093 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 (a venture capital
fund).
William H. Springer, 68 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company); Director, Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management
investment company) (April 1992 to present).
Richard P. Strubel, 58 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St., Suite 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening system and connectors) (January 1984 to
October 1994).
*Scott M. Gilman, 38 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice
President, Goldman Sachs (since March 1990).
*John M. Perlowski, 33 Assistant Treasurer Vice President, Goldman Sachs (since July 1995);
One New York Plaza Director, Investors Bank and Trust (November 1993
New York, NY 10004 to July 1995); Audit manager of Arthur Andersen
LLP (prior thereto).
*John W. Mosior, 59 Vice President Vice President, Goldman Sachs and Manager of
4900 Sears Tower Shareholder Servicing of GSAM (since November
Chicago, IL 60606 1989).
*Nancy L. Mucker, 48 Vice President Vice President, Goldman Sachs (since April 1985);
4900 Sears Tower Manager of Shareholder Servicing of GSAM since
Chicago, IL 60606 November 1989).
</TABLE>
B-31
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
<S> <C> <C>
James A. Fitzpatrick, 33 Vice President Vice President of Goldman Sachs Asset Management
4900 Sears Tower (since April 1997); Vice President and General
Chicago, IL 60606 Manager, First Data Corporation - Investor
Services Group (prior thereto).
*Michael J. Richman, 37 Secretary Associate General Counsel of the Mutual Funds
85 Broad Street Group of Goldman Sachs Asset Management (since
New York, NY 10004 December 1997); Associate General Counsel of
Goldman Sachs Asset Management (February 1994 to
December 1997). Vice President and Assistant
General Counsel of Goldman Sachs (since June
1992); Counsel to the Funds Group, GSAM (since
1992); Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 32 Assistant Secretary Assistant General Counsel, Goldman Sachs Asset
85 Broad Street Management and Associate General Counsel to the
New York, NY 10004 Funds Group (since December 1997); Assistant
General Counsel and Vice President, Goldman Sachs
(since November 1993 and May 1994, respectively);
Associate of Shereff, Friedman, Hoffman & Goodman
(prior thereto).
*Valerie A. Zondorak,32 Assistant Secretary Vice President, Goldman Sachs (since March 1997);
85 Broad Street Assistant General Counsel, Goldman Sachs Asset
New York, NY 10004 Management and Assistant General Counsel to the
Funds Group (since December, 1997), Associate of
Shereff, Friedman, Hoffman, & Goodman (prior
thereto).
*Steven E. Hartstein, 34 Assistant Secretary Legal Products Analyst, Goldman Sachs (June 1993
85 Broad Street to present); Funds Compliance Officer, Citibank
New York, NY 10004 Global Asset Management (August 1991 to June 1993).
*Deborah Farrell, 26 Assistant Secretary Administrative Assistant, Goldman Sachs (January
85 Broad Street 1996 to present); Secretary, Goldman Sachs
New York, NY 10004 (January 1994 to January 1996); Secretary, Cleary,
Gottlieb, Steen and Hamilton (September 1990 to
January 1994).
*Kaysie P. Uniacke, 37 Assistant Secretary Managing Director (since November 1997); Vice
One New York Plaza President and Senior Portfolio Manager, Goldman
New York, NY 10004 Sachs Asset Management (1988 to present).
*Elizabeth D. Anderson, 28 Assistant Secretary Portfolio Manager, GSAM (April 1996 to present);
One New York Plaza Junior Portfolio Manager, Goldman Sachs Asset
New York, NY 10004 Management (1995 to April 1996); Funds Trading
Assistant, GSAM (1993 - 1995); Compliance Analyst,
Prudential Insurance (1991 through 1993).
</TABLE>
As of February1, 1998, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
B-32
<PAGE>
The Trust pays each Trustee, 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.
B-33
<PAGE>
[TO BE UPDATED]
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1998:
<TABLE>
<CAPTION>
Aggregate Compensation Pension or Retirement Benefits Total Compensation from Goldman Sachs
Name of Trustee from the Funds** Accrued as Part of Funds' Expenses Mutual Funds (including the Funds)*
--------------- ---------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Ashok N. Bakhru _________ 0 __________
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPhearson 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart _________ 0 __________
William H. Springer _________ 0 __________
Richard P. Strubel _________ 0 __________
</TABLE>
______________
* The Goldman Sachs Funds consisted of __ mutual funds on January 31,
1998.
** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-34
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Japanese Equity, International
Small Cap, Emerging Markets Equity and Asia Growth Funds. See "Management" in
the Funds' Prospectus for a description of the applicable Adviser's duties to
the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds), the Advisers will have access to the
Global Asset Allocation Model. The model is based on the observation that the
prices of all financial assets, including foreign currencies, will adjust until
investors globally are comfortable holding the pool of outstanding assets.
Using the model, the Advisers will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
B-35
<PAGE>
The Japanese Equity and International Small Cap Funds' management agreement
were initially approved by the Trustees, including a majority of the non-
interested Trustees (as defined below) who are not parties to the management
agreement on January 28, 1998. The CORE Small Cap Equity, CORE International
Equity and Real Estate Securities Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on July 22,
1997. The CORE Large Cap Growth and Emerging Markets Equity Funds management
agreements were initially approved by the Trustees, including a majority of the
non-interested Trustees (as defined below) who are not parties to the management
agreement, on April 23, 1997. The other Funds' management agreements were most
recently approved by the Trustees, including a majority of the Trustees who are
not parties to the management agreement or "interested persons" (as such term is
defined in the Act) of any party thereto (the "non-interested Trustees"), on
April 30, 1997. These arrangements were most recently approved by the
shareholders of each Fund (other than CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity, Real Estate Securities, Japanese Equity,
International Small Cap and Emerging Markets Equity Funds) on April 21, 1997.
The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. The sole shareholder of the Japanese Equity and the International
Small Cap Funds approved these arrangements on _______, 1998. Each management
agreement will remain in effect until June 30, 1998 from year to year
thereafter provided such continuance is specifically approved at least annually
by (a) the vote of a majority of the outstanding voting securities of such Fund
or a majority of the Trustees, and (b) the vote of a majority of the non-
interested Trustees, cast in person at a meeting called for the purpose of
voting on such approval. Each management agreement will terminate automatically
if assigned (as defined in the Act) and is terminable at any time without
penalty by the Trustees or by vote of a majority of the outstanding voting
securities of the affected Fund on 60 days' written notice to the Adviser and by
the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Japanese Equity Fund 0.90% 1.00%
International Small Cap Fund 1.10% 1.20%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
B-36
<PAGE>
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ $ 402,183 $ 193,041
Growth and Income Fund 3,541,318 2,225,553
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 8,697,265 9,335,745
Mid Cap Equity Fund 964,945 489,043
International Equity Fund 4,124,076/3/ 2,794,872/2/
Small Cap Value Fund 2,130,703 2,908,839
Japanese Equity Fund/4/ N/A N/A N/A
International Small Cap Fund/4/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/
Real Estate Securities Fund/4/ N/A N/A N/A
</TABLE>
- ----------------------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, December 15, 1997.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of the
CORE U.S. Equity, International Equity and Asia Growth Fund's average daily
net assets. For the fiscal year ended January 31, 1996, had limitations not
been in effect, CORE U.S. Equity Fund would have paid $1,019,639 in
investment management fees. For the fiscal year ended January 31, 1997, had
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees. For the fiscal year ended
January 31, 1998, had limitation not been in effect __________ Funds would
have paid ___________ respectively, in investment management fees.
4 Not Operational.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
B-37
<PAGE>
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Advisers will have access to such information for the purpose of managing the
Funds. The proprietary activities or portfolio strategies of Goldman Sachs and
its affiliates or the activities or strategies used for accounts managed by them
or other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
B-38
<PAGE>
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund 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 a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal year
ended January 31, 1996. No Class C Shares were outstanding during the fiscal
years ended January 31, 1996 and 1997.
B-39
<PAGE>
Goldman Sachs retained the following commissions on sales of Class A, Class
B and Class C Shares during the following periods:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000
Growth and Income Fund 555,000 771,000
CORE U.S. Equity Fund 380,000 108,000
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 323,000 523,000
International Equity Fund 1,563,000 211,000
Small Cap Value Fund 219,000 202,000
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Market Equity Fund/1/ N/A N/A
Asia Growth Fund 1,397,000 507,000
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, and Emerging Markets Equity Funds commenced operations on May 1,
1997, August 15, 1997, August 15, 1997, and December 15, 1997,
respectively.
2 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A, B & C Class A & B Class A
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067
Growth and Income Fund 870,527 542,671
CORE U.S. Equity Fund 319,246 103,682
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund 908,310 549,844
International Equity Fund 586,243 129,313
Small Cap Value Fund 511,883 254,292
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 385,114 192,097
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Institutional Shares Service Shares Institutional Shares
1998 1997 1998 1997 1996
==== ==== ==== ==== ====
<S> <C> <C> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/3/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity N/A N/A N/A
Fund/1/
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/1/ 51,464 N/A 26,082
International Equity Fund/3/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/3/ N/A N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not Operational.
3 Contractually set to 0.
The Trust's distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit certain
"Other Expenses" (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses (and transfer agency fees in the case of each
Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity and Mid Cap Equity Funds) for the following funds to the
extent such expenses exceed the following percentage of average daily net
assets:
B-41
<PAGE>
<TABLE>
<CAPTION>
Other
Expenses
--------
<S> <C>
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Japanese Equity Fund 0.10%
International Small Cap Fund 0.30%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
</TABLE>
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
==== ==== ====
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405
Growth and Income Fund 0 0
CORE U.S. Equity Fund 104,833 110,581
CORE Large Cap Growth Fund/1/ N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A
CORE International Equity Fund/1/ N/A N/A
Capital Growth Fund N/A N/A
Mid Cap Equity Fund 72,441 85,515
International Equity Fund 144,265 N/A
Small Cap Value Fund N/A N/A
Japanese Equity Fund/2/ N/A N/A N/A
International Small Cap Fund/2/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A
Asia Growth Fund 50,407 0
Real Estate Securities Fund/2/ N/A N/A
</TABLE>
- ---------------
1 The CORE Large Cap Growth, Core Small Cap Equity, CORE International Equity,
Emerging Markets Equity Funds commenced operations on May 1, 1997, August 15,
1997, August 15, 1997, and December 15, 1997 respectively.
2 Not operational.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
B-42
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
_____________, independent public accountants, 225 Franklin Street, Boston,
Massachusetts 02110, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased
B-43
<PAGE>
or sold, as well as the expenses incurred in the transaction, will be made by
the applicable Adviser in the manner it considers to be equitable and consistent
with its fiduciary obligations to such Fund and such other customers. In some
instances, this procedure may adversely affect the price and size of the
position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-44
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1998:
Balanced Fund
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
CORE International Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
International Equity Fund
Small Cap Value Fund
Emerging Markets Equity Fund
Asia Growth Fund
Real Estate Securities Fund
</TABLE>
B-45
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ================= ===========
Fiscal Year Ended
January 31, 1997:
<S> <C> <C> <C> <C>
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
B-46
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
==== ======= ==== ========
Fiscal Year Ended
January 31, 1996:
<S> <C> <C> <C> <C>
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/3/ N/A N/A N/A N/A
CORE International Equity Fund/3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-47
<PAGE>
During the fiscal year ended January 31, 1998, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1998, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
[TO BE UPDATED]
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Balanced Fund
Growth and Income Fund
Core US Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
Small Cap Value Fund
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith the
fair value of securities of each Fund. In accordance with procedures adopted by
the Trustees, the net value per share of each class of each Fund is calculated
by determining the value of the net assets attributable to each class of that
Fund and dividing by the number of outstanding shares of that class. All
securities are valued as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time) on each Business Day (as defined in
the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") will be valued at the last sale price on the
exchange or system in which they are principally traded, on the valuation date.
If there is no sale on the valuation day, securities traded principally: (i) on
a U.S. exchange or NASDAQ will be valued at the mean between the closing bid and
asked prices; and (ii) on a foreign exchange will be valued at the last sale
price (also referred to as the close price). The last sale price for securities
traded principally on a foreign exchange will be determined as of the close of
the London Stock Exchange or, for securities traded on exchanges located in the
Asia Pacific region, noon London time; (b) debt securities will be valued using
a pricing service approved by the Trustees if such prices are believed by the
investment adviser to accurately represent market value; (c) overnight
repurchase agreements will be valued by the investment adviser at cost; (d) term
repurchase agreements (i.e., those whose maturity exceeds seven days) and
interest rate
B-48
<PAGE>
swaps, caps, collars and floors will be valued at the average of the bid
quotations obtained daily from at least two dealers or, for term repurchase
agreements, recognized counterparties; (e) debt securities with a remaining
maturity of 60 days or less are valued by the investment adviser at amortized
cost, which the Trustees have determined to approximate fair value; (e) spot and
forward foreign currency exchange contracts will be valued using a pricing
service such as Reuters then calculating the mean between the last bid and asked
quotations supplied by certain independent dealers in such contracts; (g)
exchange-traded options and futures contracts will be valued by the custodian
bank at the last sale price on the exchange where such contracts and options are
principally traded; and (h) over-the-counter options will be valued by an
independent unaffiliated broker identified by the portfolio manager/trader and
contacted by the custodian bank; and (i) all other securities, including those
for which a pricing service supplies no exchange quotation or a quotation that
is believed by the portfolio manager/trader to be inaccurate; will be valued at
fair value as stated in the valuation procedures which were approved by the
Board of Trustees. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation. If accurate quotations are
not readily available, such contracts will be valued by an independent
unaffiliated broker identified by the portfolio manager/trader and contacted by
the custodian bank. If broker quotes are used, the portfolio manager/trader will
identify one independent unaffiliated broker from whom the custodian bank will
obtain prices daily and another independent unaffiliated broker from whom the
custodian bank will obtain quotes at least weekly. The custodian bank will
promptly notify the portfolio manager/trader and a member of the GSAM Valuation
Committee or a designee thereof of any deviations equal to or greater than 3%
between the weekly quote and the daily quotes for the date that the weekly
quotes were obtained. The investment adviser will promptly provide instructions
to the custodian bank. For all brokers used in this process, the custodian bank
will send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust from the
issue or sale of its shares, 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 Fund and constitute the underlying assets
of that Fund or series. The underlying assets of each Fund will be segregated
on the books of account, and will be charged with the liabilities in respect of
such Fund and with a share of the general liabilities of the Trust. Expenses of
the Trust with respect to the Funds and the other series of the Trust are
generally allocated in proportion to the net asset values of the respective
Funds or series except where allocations of direct expenses can otherwise be
fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return, yield and/or
distribution rate information in advertisements, shareholder reports or sales
literature. Average annual total return and yield are computed pursuant to
formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
B-49
<PAGE>
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by calculating
the actual dollar amount of the investment return on a $1,000 investment made at
the maximum public offering price at the beginning of the period, and then
calculating the annual compounded rate of return which would produce that
amount, assuming a redemption at the end of the period. This calculation
assumes a complete redemption of the investment. It also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified period
are each derived by calculating the percentage rate required to make a $1,000
investment (made at the maximum public offering price with all distributions
reinvested) at the beginning of such period equal to the actual total value of
such investment at the end of such period. The following table indicates the
total return (capital changes plus reinvestment of all distributions) on a
hypothetical investment of $1,000 in a Fund for the periods indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta of
more than 1.00 indicates volatility greater than the market, and a beta of less
than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, 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
Fund's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) Donoghues' Money Fund Report (which provides industry averages for 7-day
annualized and compounded yields of taxable, tax-free and U.S. Government money
funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the NASDAQ OTC
Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell 2000
Index -Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the Value-
Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-Actuaries
Europe and Pacific Index, and (s) historical investment data supplied by the
research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
B-50
<PAGE>
Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to
B-51
<PAGE>
Class A Shares (the class into which the separate account transferred) to
reflect the expenses expected to be incurred by the Fund as stated in the
expense table in the Prospectus. These expenses include any sales charges and
asset-based charges (i.e., fees under Distribution and Authorized Dealer Service
Plans) imposed and other operating expenses. Total return quotations will be
calculated pursuant to SEC approved methodology. Prior to May 1, 1997, the
separate account was a separate investment advisory account under discretionary
management by the Adviser and had substantially similar investment objectives,
policies and strategies as the Fund. Unlike the Fund, the separate account was
not registered as an investment company under the Act and therefore was not
subject to certain investment restrictions and operational requirements that are
imposed on investment companies by the Act. If the separate account had been
registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account (based on
Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-52
<PAGE>
INTRODUCTION
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund A 10/12/94-1/31/98 - Since inception
Balanced Fund A 2/1/97-1/31/98 - One year
Balanced Fund B 5/1/96-1/31/97 - Since inception
Balanced Fund B 2/1/97-1/31/98 - One year
Balanced Fund C 8/15/97-1/31/98 - Since inception*
Balanced Fund Institutional 8/15/97-1/31/98 - Since inception*
Balanced Fund Service 10/24/94-1/31/98 - Since inception
Balanced Fund Service 2/1/97-1/31/98 - One year
Growth and Income A 2/5/93-1/31/98 - Since inception
Growth and Income A 2/1/97-1/31/98 - One year
Growth and Income B 5/1/96-1/31/98 - Since inception
Growth and Income B 2/1/97-1/31/98 - One year
Growth and Income C 8/15/97-1/31/98 - Since inception*
Growth and Income Institutional 6/3/96-1/31/98 - Since inception
Growth and Income Institutional 2/1/97-1/31/98 - One year
Growth and Income Service 3/6/96-1/31/98 - Since inception
Growth and Income Service 2/1/97-1/31/98 - One year
CORE U.S. Equity A 5/24/91-1/31/98 - Since inception
CORE U.S. Equity A 2/1/93-1/31/98 - Five year
CORE U.S. Equity A 2/1/97-1/31/98 - One year
CORE U.S. Equity B 5/1/96-1/31/98 - Since inception
CORE U.S. Equity B 2/1/97-1/31/98 - One year
CORE U.S. Equity C 8/15/97-1/31/98 - Since inception*
CORE U.S. Equity Institutional 6/15/95-1/31/98 - Since inception
CORE U.S. Equity Institutional 2/1/97-1/31/98 - One year
CORE U.S. Equity Service 6/7/96-1/31/98 - Since inception
CORE U.S. Equity Service 2/1/97-1/31/98 - One year
CORE Large Cap Growth A 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth A 2/1/93-1/31/98 - Five year
CORE Large Cap Growth A 2/1/97-1/31/98 - One year
CORE Large Cap Growth B 5/1/97-1/31/98 - Since inception*
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Assuming no
voluntary
waiver of fees and
no expense
reimbursements
--------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sale
Fund Class Time Period charge charge charge charge
- ---- ----- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CORE Large Cap Growth C 8/15/97-1/31/98 - Since inception*
CORE Large Cap Growth Institutional 11/1/91-1/31/98 - Since inception
CORE Large Cap Growth Institutional 2/1/93-1/31/98 - Five year
CORE Large Cap Growth Institutional 2/1/97-1/31/98 - One year
CORE Large Cap Growth Service 5/1/97-1/31/98 - Since inception*
Capital Growth A 4/20/90-1/31/98 - Since inception
Capital Growth A 2/1/93-1/31/98 - Five year
Capital Growth A 2/1/97-1/31/98 - One year
Capital Growth B 5/1/96-1/31/98 - Since inception
Capital Growth B 2/1/97-1/31/98 - One year
Capital Growth C 8/15/97-1/31/98 - Since inception*
Capital Growth Institutional 8/15/97-1/31/98 - Since inception*
Capital Growth Service 4/20/90-1/31/98 - Since inception
Capital Growth Service 2/1/93-1/31/98 - Five year
Capital Growth Service 2/1/97-1/31/98 - One year
Mid Cap Equity A 8/15/97-1/31/98 - Since inception*
Mid Cap Equity B 8/15/97-1/31/98 - Since inception*
Mid Cap Equity C 8/15/97-1/31/98 - Since inception*
Mid Cap Equity Institutional 8/1/95-1/31/98 - Since inception
Mid Cap Equity Institutional 2/1/97-1/31/98 - One year
Mid Cap Equity Service 8/15/97-1/31/98 - Since inception
International Equity A 12/1/92-1/31/98 - Since inception
International Equity A 2/1/93-1/31/98 - Five year
International Equity A 2/1/97-1/31/98 - One year
International Equity B 5/1/96-1/31/98 - Since inception
International Equity B 2/1/97-1/31/98 - One year
International Equity C 8/15/97-1/31/98 - Since inception*
International Equity Institutional 2/7/96-1/31/98 - Since inception
International Equity Institutional 2/1/97-1/31/98 - One year
</TABLE>
B-54
<PAGE>
<TABLE>
<S> <C> <C>
International Equity Service 3/6/96-1/31/98 - Since inception
International Equity Service 2/1/97-1/31/98 - One year
Small Cap Value A 10/22/92-1/31/98 - Since inception
Small Cap Value A 2/1/93-1/31/98 - Five year
Small Cap Value A 2/1/97-1/31/98 - One year
Small Cap Value B 5/1/96-1/31/98 - Since inception
Small Cap Value B 2/1/97-1/31/98 - One year
Small Cap Value C 8/15/97-1/31/98 - Since inception*
Small Cap Value Institutional 8/15/97-1/31/98 - Since inception*
Small Cap Value Service 10/22/92-1/31/98 - Since inception*
Small Cap Value Service 2/1/93-1/31/98 - Five year
Small Cap Value Service 2/1/97-1/31/98 - One year
Asia Growth A 7/8/94-1/31/98 - Since inception
Asia Growth A 2/1/97-1/31/98 - One year
Asia Growth B 5/1/96-1/31/98 - Since inception
Asia Growth B 2/1/97-1/31/98 - One year
Asia Growth C 8/15/97-1/31/98 - Since inception*
Asia Growth Institutional 2/2/96-1/31/98 - Since inception
Asia Growth Institutional 2/1/97-1/31/98 - One year
Asia Growth Service 7/8/94-1/31/98 - Since inception
Asia Growth Service 2/1/97-1/31/98 - One year
</TABLE>
__________________________
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
B-55
<PAGE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in the Fund. Such
advertisements or information may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail in the
communication.
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 asset allocation.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other materials
which highlight or summarize the services provided in support of an asset
allocation program.
A Fund's performance data will be based on historical results and will not be
intended to indicate future performance. A Fund's total return and yield will
vary based on market conditions, portfolio expenses, portfolio investments and
other factors. The value of a Fund's shares will fluctuate and an investor's
shares may be worth more or less than their original cost upon redemption. The
Trust may also, at its discretion, from time to time make a list of a Fund's
holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds except the CORE International Equity, CORE Small Cap Equity, CORE
Large Cap Growth, Japanese Equity and International Small Cap were reorganized
from series of a Maryland corporation 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 shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated to such class or series. The Trustees
also have authority to classify and reclassify any series of shares into one or
more classes of shares. As of the date of this Additional Statement, the
Trustees have classified the shares of the Funds into five classes:
Institutional Shares, Service Shares, Class A Shares, Class B Shares and Class C
Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales charge for
accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration
B-56
<PAGE>
fees at the annual rate of up to 0.50% of the average daily net assets of the
Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%, through
brokers and dealers who are members of the National Association of Securities
Dealers, Inc. and certain other financial service firms that have sales
agreements with Goldman Sachs. Class A Shares bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. Class A Shares also bear the cost of an
Authorized Dealer Service Plan at an annual rate of up to 0.25% of the average
daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 5.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class B Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class B Shares. Class B Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred sales
charge of up to 1.0% through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. Class C Shares bear the
cost of distribution (Rule 12b-1) fees at the aggregate rate of up to 0.75% of
the average daily net assets attributable to Class C Shares. Class C Shares
also bear the cost of an Authorized Dealer Service Plan at an annual rate of up
to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares, Class B Shares
and Class C Shares) to its customers and thus receive different compensation
with respect to different classes of shares of each Fund. Dividends paid by
each Fund, if any with respect to each class of shares will be calculated in the
same manner, at the same time on the same day and will be the same amount,
except for differences caused by the differences in expenses discussed above.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of February 1, 1998 State Street Bank & Trust Company as Trustee (GS Profit
Sharing Master Trust), P.O. Box 1992, Boston, MA 02105, was recordholder of
59.3% of Mid Cap Equity Fund's outstanding shares; Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 27.9% CORE Large Cap Growth Fund's outstanding
shares; State Street Bank and Trust Company as Trustee for Goldman Sachs Profit
Sharing Master Trust, P.O. Box 1992, Boston, MA 02105-1992 was recordholder of
13.4% and Marine Midland Bank as Trustee for Mark IV Ind. & Subs Employees
Retirement Income Fund, P.O. Box 1329, Attention: Mutual Fund Processing,
Buffalo, NY 14240-1329 was recordholder of 6.2% of CORE U.S. Equity Fund's
outstanding shares; The Goldman Sachs Group LP Seed Account, 85 Broad Street,
New York, New York 10004, was recordholder of 15.7% of CORE Small Cap Equity
Funds outstanding shares; Goldman Sachs CORE International Omnibus A/C - Growth
& Income Strategy, 4900 Sears Tower, Chicago, IL 60606, was recordholder of
14.9%, Goldman Sachs CORE International Omnibus A/C - Growth Strategy, 4900
Sears Tower, Chicago, IL 60606, was recordholder of 12.8% and Goldman Sachs
Group LP Seed Account, 85 Broad Street, New York, New York 10004 was
recordholder of 29.9% of CORE International Equity Fund's outstanding shares.
State Street Bank & Trust Company as Trustee (FBO Goldman Sachs Employee Pension
Plan) 200 Newport Ave., N. Quincy, MA 02170 was recordholder of 6.47% of Asia
Growth Fund's outstanding shares; BJ McCloskey, WR Jordan, RL Brandstein
Trustees McCloskey Trust, P.O. Box 7846, Aspen CO 81612 was recordholder of
21.1%, Goldman Sachs Seed Account, 4900 Sears Tower, Chicago, IL 60606 was
recordholder of 6.5%, Ralph Lauren 1997 Crut 111 W 40th Street, NY, NY 10018 was
recordholder of 23.9% and GTE Investment Management Corp., One Stamford Forum,
Stamford, CT 06904 was recordholder of 15.6% of the Emerging Markets Fund's
outstanding shares; Goldman, Sachs & Co. FBO Acct# 029108412 c/o Mutual Fund
Ops, 85 Broad Street, NY, NY 10004 was recordholder of 5% of the CORE Small Cap
Equity Fund's outstanding shares.
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
B-57
<PAGE>
holders of a majority of the outstanding shares of each class or series affected
by such matter. Rule 18f-2 further provides that a class or series shall be
deemed to be affected by a matter unless the interests of each class or series
in the matter are substantially identical or the matter does not affect any
interest of such class or series. However, Rule 18f-2 exempts the selection of
independent public accountants, the approval of principal distribution contracts
and the election of directors from the separate voting requirements of Rule 18f-
2.
The Trust is not required to hold annual meetings of shareholders and does not
intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees,
either to one vote for each share or to one vote for each dollar of net asset
value represented by such shares on all matters presented to shareholders
including the elections of Trustees (this method of voting being referred to as
"dollar based voting"). However, to the extent required by the Act or otherwise
determined by the Trustees, series and classes of the Trust will vote separately
from each other. Shareholders of the Trust do not have cumulative voting rights
in the election of Trustees. Meetings of shareholders of the Trust, or any
series or class thereof, may be called by the Trustees, certain officers or upon
the written request of holders of 10% or more of the shares entitled to vote at
such meetings. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the
shareholder's acts or omissions or for some other reason, the shareholder or
former shareholder (or heirs, executors, administrators, legal representatives
or general successors) shall be held harmless from and indemnified against all
loss and expense arising form 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 their 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
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more series
or classes of the Trust's shares (the "Series Trustees"). Series Trustees may,
but are not required to, serve as Trustees of the Trust or any other series or
class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally subject to
liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable
B-58
<PAGE>
for the debts or obligations of any other series of the Trust. However, no
similar statutory or other authority limiting business trust shareholder
liability exists in other states. As a result, to the extent that a Delaware
business trust or a shareholder is subject to the jurisdiction of courts of such
other states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification by
the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series 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 error of judgment or mistakes of fact or law, but nothing in the Declaration
of Trust protects a Trustee against liability to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and certain
state and local, tax considerations regarding the purchase, ownership and
disposition of shares in each Fund of the Trust. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund.
The summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. Japanese Equity and International
Small Cap Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) a Fund derive at least 90% of its gross income for its
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, 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 such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S. tax
purposes will generally have the same character for such Fund as in the hands of
such an entity; consequently, a Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In
B-59
<PAGE>
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
and may therefore make it more difficult for such a Fund to satisfy the
distribution requirements described above, as well as the excise tax
distribution requirements described below. However, each Fund generally expects
to be able to obtain sufficient cash to satisfy such requirements from new
investors, the sale of securities or other sources. If for any taxable year a
Fund does not qualify as a regulated investment company, it will be taxed on all
of its investment company taxable income and net capital gain at corporate
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carry forwards expiring in 2002, 2003, and
2004, respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts,
B-60
<PAGE>
or options will (except for certain foreign currency options, forward contracts,
and futures contracts) be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. As a result of certain hedging transactions
entered into by a Fund, the Fund may be required to defer the recognition of
losses on futures contracts, forward contracts, and options or underlying
securities or foreign currencies to the extent of any unrecognized gains on
related positions held by such Fund and the characterization of gains or losses
as long-term or short-term may be changed. The tax provisions described above
applicable to options, futures and forward contracts may affect the amount,
timing and character of a Fund's distributions to shareholders. Application of
certain requirements for qualification as a regulated investment company and/or
these tax rules to certain investment practices, such as dollar rolls, or
certain derivatives such as interest rate swaps, floors, caps and collars and
currency, mortgage or index swaps may be unclear in some respects, and a Fund
may therefore be required to limit its participation in such transactions.
Certain tax elections may be available to a Fund to mitigate some of the
unfavorable consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign currency-
denominated payables and receivables will generally be treated as ordinary
income or loss, although in some cases elections may be available that would
alter this treatment. If a net foreign exchange loss treated as ordinary loss
under Section 988 of the Code were to exceed a Fund's investment company taxable
income (computed without regard to such loss) for a taxable year, the resulting
loss would not be deductible by the Fund or its shareholders in future years.
Net loss, if any, from certain foregoing currency transactions or instruments
could exceed net investment income otherwise calculated for accounting purposes
with the result being either no dividends being paid or a portion of a Fund's
dividends being treated as a return of capital for tax purposes, nontaxable to
the extent of a shareholder's tax basis in his shares and, once such basis is
exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest securities,
certain structured securities or other securities bearing original issue
discount or, if a Fund elects to include market discount in income currently,
market discount, as well as any "mark to market" gain from certain options,
futures or forward contracts, as described above, will generally cause it to
realize income or gain prior to the receipt of cash payments with respect to
these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) anticipates that it will be subject to foreign taxes on its
income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Japanese Equity,
International Small Cap, Emerging Markets Equity and Asia Growth Funds make this
election, its respective shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable limitations, against
their U.S. federal income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by a Fund, although such shareholders will be
required to include their shares of such taxes in gross income if the election
is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid by
such shareholder as a result of any such election by CORE International Equity,
International Equity, Japanese Equity, International Small Cap, Emerging Markets
Equity or Asia Growth Funds, the amount of the credit that may be claimed in any
year may not exceed the same proportion of the U.S. tax against which such
credit is taken which the shareholder's taxable income from foreign sources (but
not in excess of the shareholder's entire taxable income) bears to his entire
taxable income. For this purpose, distributions from long-term and short-term
B-61
<PAGE>
capital gains or foreign currency gains by a Fund will generally not be treated
as income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity and Asia Growth Funds
may not be able to claim a credit for the full amount of their proportionate
share of the foreign taxes paid by such Fund even if the election is made by
such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax-
exempt shareholders, will ordinarily not benefit from this election. Each year,
if any, that the CORE International Equity, International Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity or Asia Growth Funds
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by a Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. The other Funds will not be entitled to elect to pass
foreign taxes and associated credits or deductions through to their shareholders
because they will not satisfy the 50% requirement described above. If a Fund
cannot or does not make this election, it may deduct such taxes in computing the
amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. In some cases, elections may be
available that would ameliorate these adverse tax consequences, but such
elections would require the Fund to include certain amounts as income or gain
(subject to the distribution requirements described above) without a concurrent
receipt of cash. Each Fund may limit and/or manage its holdings in passive
foreign investment companies to minimize its tax liability or maximize its
return from these investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends received deduction for corporate shareholders. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Asia Growth and Emerging Markets Equity Funds will qualify for the
dividends-received deduction. The entire dividend, including the deducted
amount, is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its liability for the federal alternative minimum
tax, and the dividend may, if it is treated as an "extraordinary dividend" under
the
B-62
<PAGE>
Code, reduce such shareholder's tax basis in its shares of a Fund. Capital
gain dividends (i.e., dividends from net capital gain) if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as long-term capital gain
regardless of how long shares have been held by shareholders, but are not
eligible for the dividends received deduction for corporations. Such long-term
capital gain will be 20% or 28% rate gain, depending upon the Fund's holding
period for the assets the sale of which generated the capital gain.
Distributions, if any, that are in excess of a Fund's current and accumulated
earnings and profits will first reduce a shareholder's tax basis in his shares
and, after such basis is reduced to zero, will generally constitute capital
gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions, and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed of in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. In general, the maximum long-term capital gain rate will be
20% (for gains on capital assets held more than 18 months) or 28% (for gains on
capital gains held more than one year but not more than 18 months).
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Fund will not
be taken into account in determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the newly-acquired
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal income
tax at a rate of 31% from dividends (including capital gain dividends) and share
redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends
B-63
<PAGE>
will be subject to tax on a net income basis at the graduated rates applicable
to U.S. individuals or domestic corporations. Distributions of net capital gain,
including amounts retained by a Fund which are designated as undistributed
capital gains, to a non-U.S. shareholder will not be subject to U.S. federal
income or withholding tax unless the distributions are effectively connected
with the shareholder's trade or business in the United States or, in the case of
a shareholder who is a nonresident alien individual, the shareholder is present
in the United States for 183 days or more during the taxable year and certain
other conditions are met. Non-U.S. shareholders may also be subject to U.S.
federal withholding tax on deemed income resulting from any election by CORE
International Equity, International Equity, Japanese Equity, International Small
Cap, Emerging Markets Equity or Asia Growth Funds to treat qualified foreign
taxes it pays as passed through to shareholders (as described above), but they
may not be able to claim a U.S. tax credit or deduction with respect to such
taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or redemption
of shares of a Fund will not be subject to U.S. federal income or withholding
tax unless the gain is effectively connected with the shareholder's trade or
business in the U.S., or in the case of a shareholder who is a nonresident alien
individual, the shareholder is present in the U.S. for 183 days or more during
the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent Public
Accountants, contained in the 1998 Annual Report of each of the Funds (except
Real Estate Securities, Japanese Equity and International Small Cap Funds), are
incorporated herein by reference into this Additional Statement and attached
hereto. No other part of the Annual or Semi-Annual Report is incorporated by
reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this
B-64
<PAGE>
Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
B-65
<PAGE>
SERVICE PLANS
Each Fund has adopted a service plan (the "Plan") with respect to its Service
Shares which authorizes it to compensate Service Organizations for providing
certain administration services and personal and account maintenance services to
their customers who are or may become beneficial owners of such Shares.
Pursuant to the Plan, each Fund enters into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund. (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from the Fund, working with the Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, each Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization.
Each Fund has adopted its Plan pursuant to Rule 12b-1 under the Act in order to
avoid any possibility that payments to the Service Organizations pursuant to the
Service Agreements might violate the Act. Rule 12b-1, which was adopted by the
SEC under the Act, regulates the circumstances under which an investment company
or series thereof may bear expenses associated with the distribution of its
shares. In particular, such an investment company or series thereof cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The Trust believes that fees paid for the services provided in the Plan
and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with a Fund, such Service Organizations might be required to alter
materially or discontinue the services performed under their Service Agreements.
If one or more of the Service Organizations were restricted from effecting
purchases or sales of Service Shares automatically pursuant to pre-authorized
instructions, for example, effecting such transactions on a manual basis might
affect the size and/or growth of a Fund. Any such alteration or discontinuance
of services could require the Board of Trustees to consider changing a Fund's
method of operations or providing alternative means of offering Service Shares
of the Fund to customers of such Service Organizations, in which case the
operation of such Fund, its size and/or its growth might be significantly
altered. It is not anticipated, however, that any alternation of a Fund's
operations would have any effect on the net asset value per share or result in
financial losses to any shareholder.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under
some state securities laws, banks and other financial institutions purchasing
Service Shares on behalf of their customers may be required to register as
dealers.
B-66
<PAGE>
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plans or the related Service Agreements, voted to approve
each Plan and related Service Agreements at a meeting called for the purpose of
voting on such Plans and Service Agreements on January 28, 1998. The Plans and
Service Agreements will remain in effect until June 30, 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 for the services described
therein without approval of the Service Shareholders of the affected Fund and
all material amendments of the Plan must also be approved by the Trustees in the
manner described above. The Plan may be terminated at any time by a majority of
the Trustees as described above or by a vote of a majority of the outstanding
Service Shares of the affected Fund. 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
Service Shares of the affected Fund on not more than sixty (60) days' written
notice to any other party to the Service Agreements. The Service Agreements
will terminate automatically if assigned. So long as the Plans are in effect,
the selection and nomination of those Trustees who are not interested persons
will be committed to the discretion of the Trust's Nominating Committee, which
consists of all of the non-interested members of the Trustees. The Trustees has
determined that, in its judgment, there is a reasonable likelihood that the
Plans will benefit the Funds and the holders of Service Shares of the Funds. In
the Trustees' quarterly review of the Plans and Service Agreements, the Board
will consider their continued appropriateness and the level of compensation
provided therein.
B-67
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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 in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
- ---------------------------
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement 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
Fund's fiscal year end.
1-A
<PAGE>
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: An obligation rated AAA have the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: The obligor's capacity to meet its financial commitment on the obligation
is very strong and differs from the higher rated issues only in small degree.
A: An obligation is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: An obligation is adequate protection parameter. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments on the
obligation.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded as having
significant speculative characteristics. BB indicates the least degree of
speculation and C the highest. While such obligations will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
D: Obligations rated D are in payment default. The D rating category is used
when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of similar action if
payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
2-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
.. Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November 29,
1996.
.. With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
.. The number one underwriter of all international equity issuers from
(1993-1996).
.. A research budget of $200 million for 1997.
.. Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1996).
.. The number one lead manager of U.S. common stock offerings for the past
eight years (1989-1996).*
.. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).
- ------------------------------------
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
------------------------------------
Investment Trusts and Rights.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck Co. public (longest-standing
client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest to
date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Goldman Sachs increases assets under management by 100% over
1996 Dow Jones Industrial Average breaks 7000
2-B
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Included in this Prospectus:
To be filed by Amendment
Incorporated by reference into the Statement of Additional Information:
To be filed by Amendment
(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 (Reference P); 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 (Reference Z); to Post-Effective
Amendment No. 26 to such Registration Statement (Accession No. 0000950130-
95-002856); to Post-Effective Amendment No. 27 to such Registration
Statement (Accession No. 0000950130-96-004931); 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); and to
Post-Effective Amendment
<PAGE>
No. 40 to such Registration Statement (Accession No. 0000950130-97-004495.
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 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*); 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)
2
<PAGE>
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. By-laws of the Delaware business trust (Accession No. 0000950130-
97-000573)
3. Not applicable.
4. Not applicable.
5(a). Advisory Agreement between Registrant on behalf of GS Short-Term
Government Agency Fund and Goldman, Sachs & Co. (Reference P)
5(b). Advisory Agreement between Registrant on behalf of GS Adjustable
Rate Government Agency Fund and Goldman Sachs Asset Management.
(Reference P).
5(c). Advisory Agreement between Registrant on behalf of GS short
Duration Tax-Free Fund and Goldman, Sachs & Co. (Reference P)
5(d). Advisory Agreement between Registrant on behalf of GS Core Fixed
Income Fund and Goldman Sachs Asset Management. (Reference T)
5(e). Management Agreements on behalf of Delaware business trust
(Accession No. 0000950130-97-000573)
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. (Reference P)
8(b). Form of Wiring Agreement among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern Trust Company.
(Reference B)
8(c). Fee schedule relating to the Custodian Agreement between
Registrant and State Street Bank and Trust Company. (Reference C)
8(d). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank
3
<PAGE>
and Trust Company. (Accession No. 0000950130-97-004495)
8(e). Form of 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). Form of Amendment dated August, 1989 to the Wiring Agreement
among State Street Bank and Trust Company, Goldman, Sachs & Co.
and The Northern Trust Company relating to the indemnification of
The Northern Trust Company. (Reference D)
9(a). Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Reference P)
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)
10(a). Opinion of Morris, Nichols, Arsht & Tunnel - Delaware Counsel,
dated April 16, 1997 (Accession No. 0000950130-97-001846)
11. Not applicable.
12. Not applicable.
13. Subscription Agreement with Goldman, Sachs & Co. (Reference B)
14. Not applicable.
15(a). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Municipal Income Fund. (Reference P)
15(b). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Government Income Fund (Reference O)
15(c). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Global
Income Fund. (Reference O)
15(d). Distribution Plan Pursuant to Rule 12b-1 for GS Adjustable Rate
Government Agency Fund-Class A Shares. (Reference Y)
15(e). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Capital
Growth Fund. (Reference C*)
4
<PAGE>
15(f). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Select
Equity Fund.(Reference G*)
15(g). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Small
Cap Equity Fund.(Reference G*)
15(h). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
International Equity Fund.(Reference G*)
15(i). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Growth
and Income Fund. (Reference G*)
15(j). Form of Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Asia Growth Fund. (Reference I*)
15(k). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Balanced Fund. (Reference L*)
15(l). Amended and Restated Plan of Distribution Pursuant to Rule 12b-1
of the Registrant (Reference N*).
15(m). Administration Plan and Service Plan of the Trust. (Reference X)
16. Schedule for Computation of Performance Data. (Reference V)
18(a). Form of Plan entered into by Registrant pursuant to Rule 18f-3.
(Reference Z)
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)
27. Not applicable.
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
1(d). Amendment No.3 dated January 28, 1997 to the Agreement and
Declaration of Trust.
1(e). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust as amended, dated January 28, 1997
5(a). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Short
5
<PAGE>
Duration Government Fund and Goldman Sachs Funds Management, L.P.
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.
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.
5(d). Management Agreement dated April 30, 1997 between Registrant on
behalf of Goldman Sachs Core Fixed Income Fund and Goldman Sachs
Asset Management.
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.
5(f). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs Asset
Management.
5(g) Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs - Institutional Liquid Assets and
Goldman Sachs Asset Management.
15(n). Class A Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
15(o). Class B Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
15(p). Class C Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
19(a). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak.
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
6
<PAGE>
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
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
7
<PAGE>
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
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
8
<PAGE>
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
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
9
<PAGE>
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
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
10
<PAGE>
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
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
Goldman Sachs Growth & Income Fund 3
Goldman Sachs International Equity Fund 3
Goldman Global Income Fund 3
(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 was
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
Advisory Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
willful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Advisory Agreement. The Management
Agreements were filed as Exhibit 5(e).
11
<PAGE>
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(a) 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.
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 and for shares of Goldman Sachs 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
12
<PAGE>
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 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.
(b) The Registrant undertakes to file a post-effective amendment within four
to six months from the effective date of the Post-Effective Amendment to
the Registrant's Registration Statement relating to the registration of
Goldman Sachs Japanese Equity Fund and Goldman Sachs International Small
Cap Fund.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 41 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
13th day of February 1998.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By:/s/ 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.
NAME TITLE DATE
- -----------------------------------------------------------------
*Douglas C. Grip President and February 13, 1998
- ---------------------------
Douglas C. Grip Trustee
*Scott M. Gilman Principal February 13, 1998
- ---------------------------
Scott M. Gilman Accounting Officer
And Principal
Financial Officer
*David B. Ford Trustee February 13, 1998
- ---------------------------
David B. Ford
*Mary Patterson McPherson Trustee February 13, 1998
- ---------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Trustee February 13, 1998
- ---------------------------
Ashok N. Bakhru
*Alan A. Shuch Trustee February 13, 1998
- ---------------------------
Alan A. Shuch
*Jackson W. Smart Trustee February 13, 1998
- ------------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee February 13, 1998
- -----------------
John P. McNulty
14
<PAGE>
*William H. Springer Trustee February 13, 1998
- ---------------------
William H. Springer
*Richard P. Strubel Trustee February 13, 1998
- ---------------------
Richard P. Strubel
*By: /s/ Michael J. Richman February 13, 1998
-------------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
15
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
1(d). Amendment No.3 dated January 28, 1997 to the Agreement and
Declaration of Trust.
1(e). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust as amended, dated January 28, 1997
5(a). Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs Short Duration Government Fund and
Goldman Sachs Funds Management, L.P.
5(b). Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs Adjustable Rate Government Fund and
Goldman Sachs Funds Management, L.P.
5(c). Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs Short Duration Tax-Free Fund and
Goldman Sachs Asset Management.
5(d). Management Agreement dated April 30, 1997 between the Registrant
on behalf of Goldman Sachs Core Fixed Income Fund and Goldman
Sachs Asset Management.
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.
5(f). Management Agreement dated January 1, 1998 on behalf of the Goldman
Sachs Asset Allocation Portfolios and Goldman Sachs Asset
Management.
5(g). Management Agreement dated April 30, 1997 on behalf of the
Registrant and Goldman Sachs - Institutional Liquid Assets and
Goldman Sachs Asset Management.
15(n). Class A Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
15(o). Class B Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
16
<PAGE>
15(p). Class C Plan of Distribution pursuant to Rule 12b-1 dated January
28, 1998.
19(a). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak.
17
<PAGE>
EXHIBIT 1(d)
AMENDMENT NO. 3
TO THE
DECLARATION OF TRUST
OF
GOLDMAN SACHS TRUST
This AMENDMENT NO. 3 dated the 21 day of October, 1997 to the AGREEMENT AND
DECLARATION OF TRUST (the "Declaration"), as amended, dated the 28th day of
January, 1997 is made by the Trustees name below;
WHEREAS, the Trustees have established a trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust assets
into transferable shares of beneficial interest and divided such shares of
beneficial interest into separate Series;
WHEREAS, the Trustees desire to create new Series and designate new Classes
of shares;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust and acting in accordance with Article V, Section 1 of the Declaration,
hereby amend the Declaration as follows:
The Trust shall consist of one or more Series. Without limiting the
authority of the Trustees to establish and designate any further Series,
the Trustees hereby establish the following 43 Series: Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Government
Fund, Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap
Equity Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs
Mid Cap Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs
Emerging Markets Equity Fund, Goldman Sachs Real Estate Securities Fund,
Goldman Sachs Growth Strategy Portfolio, Goldman Sachs Aggressive Growth
Strategy Portfolio, Goldman Sachs Income Strategy Portfolio, Goldman Sachs
Growth and Income Strategy Portfolio, Institutional Liquid Assets- - Prime
Obligations Portfolio, Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury Instruments Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax- Exempt New York Portfolio, Institutional Liquid Assets-
Tax-Exempt California Portfolio, Financial Square Prime Obligations Fund,
Financial Square Government Fund, Financial Square Treasury Obligations
Fund, Financial Square Money Market Fund, Financial Square Premium Money
Market Fund, Financial Square
<PAGE>
Municipal Money Market Fund, Financial Square Tax-Free Fund, Financial
Square Federal Fund, and Financial Square Treasury Instruments Fund (the
"Existing Series"). Each additional Series shall be established and is
effective upon the adoption of a resolution of a majority of the Trustees
or any alternative date specified in such resolution. The Trustees may
designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. Without
limiting the authority of the Trustees to establish and designate any
further Classes, the Trustees hereby establish the following classes of
shares with respect to the series set forth below:
Class A Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Global Income Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Short Duration Government Fund, Goldman
Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE
U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
Class B Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Institutional Liquid
Assets Prime Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
Class C Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Institutional Liquid
Assets Prime Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
<PAGE>
Institutional
Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Balanced Fund, Goldman Sachs
Small Cap Value Fund, Goldman Sachs Capital Growth Fund, Goldman
Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE U.S. Equity
Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs Mid-
Cap Equity Fund, Goldman Sachs International Equity Fund,
Goldman Sachs Emerging Markets Equity Fund, Goldman Sachs Asia
Growth Fund, Financial Square Prime Obligations Fund, Financial
Square Government Fund, Financial Square Treasury Obligations
Fund, Financial Square Money Market Fund, Financial Square
Premium Money Market Fund, Financial Square Municipal Money
Market Fund, Financial Square Tax- Free Fund, Financial Square
Federal Fund, Financial Square Treasury Instruments Fund,
Institutional Liquid Assets-Prime Obligations Portfolio,
Institutional Liquid Assets-Government Portfolio, Institutional
Liquid Assets- Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-Treasury
Instruments Portfolio, Institutional Liquid Assets-Tax-Exempt
Diversified Portfolio, Institutional Liquid Assets-Tax-Exempt
New York Portfolio, Institutional Liquid Assets-Tax-Exempt
California Portfolio, Goldman Sachs Real Estate Securities Fund,
Goldman Sachs Growth Strategy Portfolio, Goldman Sachs
Aggressive Growth Strategy Portfolio, Goldman Sachs Income
Strategy Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio.
Service Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Short Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Government Income Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Core Fixed Income
Fund, Goldman Sachs Global Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs Small Cap Value
Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs CORE U.S.
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman
Sachs Growth and Income Fund, Goldman Sachs Mid-Cap Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund, Financial
Square Prime Obligations Fund, Financial Square Government Fund,
Financial Square Treasury Obligations Fund, Financial Square
Money Market Fund, Financial Square Premium Money Market Fund,
Financial Square Municipal Money Market Fund, Financial Square
Tax-Free Fund, Financial Square Federal Fund, Financial Square
Treasury Instruments Fund, Institutional Liquid Assets-Prime
Obligations Portfolio, Institutional Liquid Assets-Government
Portfolio, Institutional Liquid Assets-Treasury Obligations
Portfolio, Institutional Liquid Assets-Money Market Portfolio,
Institutional Liquid Assets-Federal Portfolio, Institutional
Liquid Assets-Treasury Instruments Portfolio, Institutional
Liquid Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt New York Portfolio, Institutional
Liquid Assets-Tax-Exempt California Portfolio, Goldman Sachs
Real Estate Securities Fund, Goldman Sachs Growth Strategy
Portfolio, Goldman Sachs Aggressive Growth Strategy Portfolio,
Goldman Sachs Income Strategy Portfolio, Goldman Sachs Growth
and Income Strategy Portfolio.
Administration
Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Short Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Core Fixed Income Fund, Financial
Square Prime Obligations Fund, Financial Square Government Fund,
Financial Square Treasury Obligations Fund, Financial Square
Money Market Fund, Financial Square Premium Money Market Fund,
Financial Square Municipal Money Market Fund, Financial Square
Tax-Free Fund, Financial Square
<PAGE>
Federal Fund, Financial Square Treasury Instruments Fund,
Institutional Liquid Assets-Prime Obligations Portfolio,
Institutional Liquid Assets-Government Portfolio, Institutional
Liquid Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-Treasury
Instruments Portfolio, Institutional Liquid Assets-Tax-Exempt
Diversified Portfolio, Institutional Liquid Assets-Tax- Exempt
New York Portfolio and Institutional Liquid Assets-Tax-Exempt
California Portfolio.
Preferred
Administration
Shares: Financial Square Prime Obligations Fund, Financial Square
Government Fund, Financial Square Treasury Obligations Fund,
Financial Square Money Market Fund, Financial Square Premuim
Money Market Fund, Financial Square Municipal Money Market Fund,
Financial Square Tax-Free Fund, Financial Square Federal Fund
and Financial Square Treasury Instruments Fund.
All capitalized terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
date first written above.
/s/ Ashok N. Bakhru
_________________________________________
Ashok N. Bakhru,
as Trustee and not individually
/s/ David B. Ford
________________________________________
David B. Ford,
as Trustee and not individually
/s/ Douglas Grip
________________________________________
Douglas Grip,
as Trustee and not individually
/s/ John P. McNulty
________________________________________
John P. McNulty,
as Trustee and not individually,
/s/ Mary P. McPherson
________________________________________
Mary P. McPherson
as Trustee and not individually,
<PAGE>
/s/ Alan A. Shuch
________________________________________
Alan A. Shuch
as Trustee and not individually,
/s/ Jackson W. Smart
________________________________________
Jackson W. Smart,
as Trustee and not individually,
/s/ William H. Springer
________________________________________
William H. Springer
as Trustee and not individually,
/s/ Richard P. Strubel
________________________________________
Richard P. Strubel
as Trustee and not individually,
<PAGE>
EXHIBIT 1(e)
AMENDMENT NO. 4
TO THE
DECLARATION OF TRUST
OF
GOLDMAN SACHS TRUST
This AMENDMENT NO. 4 dated the 28 day of January, 1998 to the AGREEMENT AND
DECLARATION OF TRUST (the "Declaration"), as amended, dated the 28th day of
January, 1997 is made by the Trustees name below;
WHEREAS, the Trustees have established a trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust
assets into transferable shares of beneficial interest and divided such shares
of beneficial interest into separate Series;
WHEREAS, the Trustees desire to create new Series and designate new
Classes of shares;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust and acting in accordance with Article V, Section 1 of the Declaration,
hereby amend the Declaration as follows:
The Trust shall consist of one or more Series. Without limiting the
authority of the Trustees to establish and designate any further Series,
the Trustees hereby establish the following 43 Series: Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Government
Fund, Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap
Equity Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs
Mid Cap Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs
Emerging Markets Equity Fund, Goldman Sachs Real Estate Securities Fund,
Goldman Sachs Growth Strategy Portfolio, Goldman Sachs Aggressive Growth
Strategy Portfolio, Goldman Sachs Income Strategy Portfolio, Goldman Sachs
Growth and Income Strategy Portfolio, Institutional Liquid Assets- - Prime
Obligations Portfolio, Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Treasury Obligations Portfolio, Institutional
Liquid Assets-Money Market Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury Instruments Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax- Exempt New York Portfolio, Institutional Liquid Assets-
Tax-Exempt California Portfolio, Goldman Sachs-Financial Square Prime
Obligations Fund, Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund, Goldman Sachs-Financial
Square Money Market Fund, Goldman Sachs-Financial Square Premium Money
Market Fund, Goldman Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-
<PAGE>
Financial Square Tax-Free Fund, Goldman Sachs-Financial Square Federal
Fund, and Goldman Sachs-Financial Square Treasury Instruments Fund (the
"Existing Series"). Each additional Series shall be established and is
effective upon the adoption of a resolution of a majority of the Trustees
or any alternative date specified in such resolution. The Trustees may
designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. Without
limiting the authority of the Trustees to establish and designate any
further Classes, the Trustees hereby establish the following classes of
shares with respect to the series set forth below:
Class A Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Global Income Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Short Duration Government Fund, Goldman
Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs CORE
U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
Class B Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Institutional Liquid
Assets Prime Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
Class C Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
High Yield Fund, Goldman Sachs Short Duration Government Fund,
Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core
Fixed Income Fund, Goldman Sachs Balanced Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap Equity Fund,
Goldman Sachs CORE International Equity Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid-Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund, Institutional Liquid
Assets Prime Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman
Sachs Income Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio.
<PAGE>
Institutional
Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Short Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Government Income Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Core Fixed Income
Fund, Goldman Sachs Global Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs Small Cap Value
Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs CORE
Large Cap Growth Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid-Cap
Equity Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia Growth
Fund, Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman Sachs-
Financial Square Treasury Obligations Fund, Goldman Sachs-
Financial Square Money Market Fund, Goldman Sachs-Financial
Square Premium Money Market Fund, Goldman Sachs-Financial Square
Municipal Money Market Fund, Goldman Sachs-Financial Square Tax-
Free Fund, Goldman Sachs-Financial Square Federal Fund, Goldman
Sachs-Financial Square Treasury Instruments Fund, Institutional
Liquid Assets-Prime Obligations Portfolio, Institutional Liquid
Assets-Government Portfolio, Institutional Liquid Assets-
Treasury Obligations Portfolio, Institutional Liquid Assets-
Money Market Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury Instruments
Portfolio, Institutional Liquid Assets-Tax-Exempt Diversified
Portfolio, Institutional Liquid Assets-Tax-Exempt New York
Portfolio, Institutional Liquid Assets-Tax-Exempt California
Portfolio, Goldman Sachs Real Estate Securities Fund, Goldman
Sachs Growth Strategy Portfolio, Goldman Sachs Aggressive Growth
Strategy Portfolio, Goldman Sachs Income Strategy Portfolio,
Goldman Sachs Growth and Income Strategy Portfolio.
Service Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Short Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Government Income Fund, Goldman
Sachs Municipal Income Fund, Goldman Sachs Core Fixed Income
Fund, Goldman Sachs Global Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Balanced Fund, Goldman Sachs Small Cap Value
Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs CORE U.S.
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman
Sachs Growth and Income Fund, Goldman Sachs Mid-Cap Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund, Goldman
Sachs-Financial Square Prime Obligations Fund, Goldman Sachs-
Financial Square Government Fund, Goldman Sachs-Financial Square
Treasury Obligations Fund, Goldman Sachs-Financial Square Money
Market Fund, Goldman Sachs-Financial Square Premium Money Market
Fund, Goldman Sachs-Financial Square Municipal Money Market
Fund, Goldman Sachs-Financial Square Tax-Free Fund, Goldman
Sachs-Financial Square Federal Fund, Goldman Sachs-Financial
Square Treasury Instruments Fund, Institutional Liquid Assets-
Prime Obligations Portfolio, Institutional Liquid Assets-
Government Portfolio, Institutional Liquid Assets- Treasury
Obligations Portfolio, Institutional Liquid Assets-Money Market
Portfolio, Institutional Liquid Assets-Federal Portfolio,
Institutional Liquid Assets-Treasury Instruments Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified Portfolio,
Institutional Liquid Assets-Tax-Exempt New York Portfolio,
Institutional Liquid Assets-Tax-Exempt California Portfolio,
Goldman Sachs Real Estate Securities Fund, Goldman Sachs Growth
Strategy Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Income Strategy Portfolio, Goldman
Sachs Growth and Income Strategy Portfolio.
Administration
Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Short Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Core Fixed Income Fund, Goldman
Sachs-Financial Square Prime Obligations Fund, Goldman Sachs-
Financial Square Government Fund, Goldman Sachs-Financial Square
Treasury
<PAGE>
Obligations Fund, Goldman Sachs-Financial Square Money Market
Fund, Goldman Sachs-Financial Square Premium Money Market Fund,
Goldman Sachs-Financial Square Municipal Money Market Fund,
Goldman Sachs-Financial Square Tax-Free Fund, Goldman Sachs-
Financial Square Federal Fund, Goldman Sachs-Financial Square
Treasury Instruments Fund, Institutional Liquid Assets-Prime
Obligations Portfolio, Institutional Liquid Assets-Government
Portfolio, Institutional Liquid Assets-Treasury Obligations
Portfolio, Institutional Liquid Assets-Money Market Portfolio,
Institutional Liquid Assets-Federal Portfolio, Institutional
Liquid Assets-Treasury Instruments Portfolio, Institutional
Liquid Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax- Exempt New York Portfolio and Institutional
Liquid Assets-Tax-Exempt California Portfolio.
Preferred
Administration
Shares: Goldman Sachs-Financial Square Prime Obligations Fund, Goldman
Sachs-Financial Square Government Fund, Goldman Sachs-Financial
Square Treasury Obligations Fund, Goldman Sachs-Financial Square
Money Market Fund, Goldman Sachs-Financial Square Premuim Money
Market Fund, Goldman Sachs-Financial Square Municipal Money
Market Fund, Goldman Sachs-Financial Square Tax-Free Fund,
Goldman Sachs-Financial Square Federal Fund and Goldman Sachs-
Financial Square Treasury Instruments Fund.
All capitalized terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the date first written above.
/s/ Ashok N. Bakhru
_______________________________________
Ashok N. Bakhru,
as Trustee and not individually
/s/ David B. Ford
______________________________________
David B. Ford,
as Trustee and not individually
/s/ Douglas Grip
______________________________________
Douglas Grip,
as Trustee and not individually
/s/ John P. McNulty
______________________________________
John P. McNulty,
as Trustee and not individually,
<PAGE>
/s/ Mary P. McPherson
________________________________________
Mary P. McPherson
as Trustee and not individually,
Alan A. Shuch
________________________________________
Alan A. Shuch
as Trustee and not individually,
Jackson W. Smart
________________________________________
Jackson W. Smart,
as Trustee and not individually,
/s/ William H. Springer
________________________________________
William H. Springer
as Trustee and not individually,
/s/ Richard P. Strubel
________________________________________
Richard P. Strubel
as Trustee and not individually,
<PAGE>
EXHIBIT 5(a)
MANAGEMENT AGREEMENT
BETWEEN
GOLDMAN SACHS TRUST
ON BEHALF OF
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
AND
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
<PAGE>
CONTENTS
PARAGRAPH PAGE
- --------- ----
1. Appointment of Manager..................... 1
2. Delivery of Documents...................... 1
3. Duties of Manager.......................... 2
4. Expenses................................... 5
5. Compensation............................... 5
6. Books and Records.......................... 6
7. Indemnification............................ 6
8. Duration and Termination................... 7
9. Status of Manager as Independent Contractor 8
10. Amendment of Agreement..................... 8
11. Shareholder Liability...................... 8
12. Miscellaneous.............................. 8
13. Limitation of Liability of Manager......... 8
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT made this 30th day of April, 1997 between Goldman Sachs Trust, a
Delaware business trust (the "Trust") on behalf of Goldman Sachs Short Duration
Government Fund (the "Fund") and Goldman Sachs Funds Management, L.P. (the
"Manager")
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series with each such series representing the interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Trust presently offers shares of beneficial interest in
Goldman Sachs Short Duration Government Fund (the "Fund"); and
WHEREAS, the Trust on behalf of the Fund desires to retain the Manager to
render investment advisory and administrative services to the Fund and the
Manager is willing to so render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT OF MANAGER. The Trust on behalf of the Fund hereby
----------------------
appoints the Manager to act as investment adviser and to provide administrative
services to the Fund for the periods and on the terms herein set forth. The
Manager accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Trust on behalf of the Fund has delivered
---------------------
(or will deliver as soon as is possible) to the Manager copies of each of the
following documents:
(a) Declaration of Trust of the Trust dated January 28, 1997, together
with all amendments thereto (such Declaration of Trust, as presently
in effect and as amended from time to time, is herein called the
"Trust Agreement"). A copy of the Declaration of Trust is also on
file with the Secretary of State of Delaware);
(b) By-Laws of the Fund (such By-Laws, as presently in effect and as
amended from time to time are herein called the "By-Laws");
(c) Certified resolutions of the sole Shareholder and the Trustees of
the Trust approving the terms of this Agreement;
3
<PAGE>
(d) Custodian Agreement (including related fee schedule) dated July
15, 1991 between the Fund and State Street Bank and Trust Company
(such Agreement, as presently in effect and as amended and/or
superseded from time to time is herein called the "Custodian
Agreement");
(e) Transfer Agency Agreement dated July 15, 1991 between the Fund and
the Manager (such Agreement, as presently in effect and as amended
and/or superseded from time to time is herein called the "Transfer
Agency Agreement");
(f) Prospectus and Statement of Additional Information of the Fund,
dated May 1, 1997, such Prospectus and Statement of Additional
Information, as presently in effect and as amended, supplemented
and/or superseded from time to time, are herein called the
"Prospectus" and "Additional Statement," respectively);
(g) Post-Effective Amendment No. 30 to the Trust s Registration
Statement on Form N-1A (No. 33-17619 under the Securities Act of 1933
(the "1933 Act") and Amendment No. 32 to the Trust's Registration
Statement on such Form (No. 811-5349) under the 1940 Act filed as a
single document with the Securities and Exchange Commission (the
"Commission") on February 25, 1997 (such Registration Statement, as
presently in effect and as amended from time to time, is herein called
the "Registration Statement").
The Trust on behalf of the Fund agrees to promptly furnish the manager
from time to time with copies of all amendments of or supplements to or
otherwise current versions of any of the foregoing documents not heretofore
furnished.
3. DUTIES OF MANAGER.
-----------------
(a) Subject to the general supervision of the Trustees of the Trust,
the Manager shall manage the investment operations of the Fund and the
composition of the Fund's assets, including the purchase, retention
and disposition thereof. In this regard, the Manager
(i) shall provide supervision of the Fund's assets, furnish a
continuous investment program for the Fund, determine from time
to time what investments or securities will be purchased,
retained or sold by the Fund, and what portion of the assets will
be invested or held uninvested as cash;
(ii) shall place orders pursuant to its determinations either
directly with the issuer or with any broker and/or dealer who
deals in the securities in which the Fund is active. In placing
orders with
4
<PAGE>
brokers or dealers, the Manager shall attempt to obtain the best
net price and the most favorable execution of its orders. When
the execution and price offered by two or more brokers or dealers
are comparable, the Manager may, in its discretion, purchase and
sell Fund securities to and from brokers or dealers who provide
the Fund with brokerage or research services;
(iii) may, on occasions when it deems the purchase or sale of a
security to be in the best interests of the Fund as well as its
other customers (including any other Portfolio or any other
investment company or advisory account for which the Manager acts
as adviser), aggregate, to the extent permitted by applicable
laws and regulations, the securities to be sold or purchased in
order to obtain the best net price and the most favorable
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to such other customers
(b) In addition, the Manager shall, subject to the general supervision
of the Trustees of the Trust, provide for the administration of all
other affairs of the Fund. In this regard, the Manager
(i) giving due recognition to the fact that certain of such
operations are performed by others pursuant to the Custodian
Agreement (and the Transfer Agency Agreement to the extent that a
person other than the Manager is serving thereunder as the
Trust's transfer agent), shall provide supervision of all aspects
of the Fund's operations not referred to in paragraph 3(a) above;
(ii) shall, to the extent not provided pursuant to the Custodian
Agreement or the Transfer Agency Agreement, provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund;
(iii) shall, to the extent not provided pursuant to the
Custodian Agreement or the Transfer Agency Agreement, arrange for
(A) the preparation for the Fund of all required tax returns, (B)
the preparation
5
<PAGE>
and submission of reports to existing Shareholders, and (C) the
periodic updating of the Prospectus and Additional Statement and
the preparation of reports filed with the Commission and other
regulatory authorities;
(iv) shall, to the extent not provided pursuant to the Custodian
Agreement or the Transfer Agency Agreement, provide the Fund with
adequate office space and all necessary office equipment and
services including telephone service, heat, utilities, stationery
supplies and similar items, in Chicago, Illinois.
(c) The Manager, in the performance of its duties hereunder
(I) shall use the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims;
(ii) shall act in conformity with the Trust Agreement, By-Laws,
Prospectus, Additional Statement and Registration Statement and
with the instructions and directions of the Trustees of the
Trust, and will, subject to the standard set forth in paragraph
3(c)(i) above, comply with and conform to the requirements of the
1940 Act, the Investment Advisers Act of 1940 and all other
applicable federal and state laws, regulations and rulings.
(d) The Manager shall render to the Trustees of the Trust on behalf of
the Fund such periodic and special reports as the Trustees may
reasonably request.
(e) The Manager shall notify the Trust on behalf of the Fund of any
change in the membership of the Manager within a reasonable time after
such change.
(f) The services of the Manager hereunder are not deemed exclusive and
the Manager shall be free to render similar services to others so long
as its services under this Agreement are not impaired thereby.
6
<PAGE>
4. EXPENSES.
--------
(a) During the term of this Agreement, the Manager will pay all costs
incurred by it in connection with the performance of its duties under
paragraph 3 hereof, other than the cost (including taxes and brokerage
commissions, if any) of securities purchased for the Fund, the cost of
the preparations, submissions, updatings and filings referred to in
paragraph 3(b)(iii) and, at the option of the Manager (the exercise of
which and the extent of such exercise being subject to prior approval
by the Trustees of the Trust on behalf of the Fund and by a majority
of the Trustees of the Trust who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party),
telephone, personnel and other costs attributable to services for
existing Shareholders as well as costs attributable to clerical,
administrative, legal, accounting and other non-investment advisory
services to the Fund.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to paragraph 5 hereof, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, and, where permitted, extraordinary expenses
such as for litigation) exceeds the expense limitations applicable to
the Fund imposed by state securities administrators, as such
limitations may be lowered or raised from time to time, the Manager
shall reimburse the Fund in the amount of such excess to the extent
required by such expense limitations.
(c) In addition to the foregoing, the Manager may from time to time at
its option (but shall be under no obligation to) voluntarily assume or
undertake to reimburse the Fund for all or a portion of its expenses
not otherwise required to be borne or reimbursed by the Manager. Any
such voluntary assumption or undertaking may be discontinued or
modified at any time by the Manager.
5. COMPENSATION
------------
(a) For the services provided and the expenses assumed by the Manager
pursuant to this Agreement, the Trust on behalf of the Fund will pay
to the Manager as full compensation therefor a fee at an annual rate
of .50 of 1% of the Fund's average net assets.
(b) The foregoing fee will be computed based on net assets on each day
and will be paid to the Manager monthly.
7
<PAGE>
6. BOOKS AND RECORDS. The Manager shall maintain all of the Fund's
-----------------
records (other than those maintained pursuant to the Custodian Agreement or the
Transfer Agency Agreement). The Manager agrees that all records which it
maintains for the Trust on behalf of the Fund are the property of the Trust on
behalf of the Fund and it will surrender promptly to the Trust any of such
records upon the Trust's request. The Manager further agrees to preserve for
the periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any
such records as are required to be maintained by Rule 31a-1 of the Commission
under the 1940 Act.
7. INDEMNIFICATION.
---------------
(a) The Trust on behalf of the Fund hereby agrees to indemnify and
hold harmless the Manager, its officers, partners and employees and
each person, if any, who controls the Manager (collectively, the
"Indemnified Parties") against any and all losses, claims, damages or
liabilities, joint or several), to which any such Indemnified Party
may become subject under the 1933 Act, the Securities Exchange Act of
1934 (as amended), the 1940 Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon
(i) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a
material fact required to be stated or necessary to make the
statements made not misleading in (x) the Prospectus, Additional
Statement or the Registration Statement, (y) any advertisement or
sales literature authorized by the Trust for use in the offer and
sale of Shares of the Fund, or (z) any application or other
document filed in connection with the qualification of the Fund
under the Blue Sky or securities laws of any jurisdiction, except
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any
such untrue statement or omission or alleged untrue statement or
omission either pertaining to a failure to disclose a breach of
the Manager's duties in connection with this Agreement, the
Transfer Agency Agreement or the Distribution Agreement of even
date herewith between the Trust on behalf of the Fund and the
Manager (the "Distribution Agreement") or made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Manager pertaining to or originating with the
Manager for use in connection with any document referred to in
clauses (x), (y), or (z) or
8
<PAGE>
(ii) subject in each case to clause (i) above, the Manager,
acting hereunder or under the Distribution Agreement;
and the Trust on behalf of the Fund will reimburse each Indemnified
Party for any legal or other expenses incurred by such Indemnified
Party in connection with investigating or defending any such loss,
claim, damages, liability or action.
(b) If the indemnification provided for in paragraph 7(a) is available
in accordance with the terms of such paragraph but is for any reason
held by a court to be unavailable from the Trust, then the Trust on
behalf of the Fund shall contribute to the aggregate amount paid or
payable by the Fund and the Indemnified Parties as a result of such
losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect (i) the relative
benefits received by the Fund and such Indemnified Parties in
connection with the operations of the Fund, (ii) the relative fault of
the Fund and such Indemnified Parties, and (iii) any other relevant
equitable considerations. The Trust on behalf of the Fund and the
Manager agree that it would not be just and equitable if contribution
pursuant to this subparagraph (b) were determined by pro rata
allocation or any other method of allocation which does not take
account of the equitable considerations referred to above in this
subparagraph (b). The aggregate amount paid or payable as a result of
the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subparagraph (b) shall be deemed to
include any legal or other expenses incurred by the Trust on behalf of
the Fund and the Indemnified Parties in connection with investigating
or defending any such loss, claim, damage, liability or action. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(c) It is understood, however, that nothing in this paragraph 7 shall
protect any Indemnified Party against, or entitle any Indemnified
Party to indemnification against or contribution with respect to, any
liability to the Trust on behalf of the Fund or its Shareholders to
which such Indemnified party is subject, by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of any reckless disregard of its obligations and
duties, under this Agreement or the Distribution Agreement, or
otherwise to an extent or in a manner inconsistent with Section 17(i)
of the 1940 Act.
8. DURATION AND TERMINATION. Insofar as the holders of Shares
------------------------
representing the interests of the Fund are affected by this Agreement, it shall
continue, unless sooner terminated as provided herein, until June 30, 1998 and
thereafter shall continue automatically for periods of one year so long as each
such continuance is approved at least annually (a) by the vote of a majority
9
<PAGE>
of the Trustees of the Trust who are not parties to this Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust or by vote of a majority of the outstanding Shares (as
defined with respect to voting securities in the 1940 Act) representing the
interests in the Fund; provided, however, that (y) the continuance of this
Agreement insofar as the holders of Shares representing the interests of the
Fund are affected hereby until June 30, 1998 and (z) this Agreement may be
terminated by the Fund at any time, without the payment of any penalty, by vote
of a majority of the Trustees of the Trust on behalf of the Fund or by vote of a
majority of the outstanding Shares (as so defined) representing the interests in
the Fund on 60 days' written notice to the Manager, or by the Manager at any
time, without the payment of any penalty, on 60 days' written notice to the
Fund. This Agreement will automatically and immediately terminate in the event
of its assignment (as defined in the 1940 Act).
9. STATUS OF MANAGER AS INDEPENDENT CONTRACTOR. The Manager shall for
-------------------------------------------
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided herein or authorized by the Trustees of the Trust
on behalf of the Fund from time to time, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the Fund.
10. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
----------------------
consent, but the consent of the Fund must be approved (a) by vote of a majority
of those Trustees of the Trust on behalf of the Fund who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such amendment,
and (b) by vote of a majority of the outstanding Shares (as defined with respect
to voting securities in the 1940 Act) representing the interests in the Fund
affected by such amendment.
11. SHAREHOLDER LIABILITY. This Agreement is executed by or on behalf of
---------------------
the Fund and the obligations hereunder are not binding upon any of the Trustees,
officers or Shareholders of the Fund individually but are binding only upon the
Fund and its assets and property.
12. MISCELLANEOUS. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be construed in accordance with
applicable federal law and (except as to paragraph 11 hereof which shall be
construed in accordance with the laws of the state of Delaware) the laws of the
state of Illinois and shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, subject to paragraph 7
hereof. Anything herein to the contrary notwithstanding, this Agreement shall
not be construed to require, or to impose any duty upon, either of the parties
to do anything in violation of any applicable laws or regulations.
13. LIMITATION OF LIABILITY OF MANAGER. The Manager shall not be liable
----------------------------------
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by the Manager of its
obligations and duties under this Agreement. Any person, even though also
employed by the Manager, who may be or become an employee of and paid by the
Trust or the Fund shall be deemed, when acting within the scope of his
employment by the Trust, to be acting in such employment solely for the Trust
and not as the Manager's employee or agent.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
GOLDMAN SACHS TRUST
(ON BEHALF OF GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND)
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:_________________________________ By:____________________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the Trust
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest: _________________________________ By:______________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
11
<PAGE>
EXHIBIT 5(b)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
April 30, 1997
Goldman Sachs Funds Management, L.P.
One New York Plaza
New York, NY 10004
MANAGEMENT AGREEMENT
--------------------
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Dear Sirs:
Goldman Sachs Trust (the "Registrant") is organized as a business trust under
the laws of the state of Delaware to engage in the business of an investment
company. The shares of the Registrant ("Shares") may be divided into multiple
series ("Series"), including the Goldman Sachs Adjustable Rate Government Fund
(the "Fund"), as established pursuant to a written instrument executed by the
Trustees of the Registrant. Shares of each Series will represent interests in a
separate portfolio of securities and other assets. Series may be terminated,
and additional Series established, from time to time by action of the Trustees.
The Registrant on behalf of the Fund has selected you to act as the investment
adviser and administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such investment adviser and
administrator and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Registrant agrees with you as follows:
1. Name of Registrant. The Registrant may use any name including or
------------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser or administrator. Upon the
termination of this Agreement, the Registrant(to the extent that it lawfully
can) will cause the Fund to cease to use such a name or any other name
indicating that it is advised by or otherwise connected with you or any
organization which shall have so succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers which are
------------
either registered as such or specifically exempt from registration under the
Investment Company Act of 1940, as amended, to act as sub-advisers to provide
with respect to the Fund certain services set forth in Paragraphs 3 and 6
hereof, all as shall be set forth in a written contract to which the Registrant,
on behalf of the Fund, and you shall be parties, which contract shall be subject
to approval by the vote of a majority of the Trustees who are not interested
persons of you, the sub-adviser, or of the Registrant, cast in person at a
meeting called for the purpose of voting on such approval and by the vote of a
majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940, as amended (the
"1940 Act")
3. Management Services.
-------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the investment
objectives and policies of the Fund. You will determine from
time to time what securities shall be purchased for the Fund,
what securities shall be held or sold by the Fund, and what
portion of the Fund's assets shall be held uninvested as cash,
<PAGE>
subject always to the provisions of the Registrant's Declaration
of Trust and By-Laws and of the 1940 Act, and to the investment
objectives, policies and restrictions of the Fund, as each of the
same shall be from time to time in effect, and subject, further,
to such policies and instructions as the Trustees may from time
to time establish.
(b) Subject to the general supervision of the Trustees of the
Registrant, you will provide certain administrative services to
the Fund. You will, to the extent such services are not required
to be performed by others pursuant to the custodian agreement (or
the transfer agency agreement to the extent that a person other
than you is serving thereunder as the Registrant's transfer
agent), (i) provide supervision of all aspects of the Fund's
operations not referred to in paragraph (a) above; (ii) provide
the Fund with personnel to perform such executive, administrative
and clerical services as are reasonably necessary to provide
effective administration of the Fund; (iii) arrange for, at the
Registrant's expense, (a) the preparation for the Fund of all
required tax returns, (b) the preparation and submission of
reports to existing shareholders and (c) the periodic updating of
the Fund's prospectus and statement of additional information and
the preparation of reports filed with the Securities and Exchange
Commission and other regulatory authorities; (iv) maintain all
of the Fund's records; and (v) provide the Fund with adequate
office space and all necessary office equipment and services
including telephone service, heat, utilities, stationery supplies
and similar items.
(c) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940
Act (other than those records being maintained by the Fund's
custodian or transfer agent) and preserve such records for the
periods prescribed therefor by Rule 31a-2 of the 1940 Act. You
will also provide to the Registrant's Trustees such periodic and
special reports as the Board may reasonably request. You shall
for all purposes herein be deemed to be an independent contractor
and shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Registrant in any
way or otherwise be deemed an agent of the Registrant.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others.
(e) You will notify the Registrant of any change in your membership
within a reasonable time after such change.
4. Allocation of Charges and Expenses. You will pay all costs incurred
----------------------------------
by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all
personnel of yours and will make available, without expense to the
Registrant, the services of such of your partners, officers and
employees as may duly be elected officers or Trustees of the
Registrant, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Registrant other than those specifically allocated to
you in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
organization expenses of the Registrant; (ii) fees and expenses
incurred by the Registrant in connection with membership in investment
company organizations; (iii) brokers' commissions; (iv) payment for
portfolio pricing services to a pricing agent, if any; (v) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Registrant); (vi) taxes or governmental fees; (vii) the fees and
expenses of the transfer agent of the Registrant; (viii) the cost of
preparing stock
2
<PAGE>
certificates or any other expenses, including clerical expenses of
issue, redemption or repurchase of Shares of the Registrant; (ix) the
expenses of and fees for registering or qualifying Shares for sale and
of maintaining the registration of the Registrant and registering the
Registrant as a broker or a dealer; (x) the fees and expenses of
Trustees of the Registrant who are not affiliated with you; (xi) the
cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other
regulatory authorities; (xii) the fees or disbursements of custodians
of the Registrant's assets, including expenses incurred in the
performance of any obligations enumerated by the Declaration of Trust
or By-laws of the Registrant insofar as they govern agreements with
any such custodian; or (xiii) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course
of the Registrant's business. You shall not be required to pay
expenses of activities which are primarily intended to result in sales
of Shares of the Fund.
5. Compensation of the Manager.
---------------------------
(a) For all services to be rendered and payments made as provided in
paragraphs 3 and 4 hereof, the Registrant, on behalf of the Fund
will pay you on the last day of each month a fee at an annual
rate equal to .40% per annum of the average daily net assets of
the Fund. The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 5, but excluding
taxes, interest, brokerage commissions relating to the purchase
or sale of portfolio securities, distribution expenses and
extraordinary expenses such as for litigation) exceeds the
expense limitations, if any, applicable to the Fund imposed by
state securities administrators, as such limitations may be
modified from time to time, you shall reimburse the Fund in the
amount of such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement shall
not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse the
Fund for all or a portion of its expenses not otherwise required
to be borne or reim bursed by you. Any such fee reduction or
undertaking may be discontinued or modified by you at any time.
6. Avoidance of Inconsistent Position. In connection with purchases or
----------------------------------
sales of portfolio securities for the account of the Fund, neither you
nor any of your partners, officers or employees will act as a
principal, except as otherwise permitted by the 1940 Act. You or your
agent shall arrange for the placing of all orders for the purchase and
sale of portfolio securities for the Fund's account with brokers or
dealers (including Goldman, Sachs & Co.) selected by you. In the
selection of such brokers or dealers (including Goldman, Sachs & Co.)
and the placing of such orders, you are directed at all times to seek
for the Fund the most favorable execution and net price available. It
is also understood that it is desirable for the Fund that you have
access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities for
the Fund with such
3
<PAGE>
brokers, subject to review by the Registrant's Trustees from time to
time with respect to the extent and continuation of this practice. It
is understood that the services provided by such brokers may be useful
to you in connection with your services to other clients. If any
occasion should arise in which you give any advice to your clients
concerning the Shares of the Fund, you will act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security
to be in the best interests of the Fund as well as your other
customers (including any other Series or any other investment company
or advisory account for which you act as an investment adviser),
aggregate, to the extent permitted by applicable laws and regulations,
the securities to be sold or purchased in order to obtain the best net
price and the most favorable execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by you in the manner you consider to
be the most equitable and consistent with your fiduciary obligations
to the Fund and to such other customers.
7. Limitation of Liability of Manager You shall not be liable for any
----------------------------------
error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this
Agreement. Any person, even though also employed by you, who may be
or become an employee of and paid by the Registrant or the Fund shall
be deemed, when acting within the scope of his employment by the
Registrant, to be acting in such employment solely for the Registrant
and not as your employee or agent.
8. Duration and Termination of this Agreement. This Agreement shall
------------------------------------------
remain in force until June 30, 1998 and shall continue for periods of
one year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority
of the Trustees who are not interested persons (as defined in the 1940
Act) of the Registrant and have no financial interest in this
Agreement, cast in person at a meeting called for the purpose of
voting on such approval and (b) by a vote of a majority of the
Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Trustees of the Registrant, by vote of a majority of
the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "majority of
the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission by any rule,
regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment
of this Agreement shall be effective until approved by vote of the
holders of a majority of the outstanding voting securities of the Fund
and by a majority of the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act)
of the Registrant and have no financial interest in this Agreement,
cast in person at a meeting called for the purpose of voting on such
amendment.
4
<PAGE>
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously 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.
The name Goldman Sachs Trust is the designation of the Trustees for the
time being under an Declaration of Trust dated January 28, 1997 as amended from
time to time, and all persons dealing with the Registrant or the Fund must look
solely to the property of the Registrant or the Fund for the enforcement of any
claims against the Registrant as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Registrant. The Fund shall not be liable for any claims against
any other Series of the Registrant.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Registrant, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND)
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest______________________________ By:______________________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the Registrant
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest:______________________________ By:_____________________________
Michael J. Richman David B. Ford
Secretary of the Registrant Managing Director
5
<PAGE>
EXHIBIT 5(c)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
April 30, 1997
Goldman Sachs Asset Management,
One New York Plaza
New York, NY 10004
MANAGEMENT AGREEMENT
--------------------
Goldman Sachs Short-Duration Tax-Free Fund
Dear Sirs:
Goldman Sachs Trust (the "Registrant") is organized as a business trust under
the laws of the state of Delaware to engage in the business of an investment
company. The shares of the Registrant ("Shares") may be divided into multiple
series ("Series"), including the Goldman Sachs Short-Duration Tax-Free Fund (the
"Fund"), as established pursuant to a written instrument executed by the
Trustees of the Registrant. Shares of each Series will represent interests in a
separate portfolio of securities and other assets. Series may be terminated,
and additional Series established, from time to time by action of the Trustees.
The Registrant on behalf of the Fund has selected you to act as the investment
adviser and administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such investment adviser and
administrator and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Registrant agrees with you as follows:
1. Name of Registrant. The Registrant may use any name including or
------------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser or administrator. Upon the
termination of this Agreement, the Registrant (to the extent that it lawfully
can) will cause the Fund to cease to use such a name or any other name
indicating that it is advised by or otherwise connected with you or any
organization which shall have so succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers which are
------------
either registered as such or specifically exempt from registration under the
Investment Company Act of 1940, as amended, to act as sub-advisers to provide
with respect to the Fund certain services set forth in Paragraphs 3 and 6
hereof, all as shall be set forth in a written contract to which the Registrant,
on behalf of the Fund, and you shall be parties, which contract shall be subject
to approval by the vote of a majority of the Trustees who are not interested
persons of you, the sub-adviser, or of the Registrant, cast in person at a
meeting called for the purpose of voting on such approval and by the vote of a
majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940, as amended (the
"1940 Act").
3. Management Services.
-------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the investment
objectives and policies of the Fund. You will determine from
time to time what securities shall be purchased for the Fund,
what securities shall be held or sold by the Fund, and what
portion of the Fund's assets shall be held uninvested as cash,
<PAGE>
subject always to the provisions of the Registrant's Declaration
of Trust and By-Laws and of the 1940 Act, and to the investment
objectives, policies and restrictions of the Fund, as each of the
same shall be from time to time in effect, and subject, further,
to such policies and instructions as the Trustees may from time
to time establish.
(b) Subject to the general supervision of the Trustees of the
Registrant, you will provide certain administrative services to
the Fund. You will, to the extent such services are not required
to be performed by others pursuant to the custodian agreement (or
the transfer agency agreement to the extent that a person other
than you is serving thereunder as the Registrant's transfer
agent), (i) provide supervision of all aspects of the Fund's
operations not referred to in paragraph (a) above; (ii) provide
the Fund with personnel to perform such executive, administrative
and clerical services as are reasonably necessary to provide
effective administration of the Fund; (iii) arrange for, at the
Registrant's expense, (a) the preparation for the Fund of all
required tax returns, (b) the preparation and submission of
reports to existing shareholders and (c) the periodic updating of
the Fund's prospectus and statement of additional information and
the preparation of reports filed with the Securities and Exchange
Commission and other regulatory authorities; (iv) maintain all
of the Fund's records; and (v) provide the Fund with adequate
office space and all necessary office equipment and services
including telephone service, heat, utilities, stationery supplies
and similar items.
(c) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940
Act (other than those records being maintained by the Fund's
custodian or transfer agent) and preserve such records for the
periods prescribed therefor by Rule 31a-2 of the 1940 Act. You
will also provide to the Registrant's Trustees such periodic and
special reports as the Board may reasonably request. You shall
for all purposes herein be deemed to be an independent contractor
and shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Registrant in any
way or otherwise be deemed an agent of the Registrant.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others.
(e) You will notify the Registrant of any change in your membership
within a reasonable time after such change.
4. Allocation of Charges and Expenses. You will pay all costs incurred
----------------------------------
by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all
personnel of yours and will make available, without expense to the
Registrant, the services of such of your partners, officers and
employees as may duly be elected officers or Trustees of the
Registrant, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Registrant other than those specifically allocated to
you in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
organization expenses of the Registrant; (ii) fees and expenses
incurred by the Registrant in connection with membership in investment
company organizations; (iii) brokers' commissions; (iv) payment for
portfolio pricing services to a pricing agent, if any; (v) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Registrant); (vi) taxes or governmental fees; (vii) the fees and
expenses of the transfer agent of the Registrant; (viii) the cost of
preparing stock
2
<PAGE>
certificates or any other expenses, including clerical expenses of
issue, redemption or repurchase of Shares of the Registrant; (ix) the
expenses of and fees for registering or qualifying Shares for sale and
of maintaining the registration of the Registrant and registering the
Registrant as a broker or a dealer; (x) the fees and expenses of
Trustees of the Registrant who are not affiliated with you; (xi) the
cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other
regulatory authorities; (xii) the fees or disbursements of custodians
of the Registrant's assets, including expenses incurred in the
performance of any obligations enumerated by the Declaration of Trust
or By-laws of the Registrant insofar as they govern agreements with
any such custodian; or (xiii) litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course
of the Registrant's business. You shall not be required to pay
expenses of activities which are primarily intended to result in sales
of Shares of the Fund.
5. Compensation of the Manager.
---------------------------
(a) For all services to be rendered and payments made as provided in
paragraphs 3 and 4 hereof, the Registrant on behalf of the Fund
will pay you on the last day of each month a fee at an annual
rate equal to .40% per annum of the average daily net assets of
the Fund. The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 5, but excluding
taxes, interest, brokerage commissions relating to the purchase
or sale of portfolio securities, distribution expenses and
extraordinary expenses such as for litigation) exceeds the
expense limitations, if any, applicable to the Fund imposed by
state securities administrators, as such limitations may be
modified from time to time, you shall reimburse the Fund in the
amount of such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement shall
not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse the
Fund for all or a portion of its expenses not otherwise required
to be borne or reim bursed by you. Any such fee reduction or
undertaking may be discontinued or modified by you at any time.
6. Avoidance of Inconsistent Position. In connection with purchases or
----------------------------------
sales of portfolio securities for the account of the Fund, neither you
nor any of your partners, officers or employees will act as a
principal, except as otherwise permitted by the 1940 Act. You or your
agent shall arrange for the placing of all orders for the purchase and
sale of portfolio securities for the Fund's account with brokers or
dealers (including Goldman, Sachs & Co.) selected by you. In the
selection of such brokers or dealers (including Goldman, Sachs & Co.)
and the placing of such orders, you are directed at all times to seek
for the Fund the most favorable execution and net price available. It
is also understood that it is desirable for the Fund that you have
access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities for
the Fund with such
3
<PAGE>
brokers, subject to review by the Registrant's Trustees from time to
time with respect to the extent and continuation of this practice. It
is understood that the services provided by such brokers may be useful
to you in connection with your services to other clients. If any
occasion should arise in which you give any advice to your clients
concerning the Shares of the Fund, you will act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security
to be in the best interests of the Fund as well as your other
customers (including any other Series or any other investment company
or advisory account for which you act as an investment adviser),
aggregate, to the extent permitted by applicable laws and regulations,
the securities to be sold or purchased in order to obtain the best net
price and the most favorable execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by you in the manner you consider to
be the most equitable and consistent with your fiduciary obligations
to the Fund and to such other customers.
7. Limitation of Liability of Manager. You shall not be liable for any
----------------------------------
error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this
Agreement. Any person, even though also employed by you, who may be
or become an employee of and paid by the Registrant or the Fund shall
be deemed, when acting within the scope of his employment by the
Registrant, to be acting in such employment solely for the Registrant
and not as your employee or agent.
8. Duration and Termination of this Agreement. This Agreement shall
------------------------------------------
remain in force until June 30, 1998 and shall continue for periods of
one year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority
of the Trustees who are not interested persons (as defined in the 1940
Act) of the Registrant and have no financial interest in this
Agreement, cast in person at a meeting called for the purpose of
voting on such approval and (b) by a vote of a majority of the
Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Trustees of the Registrant, by vote of a majority of
the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "majority of
the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission by any rule,
regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment
of this Agreement shall be effective until approved by vote of the
holders of a majority of the outstanding voting securities of the Fund
and by a majority of the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act)
of the Registrant and have no financial interest in this Agreement,
cast in person at a meeting called for the purpose of voting on such
amendment.
4
<PAGE>
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously 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.
The name Goldman Sachs Trust is the designation of the Trustees for the
time being under a Declaration of Trust dated January 28, 1997 as amended from
time to time, and all persons dealing with the Registrant or the Fund must look
solely to the property of the Registrant or the Fund for the enforcement of any
claims against the Registrant as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Registrant. The Fund shall not be liable for any claims against
any other Series of the Registrant.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Registrant, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GOLDMAN SACHS SHORT-DURATION TAX-FREE FUND)
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:____________________________ By: ____________________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the Registrant
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest: ____________________________ By: ____________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
5
<PAGE>
EXHIBIT 5(d)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
April 30, 1997
Goldman Sachs Asset Management
One New York Plaza
New York, NY 10004
MANAGEMENT AGREEMENT
--------------------
GOLDMAN SACHS CORE FIXED INCOME FUND
Dear Sirs:
Goldman Sachs Trust (the "Registrant") is organized as a business trust under
the laws of the state of Delaware to engage in the business of an investment
company. The shares of of the Registrant ("Shares") may be divided into
multiple series ("Series"), including the Goldman Sachs Core Fixed Income Fund
(the "Fund"), as established pursuant to a written instrument executed by the
Trustees of the Registrant. Shares of each Series will represent interests in a
separate portfolio of securities and other assets. Series may be terminated,
and additional Series established, from time to time by action of the Trustees.
The Registrant, on behalf of the Fund, has selected you to act as the investment
adviser and administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such investment adviser and
administrator and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Registrant agrees with you as follows:
1. Name of Registrant. The Registrant may use any name including or
------------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser or administrator. Upon the
termination of this Agreement, the Registrant (to the extent that it lawfully
can) will cause the Fund to cease to use such a name or any other name
indicating that it is advised by or otherwise connected with you or any
organization which shall have so succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers which are
------------
either registered as such or specifically exempt from registration under the
Investment Company Act of 1940, as amended, to act as sub-advisers to provide
with respect to the Fund certain services set forth in Paragraphs 3 and 6
hereof, all as shall be set forth in a written contract to which the Registrant,
on behalf of the Fund, and you shall be parties, which contract shall be subject
to approval by the vote of a majority of the Trustees who are not interested
persons of you, the sub-adviser, or of the Registrant, cast in person at a
meeting called for the purpose of voting on such approval and by the vote of a
majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940, as amended (the
"1940 Act").
3. Management Services.
-------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the investment
objectives and policies of the Fund. You will determine from
time to time what securities shall be purchased for the Fund,
what securities shall be held or sold by the Fund, and what
portion of the Fund's assets shall be held uninvested as cash,
subject always to the provisions of the Registrant's Declaration
of Trust and By-Laws
<PAGE>
and of the the 1940 Act, and to the investment objectives,
policies and restrictions of the Fund, as each of the same shall
be from time to time in effect, and subject, further, to such
policies and instructions as the Trustees may from time to time
establish.
(b) Subject to the general supervision of the Trustees of the
Registrant, you will provide certain administrative services to
the Fund. You will, to the extent such services are not required
to be performed by others pursuant to the custodian agreement (or
the transfer agency agreement to the extent that a person other
than you is serving thereunder as the Registrant's transfer
agent), (i) provide supervision of all aspects of the Fund's
operations not referred to in paragraph (a) above; (ii) provide
the Fund with personnel to perform such executive, administrative
and clerical services as are reasonably necessary to provide
effective administration of the Fund; (iii) arrange for, at the
Registrant's expense, (a) the preparation for the Fund of all
required tax returns, (b) the preparation and submission of
reports to existing shareholders and (c) the periodic updating of
the Fund's prospectus and statement of additional information and
the preparation of reports filed with the Securities and Exchange
Commission and other regulatory authorities; (iv) maintain all
of the Fund's records; and (v) provide the Fund with adequate
office space and all necessary office equipment and services
including telephone service, heat, utilities, stationery supplies
and similar items.
(c) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs (b)(5),
(6), (9) and (10) and paragraph (f) of Rule 31a-1 under the 1940
Act (other than those records being maintained by the Fund's
custodian or transfer agent) and preserve such records for the
periods prescribed therefor by Rule 31a-2 of the 1940 Act. You
will also provide to the Registrant's Trustees such periodic and
special reports as the Board may reasonably request. You shall
for all purposes herein be deemed to be an independent contractor
and shall, except as otherwise expressly provided or authorized,
have no authority to act for or represent the Registrant in any
way or otherwise be deemed an agent of the Registrant.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others.
(e) You will notify the Registrant of any change in your membership
within a reasonable time after such change.
4. Allocation of Charges and Expenses. You will pay all costs incurred
----------------------------------
by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all
personnel of yours and will make available, without expense to the
Registrant, the services of such of your partners, officers and
employees as may duly be elected officers or Trustees of the
Registrant, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Registrant other than those specifically allocated to
you in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
organization expenses of the Registrant; (ii) fees and expenses
incurred by the Registrant in connection with membership in investment
company organizations; (iii) brokers' commissions; (iv) payment for
portfolio pricing services to a pricing agent, if any; (v) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Registrant); (vi) taxes or governmental fees; (vii) the fees and
expenses of the transfer agent of the Registrant; (viii) the cost of
preparing stock
2
<PAGE>
certificates or any other expenses, including clerical expenses of
issue, redemption or repurchase of Shares of the Registrant; (ix) the
expenses of and fees for registering or qualifying Shares for sale and
of maintaining the registration of the Registrant and registering the
Registrant as a broker or a dealer; (x) the fees and expenses of
Trustees of the Registrant who are not affiliated with you; (xi) the
cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other
regulatory authorities; (xii) the fees or disbursements of custodians
of the Registrant's assets, including expenses incurred in the
performance of any obligations enumerated by the Declaration of Trust
of Registrant or By-laws of the Registrant insofar as they govern
agreements with any such custodian; or (xiii) litigation and
indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Registrant's business. You shall not be
required to pay expenses of activities which are primarily intended to
result in sales of Shares of the Fund.
5. Compensation of the Manager.
----------------------------
(a) For all services to be rendered and payments made as provided in
paragraphs 3 and 4 hereof, the Registrant on behalf of the Fund
will pay you on the last day of each month a fee at an annual
rate equal to .40% per annum of the average daily net assets of
the Fund. The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 5, but excluding
taxes, interest, brokerage commissions relating to the purchase
or sale of portfolio securities, distribution expenses and
extraordinary expenses such as for litigation) exceeds the
expense limitations, if any, applicable to the Fund imposed by
state securities administrators, as such limitations may be
modified from time to time, you shall reimburse the Fund in the
amount of such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement shall
not exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse the
Fund for all or a portion of its expenses not otherwise required
to be borne or reim bursed by you. Any such fee reduction or
undertaking may be discontinued or modified by you at any time.
6. Avoidance of Inconsistent Position. In connection with purchases or
----------------------------------
sales of portfolio securities for the account of the Fund, neither you
nor any of your partners, officers or employees will act as a
principal, except as otherwise permitted by the 1940 Act. You or your
agent shall arrange for the placing of all orders for the purchase and
sale of portfolio securities for the Fund's account with brokers or
dealers (including Goldman, Sachs & Co.) selected by you. In the
selection of such brokers or dealers (including Goldman, Sachs & Co.)
and the placing of such orders, you are directed at all times to seek
for the Fund the most favorable execution and net price available. It
is also understood that it is desirable for the Fund that you have
access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities for
the Fund with such
3
<PAGE>
brokers, subject to review by the Registrant's Trustees from time to
time with respect to the extent and continuation of this practice. It
is understood that the services provided by such brokers may be useful
to you in connection with your services to other clients. If any
occasion should arise in which you give any advice to your clients
concerning the Shares of the Fund, you will act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security
to be in the best interests of the Fund as well as your other
customers (including any other Series or any other investment company
or advisory account for which you act as an investment adviser),
aggregate, to the extent permitted by applicable laws and regulations,
the securities to be sold or purchased in order to obtain the best net
price and the most favorable execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred
in the transaction, will be made by you in the manner you consider to
be the most equitable and consistent with your fiduciary obligations
to the Fund and to such other customers.
7. Limitation of Liability of Manager. You shall not be liable for any
----------------------------------
error of judgment or mistake of law or for any loss suffered by the
Fund in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from
reckless disregard by you of your obligations and duties under this
Agreement. Any person, even though also employed by you, who may be
or become an employee of and paid by the Registrant or the Fund shall
be deemed, when acting within the scope of his employment by the
Registrant, to be acting in such employment solely for the Registrant
and not as your employee or agent.
8. Duration and Termination of this Agreement. This Agreement shall
------------------------------------------
remain in force until June 30, 1998 and shall continue for periods of
one year thereafter, but only so long as such continuance is
specifically approved at least annually (a) by the vote of a majority
of the Trustees who are not interested persons (as defined in the 1940
Act) of the Registrant and have no financial interest in this
Agreement, cast in person at a meeting called for the purpose of
voting on such approval and (b) by a vote of a majority of the
Trustees or of a majority of the outstanding voting securities of the
Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Trustees of the Registrant, by vote of a majority of
the outstanding voting securities of the Fund, or by you. This
Agreement shall automatical ly terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "majority of
the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission by any rule,
regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought. No amendment
of this Agreement shall be effective until approved by vote of the
holders of a majority of the outstanding voting securities of the Fund
and by a majority of the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act)
of the Registrant and have no financial interest in this Agreement,
cast in person at a meeting called for the purpose of voting on such
amendment.
4
<PAGE>
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously 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.
The name Goldman Sachs Trust is the designation of the Trustees for the
time being under an Declaration of Trust of Registrant dated January 28, 1997 as
amended from time to time, and all persons dealing with the Registrant or the
Fund must look solely to the property of the Registrant or the Fund for the
enforcement of any claims against the Registrant as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Registrant. The Fund shall not be liable for any
claims against any other Series of the Registrant.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Registrant, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS TRUST
(ON BEHALF OF GOLDMAN SACHS CORE FIXED INCOME FUND)
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:_________________________________ By:________________________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the Registrant
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest: _________________________________ By:______________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
5
<PAGE>
EXHIBIT 5(e)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
January 28, 1998
Goldman Sachs Asset Management Goldman Sachs Asset Management International
Goldman Sachs Funds Management L.P. 133 Peterborough CT
One New York Plaza, London, England
New York, New York 10004
MANAGEMENT AGREEMENT
--------------------
Dear Sirs:
Goldman Sachs Trust (the "Registrant") is organized as a business trust under
the laws of the State of Delaware to engage in the business of an investment
company. The shares of the Registrant ("Shares") may be divided into multiple
series ("Series"), including the Series listed on Annex A (including any Series
added to Annex A in the future, each a "Fund"). Each Series will represent the
interests in a separate portfolio of securities and other assets. Each Series
may be terminated, and additional Series established, from time to time by
action of the Trustees. The Registrant on behalf of each Fund has selected you
to act as the investment adviser and administrator of the Funds and to provide
certain services, as more fully set forth below, and you are willing to act as
such investment adviser and administrator and to perform such services under the
terms and conditions hereinafter set forth. Accordingly, the Registrant agrees
with you as follows:
1. Name of Registrant. The Registrant may use any name including or derived
------------------
from the name "Goldman Sachs" in connection with a Fund only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to your business as investment adviser or administrator. Upon the termination of
this Agreement, the Registrant (to the extent that it lawfully can) will cause
the Funds to cease to use such a name or any other name indicating that it is
advised by or otherwise connected with you or any organization which shall have
so succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers which are
-------------
either registered as such or specifically exempt from registration under the
Investment Advisers Act of 1940, as amended, to act as sub-advisers to provide
with respect to the Fund certain services set forth in Paragraphs 3 and 6
hereof, all as shall be set forth in a written contract to which the Registrant,
on behalf of the Fund, and you shall be parties, which contract shall be subject
to approval by the vote of a majority of the Trustees who are not interested
persons of you, the sub-adviser, or of the Registrant, cast in person at a
meeting called for the purpose of voting on such approval and by the vote of a
majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as amended
(the "1940 Act").
3. Management Services.
-------------------
(a) You will regularly provide each Fund with investment research, advice and
supervision and will furnish continuously an investment program for each
Fund consistent with the investment objectives and policies of the Fund.
You will determine from time to time what securities shall be purchased for
a Fund, what securities shall be held or sold by a Fund, and what portion
of a Fund's assets shall be held uninvested as cash, subject always to the
provisions of the Registrant's Declaration of Trust and By-Laws and of the
1940 Act, and to the
<PAGE>
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further, to
such policies and instructions as the Trustees of the Registrant may from
time to time establish.
(b) Subject to the general supervision of the Trustees of the Registrant, you
will provide certain administrative services to each Fund. You will, to the
extent such services are not required to be performed by others pursuant to
the custodian agreement (or the transfer agency agreement to the extent
that a person other than you is serving thereunder as the Registrant's
transfer agent), (i) provide supervision of all aspects of each Fund's
operations not referred to in paragraph (a) above; (ii) provide each Fund
with personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective administration of
the Fund; (iii) arrange for, at the Registrant's expense, (a) the
preparation for each Fund of all required tax returns, (b) the preparation
and submission of reports to existing shareholders and (c) the periodic
updating of the Fund's prospectuses and statements of additional
information and the preparation of reports filed with the Securities and
Exchange Commission and other regulatory authorities; (iv) maintain all of
the Funds' records and (v) provide the Funds with adequate office space and
all necessary office equipment and services including telephone service,
heat, utilities, stationery supplies and similar items.
(c) You will also provide to the Registrant's Trustees such periodic and
special reports as the Trustees may reasonably request. You shall for all
purposes herein be deemed to be an independent contractor and shall, except
as otherwise expressly provided or authorized, have no authority to act for
or represent the Registrant or the Funds in any way or otherwise be deemed
an agent of the Registrant or the Funds.
(d) You will maintain all books and records with respect to the Funds'
securities transactions required by sub-paragraphs (b)(5), (6), (9) and
(10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than those
records being maintained by the Fund's custodian or transfer agent) and
preserve such records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Registrant's Trustees such
periodic and special reports as the Board may reasonably request.
(e) You will notify the Registrant of any change in your membership within a
reasonable time after such change.
(f) Your services hereunder are not deemed exclusive and you shall be free to
render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs incurred by you
----------------------------------
in connection with the performance of your duties under paragraph 3. You will
pay the compensation and expenses of all personnel of yours and will make
available, without expense to the Funds, the services of such of your partners,
officers and employees as may duly be elected officers or Trustees of the
Registrant, subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of any Fund other
than those specifically allocated to you in this paragraph 4. In particular,
but without limiting the generality of the foregoing, you will not be required
to pay: (i) organization expenses of the Funds; (ii) fees and expenses incurred
by the Funds in connection with membership in investment company organizations;
(iii) brokers' commissions; (iv) payment for portfolio pricing services to a
pricing agent, if any; (v) legal, auditing or accounting expenses (including an
allocable portion of the cost of your employees rendering legal and accounting
services to the Fund); (vi) taxes or governmental fees; (vii) the fees and
expenses of the transfer agent of the Registrant; (viii) the cost of preparing
stock certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (ix) the expenses of and fees
for registering or qualifying Shares for sale and of maintaining the
registration of the Funds and registering the Registrant as a broker or a
dealer; (x) the fees and expenses of Trustees of the Registrant who are not
affiliated with you; (xi) the cost of preparing and distributing reports and
notices to shareholders, the Securities and Exchange Commission and other
regulatory authorities; (xii) the fees or disbursements of custodians of each
Fund's assets, including
<PAGE>
expenses incurred in the performance of any obligations enumerated by the
Declaration of Trust or By-Laws of the Registrant insofar as they govern
agreements with any such custodian; or (xiii) litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Fund's business. You shall not be required to pay expenses of activities
which are primarily intended to result in sales of Shares of the Funds.
5. Compensation of the Manager.
---------------------------
(a) For all services to be rendered and payments made as provided in paragraphs
3 and 4 hereof, the Registrant on behalf of each Fund will pay you each
month a fee at an annual rate equal to the percentage of the average daily
net assets of the Fund set forth with respect to such Fund on Annex A. The
"average daily net assets" of a Fund shall be determined on the basis set
forth in the Fund's prospectus(es) or otherwise consistent with the 1940
Act and the regulations promulgated thereunder.
(b) In addition to the foregoing, you may from time to time agree not to impose
all or a portion of your fee otherwise payable hereunder (in advance of the
time such fee or portion thereof would otherwise accrue) and/or undertake
to pay or reimburse a Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by you at any
time.
6. Avoidance of Inconsistent Position. In connection with purchases or sales
----------------------------------
of portfolio securities for the account of the Funds, neither you nor any of
your partners, officers or employees will act as a principal, except as
otherwise permitted by the 1940 Act. You or your agent shall arrange for the
placing of all orders for the purchase and sale of portfolio securities for each
Fund's account with brokers or dealers (including Goldman, Sachs & Co.) selected
by you. In the selection of such brokers or dealers (including Goldman, Sachs &
Co.) and the placing of such orders, you are directed at all times to seek for
the Funds the most favorable execution and net price available. It is also
understood that it is desirable for the Funds that you have access to
supplemental investment and market research and security and economic analyses
provided by brokers who may execute brokerage transactions at a higher cost to a
Fund than may result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities for the Funds
with such brokers, subject to review by the Registrant's Trustees from time to
time with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to you in
connection with your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of the Funds,
you will act solely as investment counsel for such clients and not in any way on
behalf of any Fund. You may, on occasions when you deem the purchase or sale of
a security to be in the best interests of a Fund as well as your other customers
(including any other Series or any other investment company or advisory account
for which you or any of your affiliates acts as an investment adviser),
aggregate, to the extent permitted by applicable laws and regulations, the
securities to be sold or purchased in order to obtain the best net price and the
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by you in the manner you consider to be the most equitable and consistent
with your fiduciary obligations to the Fund and to such other customers. In
addition, you are authorized to take into account the sale of shares of the
Registrant in allocating purchase and sale orders for portfolio securities to
brokers or dealers (including brokers and dealers that are affiliated with you),
provided that you believe that the quality of the transaction and the commission
is comparable to what they would be with other qualified firms.
7. Limitation of Liability of Manager and Fund. You shall not be liable for
-------------------------------------------
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your part
in the performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Registrant
or the Funds shall be deemed, when acting within the scope of his employment by
the Funds, to be acting in such employment solely for the Funds and not as your
employee or agent. The
<PAGE>
Fund shall not be liable for any claims against any other Series of the
Registrant.
8. Duration and Termination of this Agreement. This Agreement shall remain in
------------------------------------------
force as to each Fund until June 30, 1998 and shall continue for periods of one
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of the Registrant and have no
financial interest in this Agreement, cast in person at a meeting called for the
purpose of voting on such approval and (b) by a vote of a majority of the
Trustees of the Registrant or of a majority of the outstanding voting securities
of such Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder. This
Agreement may, on 60 days written notice to the other party, be terminated in
its entirety or as to a particular Fund at any time without the payment of any
penalty, by the Trustees of the Registrant, by vote of a majority of the
outstanding voting securities of a Fund, or by you. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Agreement, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "interested person," "assignment" and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective as to a Fund until approved by vote of the holders of a majority of
the outstanding voting securities of such Fund and by a majority of the Trustees
of the Registrant, including a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Registrant and have no financial
interest in this Agreement, cast in person at a meeting called for the purpose
of voting on such amendment. Notwithstanding the foregoing, this Agreement may
be amended at any time to add to a new Fund to Annex A provided such amendment
is approved by a majority of the Trustees of the Registrant, including a
majority of the Trustees who are not interested persons (as defined in the 1940
Act) of the Registrant and have no financial interest in this Agreement. This
paragraph does not apply to any agreement described in paragraph 5(b) hereof,
which shall be effective during the period you specify in a prospectus, sticker,
or other document made available to current or prospective shareholders.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for convenience
-------------
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed simultaneously 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.
The name Goldman Sachs Trust is the designation of the Trustees for the time
being under a Declaration of Trust dated January 28, 1997 as amended from time
to time, and all persons dealing with the Trust or a Funds must look solely to
the property of the Trust or such Fund for the enforcement of any claims as
none of Trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Trust. No Fund shall be liable
for any claims against any other Series.
If you are in agreement with the foregoing, please sign the form of acceptance
on the Registrant counterpart of this letter and return such counterpart to the
Registrant, whereupon this letter shall become a binding contract.
<PAGE>
Yours very truly,
GOLDMAN SACHS TRUST
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:________________________ By:______________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the
Registrant
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT,
A DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael Richman /s/ Daivd B. Ford
Attest:_______________________ By:__________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
GOLDMAN SACHS FUNDS MANAGEMENT L.P.,
EACH AN AFFILIATE OF GOLDMAN, SACHS & CO.
/s/ Michael Richman /s/ Daivd B. Ford
Attest:_______________________ By:__________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL,
EACH AN AFFILIATE OF GOLDMAN, SACHS & CO.
/s/ Michael Richman /s/ Daivd B. Ford
Attest:_______________________ By:__________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
<PAGE>
Annex A
GOLDMAN SACHS ASSET MANAGEMENT
- ------------------------------
Annual Rate
-----------
Goldman Sachs Government Income Fund 0.65%
Goldman Sachs Municipal Income Fund 0.55%
Goldman Sachs High Yield Fund 0.70%
Goldman Sachs Balanced Fund 0.65%
Goldman Sachs Growth and Income Fund 0.70%
Goldman Sachs CORE Large Cap Growth Fund 0.75%
Goldman Sachs Mid Cap Equity Fund 0.75%
Goldman Sachs Small Cap Equity Fund 1.00%
Goldman Sachs-Financial Square Prime Obligations Fund 0.205%
Goldman Sachs-Financial Square Money Market Fund 0.205%
Goldman Sachs-Financial Square Money Market Plus Fund 0.205%
Goldman Sachs-Financial Square Treasury Obligations Fund 0.205%
Goldman Sachs-Financial Square Treasury Instruments Fund 0.205%
Goldman Sachs-Financial Square Government Fund 0.205%
Goldman Sachs-Financial Square Federal Fund 0.205%
Goldman Sachs-Financial Square Tax-Free Money Market Fund 0.205%
Goldman Sachs-Financial Square Municipal Money Market Fund 0.205%
GOLDMAN SACHS FUNDS MANAGEMENT L.P.
- -----------------------------------
Goldman Sachs CORE U.S. Equity Fund 0.75%
Goldman Sachs Capital Growth Fund 1.00%
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- --------------------------------------------
Goldman Sachs Global Income Fund 0.90%
Goldman Sachs International Equity Fund 1.00%
Goldman Sachs Emerging Markets Equity Fund 1.20%
Goldman Sachs Asia Growth Fund 1.00%
<PAGE>
EXHIBIT 5(f)
GOLDMAN SACHS TRUST
4900 Sears Tower
Chicago, Illinois 60606
January 1, 1998
MANAGEMENT AGREEMENT
(ASSET ALLOCATION PORTFOLIOS)
-----------------------------
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
Dear Sirs:
Goldman Sachs Trust (the "Registrant") is organized as a business trust under
the laws of the State of Delaware to engage in the business of an investment
company. The shares of the Registrant ("Shares") may be divided into multiple
series ("Series"), including the Series listed on Annex A (including any Series
added to Annex A in the future, each a "Fund"). Each Series will represent the
interests in a separate portfolio of securities and other assets. Each Series
may be terminated, and additional Series established, from time to time by
action of the Trustees. The Registrant, on behalf of the respective Funds, has
selected you to act as an investment adviser and administrator of the Funds
designated on Annex A and to provide certain services with respect to those
Funds, as more fully set forth below, and you are willing to act as such
investment adviser and administrator and to perform such services under the
terms and conditions hereinafter set forth. Accordingly, the Registrant agrees
with you as follows:
1. Name of Registrant. The Registrant may use any name including or derived
------------------
from the name "Goldman Sachs" in connection with a Fund only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to your business as investment adviser or administrator. Upon the termination of
this Agreement, the Registrant (to the extent that it lawfully can) will cause
the Funds to cease to use such a name or any other name indicating
<PAGE>
that it is advised by or otherwise connected with you or any organization which
shall have so succeeded to your business.
2. Affiliated Advisers and Sub-Advisers. At your discretion, you may provide
-------------------------------------
advisory and administration services through your own employees or the employees
of one or more affiliated companies that are qualified to act as investment
adviser, or administrator to the Registrant under applicable law and are under
the common control of Goldman, Sachs & Co. provided that (a) all persons, when
providing services hereunder, are functioning as part of an organized group of
persons; and (b) such organized group of persons is managed at all times by your
authorized officers. You may also engage one or more investment advisers which
are either registered as such or specifically exempt from registration under the
Investment Advisers Act of 1940, as amended, to act as sub-advisers to provide
with respect to any Fund certain services set forth in paragraphs 3 and 6
hereof, all as shall be set forth in a written contract to which the Registrant,
on behalf of the particular Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Trustees who are not
interested persons of you, the sub-adviser, or of the Registrant, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940, as amended (the
"1940 Act").
3. Management Services.
-------------------
(a) You will regularly provide each Fund with investment research,
advice and supervision and will furnish continuously an investment program
for each Fund consistent with the investment objectives and policies of the
Fund. You will determine from time to time what securities shall be
purchased for a Fund, what securities shall be held or sold by a Fund, and
what portion of a Fund's assets shall be held uninvested as cash, subject
always to the provisions of the Registrant's Declaration of Trust and By-
Laws and of the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from time to time in
effect, and subject, further, to such policies and instructions as the
Trustees of the Registrant may from time to time establish. Without
limiting the generality of the foregoing, you will, subject to the
foregoing limitations, (i) determine the amount each Fund will invest,
directly or indirectly, in equity, fixed income and money market
securities, (ii) evaluate the attributes of any investment company in which
a Fund may invest and (iii) determine the amount of each Fund's assets that
are invested in any one or more investment companies from time to time.
-2-
<PAGE>
(b) Subject to the general supervision of the Trustees of the
Registrant, you will provide certain administrative services to each Fund.
You will, to the extent such services are not required to be performed by
others pursuant to the custodian agreement (or the transfer agency
agreement to the extent that a person other than you is serving thereunder
as the Registrant's transfer agent), (i) provide supervision of all aspects
of each Fund's operations not referred to in paragraph (a) above; (ii)
provide each Fund with personnel to perform such executive, administrative
and clerical services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Registrant's expense,
(A) the preparation for each Fund of all required tax returns, (B) the
preparation and submission of reports to existing shareholders and (C) the
periodic updating of the Fund's prospectuses and statements of additional
information and the preparation of reports filed with the Securities and
Exchange Commission and other regulatory authorities; (iv) maintain all of
the Funds' records; and (v) provide the Funds with adequate office space
and all necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(c) You will also provide to the Registrant's Trustees such periodic
and special reports as the Trustees may reasonably request. You shall for
all purposes herein be deemed to be an independent contractor and shall,
except as otherwise expressly provided or authorized, have no authority to
act for or represent the Registrant or the Funds in any way or otherwise be
deemed an agent of the Registrant or the Funds.
(d) You will maintain all books and records with respect to the Funds'
securities transactions required by sub-paragraphs (b)(5), (6), (7), (9)
and (10) and paragraph (f) of Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Funds' custodian or transfer agent)
and preserve such records for the periods prescribed therefor by Rule 31a-2
of the 1940 Act. You will also provide to the Registrant's Trustees such
periodic and special reports as the Board may reasonably request.
(e) You will notify the Registrant of any change in your membership
within a reasonable time after such change.
(f) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs incurred by you
----------------------------------
in connection with the performance of your duties under paragraph 3. You will
pay the compensation and expenses of
-3-
<PAGE>
all personnel of yours and will make available, without expense to the Funds,
the services of such of your partners, officers and employees as may duly be
elected officers or Trustees of the Registrant, subject to their individual
consent to serve and to any limitations imposed by law. You will not be
required to pay any expenses of any Fund other than those specifically allocated
to you in this paragraph 4. In particular, but without limiting the generality
of the foregoing, you will not be required to pay: (a) organization expenses of
the Funds; (b) fees and expenses incurred by the Funds in connection with
membership in investment company organizations; (c) brokers' commissions; (d)
payment for portfolio pricing services to a pricing agent, if any; (e) legal,
auditing or accounting expenses (including an allocable portion of the cost of
your employees rendering legal and accounting services to the Fund); (f) taxes
or governmental fees; (g) the fees and expenses of the transfer agent of the
Registrant; (h) the cost of preparing stock certificates or any other expenses,
including clerical expenses of issue, redemption or repurchase of Shares of the
Fund; (i) the expenses of and fees for registering or qualifying Shares for sale
and of maintaining the registration of the Funds and registering the Registrant
as a broker or a dealer; (j) the fees and expenses of Trustees of the Registrant
who are not affiliated with you; (k) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange Commission and
other regulatory authorities; (l) the fees or disbursements of custodians of
each Fund's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Registrant
insofar as they govern agreements with any such custodian; or (m) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business. You shall not be required to pay
expenses of activities which are primarily intended to result in sales of Shares
of the Funds.
5. Compensation of the Manager.
---------------------------
(a) For all services to be rendered and payments made as provided in
paragraphs 3 and 4 hereof, the Registrant on behalf of each Fund will pay
you each month a fee at an annual rate equal to the percentage of the
average daily net assets of the Fund set forth with respect to such Fund on
Annex A. The "average daily net assets" of a Fund shall be determined on
the basis set forth in the Fund's prospectus(es) or otherwise consistent
with the 1940 Act and the regulations promulgated thereunder.
(b) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder (in
advance of the time such fee or portion thereof would otherwise accrue)
and/or undertake to pay or reimburse a Fund for all or a portion of its
expenses not otherwise required to be borne or reimbursed by you. Any such
fee reduction or undertaking may be discontinued or modified by you at any
time.
-4-
<PAGE>
6. Avoidance of Inconsistent Position. In connection with purchases or sales
----------------------------------
of portfolio securities for the account of the Funds, neither you nor any of
your partners, officers or employees will act as a principal, except as
otherwise permitted by the 1940 Act. You or your agent shall arrange for the
placing of all orders for the purchase and sale of portfolio securities for each
Fund's account with brokers or dealers (including Goldman, Sachs & Co.) selected
by you. In the selection of such brokers or dealers (including Goldman, Sachs &
Co.) and the placing of such orders, you are directed at all times to seek for
the Funds the most favorable execution and net price available. It is also
understood that it is desirable for the Funds that you have access to
supplemental investment and market research and security and economic analyses
provided by brokers who may execute brokerage transactions at a higher cost to a
Fund than may result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities for the Funds
with such brokers, subject to review by the Registrant's Trustees from time to
time with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to you in
connection with your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of the Funds,
you will act solely as investment counsel for such clients and not in any way on
behalf of any Fund. You may, on occasions when you deem the purchase or sale of
a security to be in the best interests of a Fund as well as your other customers
(including any other Series or any other investment company or advisory account
for which you or any of your affiliates acts as an investment adviser),
aggregate, to the extent permitted by applicable laws and regulations, the
securities to be sold or purchased in order to obtain the best net price and the
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by you in the manner you consider to be the most equitable and consistent
with your fiduciary obligations to the Fund and to such other customers. In
addition, you are authorized to take into account the sale of Shares of the
Registrant in allocating purchase and sale orders for portfolio securities to
brokers or dealers (including brokers and dealers that are affiliated with you),
provided that you believe that the quality of the transaction and the commission
is comparable to what they would be with other qualified firms.
7. Limitation of Liability of Manager and Fund. You shall not be liable for
-------------------------------------------
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your part
in the performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by you, who may be or become an employee of and paid by the Registrant
or the Funds shall be
-5-
<PAGE>
deemed, when acting within the scope of his employment by the Funds, to be
acting in such employment solely for the Funds and not as your employee or
agent. A Fund shall not be liable for any claims against any other Fund or
Series of the Registrant.
8. Duration and Termination of this Agreement. This Agreement shall remain in
------------------------------------------
force as to each Fund until June 30, 1999 and shall continue for periods of one
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of the Registrant and have no
financial interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a majority of the
Trustees of the Registrant or of a majority of the outstanding voting securities
of such Fund. The aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder. This
Agreement may, on 60 days written notice to the other party, be terminated in
its entirety or as to a particular Fund at any time without the payment of any
penalty, by the Trustees of the Registrant, by vote of a majority of the
outstanding voting securities of a Fund, or by you. This Agreement shall
automatically terminate in the event of its assignment. In interpreting the
provisions of this Agreement, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "interested person," "assignment" and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by any rule, regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective as to a Fund until approved by vote of the holders of a majority of
the outstanding voting securities of such Fund and by a majority of the Trustees
of the Registrant, including a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of the Registrant and have no financial
interest in this Agreement, cast in person at a meeting called for the purpose
of voting on such amendment. Notwithstanding the foregoing, this Agreement may
be amended at any time to add to a new Fund to Annex A, or for any other reason
permitted by the 1940 Act and the regulations and interpretations thereunder,
provided such amendment is approved by a majority of the Trustees of the
Registrant, including a majority of the Trustees who are not interested persons
(as defined in the 1940 Act) of the Registrant and have no financial interest in
this Agreement. This paragraph does not apply to any agreement described in
paragraph 5(b) hereof, which shall be effective during the period you specify in
a prospectus, sticker, or other document made
-6-
<PAGE>
available to current or prospective shareholders.
10. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
11. Miscellaneous. The captions in this Agreement are included for convenience
-------------
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed simultaneously 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.
The name Goldman Sachs Trust is the designation of the Trustees for the
time being under an Agreement and Declaration of Trust dated January 28, 1997 as
amended from time to time, and all persons dealing with the Trust or a Fund must
look solely to the property of the Trust or such Fund for the enforcement of any
claims as none of the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the Registrant counterpart of this letter and return such
counterpart to the Registrant, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS TRUST
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:___________________________ By:___________________________
Michael J. Richman Douglas C. Grip
Secretary of the Registrant President of the Registrant
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT,
A DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest:____________________________ By:___________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
-7-
<PAGE>
Annex A
Goldman Sachs Asset Management will provide the services provided for in the
attached Management Agreement with respect to the following Funds:
Goldman Sachs Growth Strategy Portfolio
Goldman Sachs Aggressive Growth Strategy Portfolio
Goldman Sachs Income Strategy Portfolio
Goldman Sachs Growth and Income Strategy Portfolio.
For the services provided to the Funds under the Management Agreement to Goldman
Sachs Asset Management will be entitled to receive a fee, with respect to each
Fund, equal to 0.35% of a Fund's average daily net assets. The Registrant
understands that Goldman Sachs Asset Management and its affiliates may receive
compensation, inter alia, from the Funds for other, non-management services, and
----- ----
from investment companies in which the Funds invest for services provided to
such companies.
-8-
<PAGE>
EXHIBIT 5(g)
MANAGEMENT AGREEMENT
BETWEEN
GOLDMAN SACHS TRUST
ON BEHALF OF ITS
INSTITUTIONAL LIQUID ASSETS PORTFOLIOS
AND
GOLDMAN SACHS ASSET MANAGEMENT
<PAGE>
CONTENTS
PARAGRAPH PAGE
- --------- ----
1. Appointment of Manager..................... 1
2. Delivery of Documents...................... 1
3. Duties of Manager.......................... 2
4, Expenses................................... 5
5. Compensation............................... 5
6. Books and Records.......................... 5
7. Idemnification............................. 6
8. Duration and Termination................... 7
9. Name License............................... 8
10. Status of Manager as Independent Contractor 8
11. Amendment of Agreement..................... 8
12. Unitholder Liability....................... 8
13. Miscellaneous.............................. 8
14. Limitation of Liability of Manager......... 9
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT made this 30th day of April, 1997 between Goldman Sachs Trust, a
Delaware business trust (the "Trust"), on behalf of Goldman Sachs -
Institutional Liquid Assets Portfolios ('ILA"), and Goldman Sachs Asset
Management, a separate operating division of Goldman, Sachs & Co. (the
"Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue units of beneficial interest
("Units") in separate series (and separate classes of Units within a series)
with each such series representing the interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Trust presently offers Units in nine ILA portfolios: the
Prime Obligations Portfolio, the Government Portfolio, the Treasury Obligations
Portfolio, the Treasury Instruments Portfolio, the Money Market Portfolio, the
Federal Portfolio, the Tax-Exempt Diversified Portfolio, the Tax-Exempt
California Portfolio, and the Tax-Exempt New York Portfolio [such Portfolios
(the "Current Portfolios") together with all other portfolios subsequently
established by the Trust on behalf of ILA being herein collectively referred to
as the "Portfolios"]; and
WHEREAS, the Trust on behalf of the Portfolios desires to retain the
Manager to render investment advisory and administrative services to the
Portfolios as indicated below and the Manager is willing to so render such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT OF MANAGER. The Trust on behalf of the Portfolios hereby
----------------------
appoints the Manager to act as investment adviser and to provide administrative
services to the Portfolios for the periods and on the terms herein set forth.
The Manager accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Trust on behalf of the Portfolios has
---------------------
delivered (or will deliver as soon as is possible) to the Manager copies of each
of the following documents:
(a) Declaration of Trust of the Trust dated as of January 28, 1997
together with all amendments thereto (such Declaration of Trust, as
presently in effect and as amended from time to time, is herein called
the "Trust Agreement"). A copy of the Declaration of Trust is also on
file with the Secretary of State of Delaware;
(b) By-Laws of the Trust (such By-Laws, as presently in effect and as
amended from time to time are herein called the "By-Laws");
3
<PAGE>
(c) Custodian Agreement dated December 27, 1978 between the Trust and
State Street Bank and Trust Company together with all amendments
thereto and the related current fee schedule (such Agreement, as
presently in effect and as amended and/or superseded from time to
time, is herein called the "Custodian Agreement");
(d) Transfer Agency Agreement dated May 1, 1988 between the Trust and
the Manager together with all amendments thereto and the related
current fee schedule (such Agreement, as presently in effect and as
amended and/or superseded from time to time, is herein called the
"Transfer Agency Agreement");
(e) Post-Effective Amendment No. 29 to the Trust's Registration
Statement on Form N-1A (No. 33-17619) under the Securities Act of 1933
(the "1933 Act") and Amendment No. 31 to the Trust's Registration
Statement on such Form (No. 811-5349) under the 1940 Act filed as a
single document with the Securities and Exchange Commission (the
"Commission") on February 14, 1997 (such Registration Statement, as
presently in effect and as amended from time to time, is herein called
the "Registration Statement");
(f) Prospectus and Statement of Additional Information of the Trust
dated May 1, 1997 (such Prospectus and Statement of Additional
Information, as presently in effect and as amended, supplemented
and/or superseded from time to time, are herein called the
"Prospectus" and "Additional Satement," respectively).
The Trust on behalf of the Portfolios agrees to promptly furnish the
Manager from time to time with copies of all amendments of or supplements
to or otherwise current versions of any of the foregoing documents not
heretofore furnished.
3. DUTIES OF MANAGER.
-----------------
(a) Subject to the general supervision of the Trustees of the Trust,
the Manager shall manage the investment operations of each of the
Portfolios and the composition of each of the Portfolio's assets,
including the purchase, retention and disposition thereof. In this
regard, the Manager
(i) shall provide supervision of the Portfolios' assets, furnish
a continuous investment program for such Portfolios, determine
from time to time what investments or securities will be
purchased, retained or sold by the Portfolios, and what portion
of the assets will be invested or held uninvested as cash;
(ii) shall place orders pursuant to its determinations either
directly with the issuer or with any broker, dealer or other
person who deals in the
4
<PAGE>
securities in which the Portfolio in question is active. In
placing orders with brokers, dealers or such other persons, the
Manager shall attempt to obtain the best net price and the most
favorable execution of its orders. When the execution and price
offered by two or more brokers, dealers or such other persons are
comparable, the Manager may, in its discretion but subject to
applicable law, purchase and sell Portfolio securities to and
from brokers, dealers or such other persons who provide brokerage
or research services;
(iii) may, on occasions when it deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as
its other customers (including any other Portfolio or any other
investment company or advisory account for which the Manager acts
as adviser), aggregate, to the extent permitted by applicable
laws and regulations, the securities to be sold or purchased in
order to obtain the best net price and the most favorable
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to such Portfolio and to such other
customers.
(b) In addition, the Manager shall, subject to the general
supervision of the Trustees of the Trust, provide for the
administration of all other affairs of the Portfolios. In this regard,
the Manager
(i) giving due recognition to the fact that certain of such
operations are performed by others pursuant to the Custodian
Agreement, the Transfer Agency Agreement, to the extent that a
person other than the Manager is serving thereunder as the
Trust's transfer agent, and other agreements which the Trust may
enter into with third parties from time to time, shall provide
supervision of all aspects of the Portfolios' operations not
referred to in paragraph 3 (a) above;
(ii) shall, to the extent not provided pursuant to the Custodian
Agreement, the Transfer Agency Agreement and the other agreements
referred to in (i) above, provide the Portfolios with personnel
to perform such executive, administrative and clerical services
as are reasonably necessary to provide effective administration
of the Portfolios;
5
<PAGE>
(iii) shall, to the extent not provided pursuant to the
Custodian Agreement, the Transfer Agency Agreement, and the
other agreements referred to in (i) above, arrange for (A) the
preparation for the Portfolios of all required tax returns, (B)
the preparation and submission of reports to existing
Unitholders, and (C) the periodic updating of the Prospectus and
the Additional Statement and the preparation of reports filed
with the Commission and other regulatory authorities; and
(iv) shall, to the extent not provided pursuant to the Custodian
Agreement, the Transfer Agency Agreement and the other agreements
referred to in (i) above, provide the Portfolios with adequate
office space and all necessary office equipment and services,
including telephone service, heat, utilities, stationery supplies
and similar items.
(c) The Manager, in the performance of its duties hereunder,
(i) shall use the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims;
(ii) shall act in conformity with the Trust Agreement, By-Laws,
Registration Statement, Prospectus and Additional Statement and
with the instructions and directions of the Trustees of the
Trust, and will, subject to the standard set forth in paragraph
3(c) (i) above, comply with and conform to the requirements of
the 1940 Act, the Investment Advisers Act of 1940 and all other
applicable federal and state laws, regulations and rulings.
(d) The Manager shall render to the Trustees of the Trust on behalf of
the Portfolios such periodic and special reports as the Trustees may
reasonably request.
(e) The Manager shall notify the Trust on behalf of the Portfolios of
any change in the membership of the Manager within a reasonable time
after such change.
(f) The services of the Manager hereunder are not deemed exclusive and
the Manager shall be free to render similar services to others so
long as its services under this Agreement are not impaired thereby.
6
<PAGE>
4. EXPENSES.
--------
(a) During the term of this Agreement, the Manager will pay all
costs incurred by it in connection with the performance of its duties
under paragraph 3 hereof, other than the cost (including taxes and
brokerage commissions, if any) of securities purchased for each of
the Portfolios, the cost of the preparations, submissions, updatings
and filings referred to in paragraph 3(b) (iii)), the cost of legal
and accounting services rendered by employees of the Manager with
respect to the Portfolios and, at the option of the Manager,
telephone, personnel and other costs attributable to services for
existing Unitholders.
(b) If, in any fiscal year, the sum of a Portfolio's expenses
(including the fee payable pursuant to paragraph 5 hereof, but
excluding taxes interest, brokerage commissions, and extraordinary
expenses such as for litigation) exceeds the expense limitations
applicable to such Portfolio imposed by state securities
administrators, as such limitations may be modified from time to time,
the Manager shall be responsible for reducing its fee or making
payments to offset certain expenses otherwise payable by such
Portfolio, in order to eliminate such excess to the extent required by
such expense limitations.
(c) In addition to the foregoing, the Manager may from time to time
further reduce its fee or make payment to a Portfolio in order to
offset all or a portion of certain expenses otherwise payable by such
Portfolio, provided that any such arrangement does not jeopardize the
Portfolio's qualification as a regulated investment company. Any such
fee reduction will be agreed to in advance of the time such fee would
otherwise accrue, and any such arrangement may be discontinued or
modified only with the express approval of the Trustees.
5. COMPENSATION.
------------
(a) For the services provided and the expenses assumed by the Manager
pursuant to this Agreement, the Trust on behalf of the Portfolios will
pay to the Manager as full compensation therefor a fee (the
"Portfolio Fee") at an annual rate of .35 of 1% of each Portfolio's
average net assets, subject to any reduction pursuant to paragraph
4(b) or 4(c) hereof.
(b) The Portfolio Fee will computed based on net assets on each day
and will be paid to the Manager monthly.
6. BOOKS AND RECORDS. The Manager shall maintain all of the Portfolios'
-----------------
records (other than those maintained pursuant to the Custodian Agreement, the
Transfer Agency Agreement and the other agreements referred to in paragraph
3(b)(i) above). The Manager agrees that all records
7
<PAGE>
which it maintains for the Trust on behalf of the Portfolios are the property of
the Trust on behalf of the Portfolios and it will surrender promptly to the
Trust any of such records upon the Trust's request. The Manager further agrees
to preserve for the periods prescribed by Rule 31a-2 of the Commission under the
1940 Act any such records as are required to be maintained by Rule 31a-1 of the
Commission under the 1940 Act.
7. INDEMNIFICATION.
---------------
(a) The Trust on behalf of the Portfolios hereby agrees to indemnify
and hold harmless the Manager, its officers, partners and employees
and each person who controls the Manager (collectively, the
"Indemnified Parties") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the 1933 Act, the Securities Exchange Act of 1934, the
1940 Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon
(i) any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission to state a
material fact required to be stated or necessary to make the
statements made not misleading in the Registration Statement, the
Prospectus or the Additional Statement, except insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission either
pertaining to a failure to disclose a breach of the Manager's
duties in connection with this Agreement or the Distribution
Agreement of even date herewith between the Trust on behalf of
the Portfolios and the Manager (the "Distribution Agreement") or
made in reliance upon and in conformity with information
furnished to the Portfolios by or on behalf of the Manager for
use in connection with the Registration Statement, the Prospectus
or the Additional Statement, or
(ii) subject in each case to clause (i) above, the Manager
acting hereunder or under the Distribution Agreement;
and the Trust on behalf of the Portfolios will reimburse each
Indemnified Party for any legal or other expenses incurred by such
Indemnified Party in connection with investigating or defending any
such loss, claim, damage, liability or action.
8
<PAGE>
(b) If the idemnification provided for in paragraph 7(a) is available
in accordance with the terms of such paragraph but is for any reason
held by a court to be unavailable from the Trust, then the Trust on
behalf of the Portfolios shall contribute to the aggregate amount paid
or payable by the Portfolios and the Indemnified Parties as a result
of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the
relative benefits received by the Portfolios and such Indemnified
Parties in connection with the operations of the Portfolios, (ii) the
relative fault of the Portfolios and such Indemnified Parties, and
(iii) any other relevant equitable considerations. The Trust on
behalf of the Portfolios and the Manager agree that it would not be
just and equitable if contribution pursuant to this subparagraph (b)
were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations
referred to above in this subparagraph (b). The aggregate amount paid
or payable as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in this
subparagraph (b) shall be deemed to include any legal or other
expenses incurred by the Trust on behalf of the Portfolios and the
Indemnified Parties in connection with investigating or defending any
such loss, claim, damage, liability or action. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(c) It is understood, however, that nothing in this paragraph 7 shall
protect any Indemnified Party against, or entitle any Indemnified
Party to indemnification against or contribution with respect to, any
liability to the Trust on behalf of the Portfolios or their
Unitholders to which such Indemnified Party is subject, by reason of
its willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of any reckless disregard of
its obligations and duties, under this Agreement or the Distribution
Agreement, or otherwise to an extent or in a manner inconsistent with
Section 17(i) of the 1940 Act.
8. Duration and Termination. Insofar as the holders of Units in each of
------------------------
the Current Portfolios are affected by this Agreement, it shall continue, unless
sooner terminated as provided herein, until June 30, 1998 and, insofar as the
holders of Units in each of the other Portfolios are affected by this Agreement,
it shall continue until June 30 of the year following the year in which the
Portfolio becomes an ILA Portfolio hereunder, and thereafter shall continue
automatically for periods of one year so long as each such latter continuance is
approved at least annually (a) by the vote of a majority of the Trustees of
the Trust who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Trustees of the Trust
or by vote of a majority of the outstanding Units (as defined with respect to
voting securities in the 1940 Act) in such Portfolio; provided, however, that
this Agreement may be terminated by the Trust as to any or all Portfolios at any
time, without the payment of any penalty, by vote of a majority of the Trustees
of the Trust
9
<PAGE>
on behalf of the Portfolios or by vote of a majority of the outstanding Units
(as so defined) in each Portfolio affected thereby on 60 days' written notice to
the Manager, or by the Manager at any time, without the payment of any penalty,
on 90 days' written notice to the Trust. This Agreement will automatically and
immediately terminate in the event of its assignment (as defined in the 1940
Act).
9. NAME LICENSE. The Manager agrees that the name "Goldman Sachs" may
------------
be used in the Portfolios' names, and that the name "Goldman Sachs," any related
logos, and any service marks containing the words "Goldman Sachs" may be used in
connection with the Portfolios' business, for so long as this Agreement remains
in effect and that such use shall be royalty free. At such time as this
Agreement shall no longer be in effect, the Portfolios will (to the extent it
lawfully can) cease such use. The Portfolios acknowledge that they have no
rights to the name "Goldman Sachs" or any logos or service marks containing the
words "Goldman Sachs" other those granted in this paragraph and that the Manager
reserves to itself the right to grant the non-exclusive right to use the name
"Goldman Sachs," such logos or service marks to any other person or persons,
including, but not limited to, another investment company. The Manager
acknowledges that it has no rights to the name "Institutional Liquid Assets" or
"ILA," nor will any such rights arise or be asserted as a result of the use of
the name "Goldman Sachs" as a part thereof or in connection therewith, all such
rights in each case belonging solely to the Portfolios. Should this Agreement
cease to be in effect the Manager shall have no right to use the name
"Institutional Liquid Assets" or "ILA" in any manner.
10. STATUS OF MANAGER AS INDEPENDENT CONTRACTOR. The Manager shall for
-------------------------------------------
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided herein or authorized by the Trustees of the Trust
from time to time, have no authority to act for or represent the Trust on behalf
of the Portfolios in any way or otherwise be deemed an agent of the Portfolios.
11. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
----------------------
consent provided that such amendment is approved (a) by vote of a majority of
those Trustees of the Trust on behalf of the Portfolios who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
amendment, and (b) by vote of a majority of the outstanding Units (as defined
with respect to voting securities in the 1940 Act) in each Portfolio affected
by such amendment.
12. UNITHOLDER LIABILITY. This Agreement is executed by or on behalf of
--------------------
the Trust with respect to each of the Portfolios 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 Portfolio to which they belong and
its assets and property.
13. MISCELLANEOUS. The Trust's Declaration of Trust is on file with the
-------------
Secretary of State of Delaware. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be construed in accordance with
applicable federal law and (except as to paragraph 12 hereof which shall be
construed in accordance with the laws of the state of Delaware) the laws of the
state of Illinois and shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, subject to paragraph 8
hereof. Anything herein to the contrary
10
<PAGE>
notwithstanding, this Agreement shall not be construed to require, or to impose
any duty upon, either of the parties to do anything in violation of any
applicable laws or regulations
14. LIMITATION OF LIABILITY. The Manager shall not be liable for any
-----------------------
error of judgment or mistake of law or for any loss suffered by a Portfolio in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your part
in the performance of your duties or from reckless disregard by the Manager of
its obligations and duties under this Agreement. Any person, even though also
employed by the Manager, who may be or become an employee of and paid by the
Trust or a Portfolio shall be deemed, when acting within the scope of his
employment by the Trust, to be acting in such employment solely for the Trust
and not as the Manager's employee or agent.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
GOLDMAN SACHS TRUST
(ON BEHALF OF ITS INSTITUTIONAL LIQUID ASSETS PORTFOLIOS)
/s/ Michael J. Richman /s/ Douglas C. Grip
Attest:_________________________________ By:_____________________________
Michael J. Richman Douglas C. Grip
Secretary of the Trust President of the Trust
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
/s/ Michael J. Richman /s/ David B. Ford
Attest: _________________________________ By:_____________________________
Michael J. Richman David B. Ford
Counsel to the Funds Group Managing Director
11
<PAGE>
EXHIBIT 15(n)
GOLDMAN SACHS TRUST
On behalf of each of its series or if a series has more
than one class of shares the Class A Shares thereof
CLASS A PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
January 28, 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 from time to time (each
series a "Fund");
WHEREAS, the Trust, on behalf of each Fund, 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
the Plan of Distribution will benefit each Fund and its shareholders; and
WHEREAS, the Trust, on behalf of each employs Goldman, Sachs & Co. (the
"Distributor") as distributor of the shares (or if the Fund has more than one
class of shares, its Class A Shares) of beneficial interest of the Fund (the
"Shares") pursuant to a Distribution Agreement dated April 30, 1997.
NOW, THEREFORE, the Trust, on behalf of the Funds, 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 Fund, is authorized to
compensate the Distributor for distribution services performed
and expenses incurred by the Distributor in connection with each
Fund's Shares. The amount of such compensation paid during any
one year shall not exceed .25% of the average daily net assets of
a Fund attributable to such Shares. Such compensation shall be
calculated and accrued daily and paid quarterly or at such other
intervals as the Board of Trustees may determine.
(b) Distribution services and expenses for which the Distributor may
be compensated pursuant to this Plan include, without limitation:
compensation to and expenses of brokers and dealers who are
members of the National Association of Securities Dealers, Inc.
("NASD"), other financial services firms that have entered into
an agreement with the Distributor or their respective officers,
sales representatives and employees; compensation to and expenses
of the Distributor and any of its officers, sales representatives
and employees, including allocable overhead, travel and telephone
expenses, who engage in or support distribution of a Fund's
Shares; printing of reports and prospectuses for other than
existing shareholders; and preparation, printing and distribution
of sales literature and advertising materials.
(c) Appropriate adjustments to payments made pursuant to clause (a)
of this paragraph 1 shall be made whenever necessary to ensure
that no payment is made by the Trust on behalf of a Fund in
excess of the applicable maximum cap imposed on asset based,
front-end and deferred sales charges by subsection (d) of Section
26 of Article III of the Rules of Fair Practice of the NASD.
<PAGE>
2. This Plan shall not take effect with respect to a Fund or class until
it has been approved by a vote of at least a majority (as defined in
the Act) of the outstanding Class B Shares of such Fund or class.
3. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the
Trust who are not "interested persons" of the Trust (as defined by the
Act) and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreement.
4. This Plan shall remain in effect until May 1, 1998 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 3.
5. 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, expenses and the purposes for which such
services were performed and expenses were incurred.
6. This Plan may be terminated with respect to a Fund at any time by a
vote of a majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding Class B Shares of such Fund or class.
7. This Plan may not be amended with respect to any Fund to increase
materially the amount of compensation payable pursuant to paragraph 1
hereof unless such amendment is approved by a vote of at least a
majority (as defined in the Act) of the outstanding voting securities
of such Fund or class. No material amendment to the Plan shall be
made unless approved in the manner provided in paragraph 3 hereof.
8. 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.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 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.
10. In the case of a fund that offers more than one class of Shares, this
Plan only relates to the Class A Shares of such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the
average daily net assets of the Fund attributable to Class A Shares.
-2-
<PAGE>
IN WITNESS WHEREOF, the Trust (on behalf of each Fund) and the Distributor
have executed this Plan of Distribution as of the day and year first above
written.
GOLDMAN SACHS TRUST
/s/ Douglas C. Grip
By:____________________________
Douglas C. Grip
President of the Trust
GOLDMAN, SACHS & CO.
/s/ David B. Ford
By:____________________________
David B. Ford
General Partner
-3-
<PAGE>
EXHIBIT 15(o)
GOLDMAN SACHS TRUST
On behalf of each of its series that has designated
a class of its shares as the "Class B Shares" thereof
CLASS B PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
January 28, 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 Class B Shares (the "Class B Shares") with respect to certain
series of the Trust;
WHEREAS, the Trust, on behalf of each series that offers Class B Shares (a
"Fund"), 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 Fund and its shareholders; and
WHEREAS, the Trust, on behalf of each Fund, employs Goldman, Sachs & Co.
(the "Distributor") as distributor of its Class B Shares pursuant to a
Distribution Agreement dated April 30, 1997.
NOW, THEREFORE, the Trust, on behalf of the Funds, 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 Fund, is authorized to compensate
the Distributor for distribution services performed and expenses
incurred by the Distributor in connection with each Fund's Class
B Shares. The amount of such compensation paid during any one
year shall not exceed .75% of the average daily net assets of a
Fund attributable to such Class B Shares. Such compensation shall
be calculated and accrued daily and paid monthly or at such other
intervals as the Board of Trustees may determine.
(b) 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 Fund's Class
B Shares; printing of reports and prospectuses for other than
existing shareholders; and preparation, printing and distribution
of sales literature and advertising materials.
(c) Appropriate adjustments to payments made pursuant to clause (a)
of this paragraph
<PAGE>
1 shall be made whenever necessary to ensure that no payment is
made by the Trust on behalf of a Fund in excess of the applicable
maximum cap imposed on asset based, front-end and deferred sales
charges by subsection (d) of Section 26 of Article III of the
Rules of Fair Practice of the NASD.
2. This Plan shall not take effect with respect to the Class B Shares of
a Fund until it has been approved by a vote of at least a majority (as
defined in the Act) of the outstanding Class B Shares of such Fund.
3. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the
Trust who are not "interested persons" of the Trust (as defined by the
Act) and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreement.
4. This Plan shall remain in effect until May 1, 1998 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 3.
5. 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.
6. This Plan may be terminated with respect to a Fund at any time by a
vote of a majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding Class B Shares of such Fund. The Trust authorizes
the Distributor, if the distributor so elects, to assign to a third
party any payments that the Distributor is entitled to receive for the
Distributor's services hereunder free and clear of any offset, defense
or counterclaim the Trust may have against the Distributor (it being
understood that the foregoing does not constitute a waiver of any
claim the Trust or the Fund may have against the Distributor) and
except to the extent that any change or modification after the date
hereof of (x) the provisions of the Act, the rules and regulations
thereunder or other applicable law or (y) any interpretation of the
Act, the rules and regulations thereunder or other applicable law
shall restrict your right to make such transfer free and clear of any
offset, defense or counterclaim.
7. This Plan may not be amended with respect to any Fund 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 Class B Shares of
such Fund, except to the extent that the approval of another class of
such Fund is required in accordance with Rule 18f-3 under the Act, in
which case the approval of a majority (as defined in the Act) of the
outstanding voting securities of such class shall also be required.
No material amendment to the Plan shall be made unless approved in the
manner provided in paragraph 3 hereof.
8. 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.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a
period of not less than six years from the date of
-2-
<PAGE>
the Plan, any such agreement or any such report, as the case may be,
the first two years in an easily accessible place.
10. In the case of a Fund that offers more than one class of Shares, this
Plan only relates to the Class B Shares of such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the
average daily net assets of the Fund attributable to Class B Shares.
The obligations of the Trust and the Funds hereunder are not
personally binding upon, nor shall resort be had to the private
property of any of the Trustees, shareholders, officers, employees or
agents of the Trust, but only the Trust's property allocable to Class
B 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 Fund that has designated a
class of its shares as the "Class B Shares" thereof) and the Distributor have
executed this Plan of Distribution as of the day and year first above written.
GOLDMAN SACHS TRUST
/s/ Douglas C. Grip
By:_______________________________
Douglas C. Grip
President of the Trust
GOLDMAN, SACHS & CO.
/s/ David B. Ford
By:________________________________
David B. Ford
General Partner
-3-
<PAGE>
GOLDMAN SACHS TRUST
On behalf of each of its series that has designated
a class of its shares as the "Class C Shares" thereof
CLASS C PLAN OF DISTRIBUTION
PURSUANT TO RULE 12B-1
January 28, 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 Class C Shares (the "Class C Shares") with respect to certain
series of the Trust;
WHEREAS, the Trust, on behalf of each series that offers Class C Shares (a
"Fund"), 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 Fund and its shareholders; and
WHEREAS, the Trust, on behalf of each Fund, employs Goldman, Sachs & Co.
(the "Distributor") as distributor of its Class C Shares pursuant to a
Distribution Agreement dated April 30, 1997, as amended August 15, 1997.
NOW, THEREFORE, the Trust, on behalf of the Funds, 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 Fund, is authorized to
compensate the Distributor for distribution services performed
and expenses incurred by the Distributor in connection with each
Fund's Class C Shares. The amount of such compensation paid
during any one year shall not exceed .75% of the average daily
net assets of a Fund attributable to such Class C Shares. Such
compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Trustees may
determine.
(b) 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 Fund's Class
C Shares; printing of reports and prospectuses for other than
existing shareholders; and preparation, printing and distribution
of sales literature and advertising materials.
<PAGE>
(c) Appropriate adjustments to payments made pursuant to clause (a)
of this paragraph 1 shall be made whenever necessary to ensure
that no payment is made by the Trust on behalf of a Fund 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 with respect to the Class C Shares of
a Fund until it has been approved by a vote of at least a majority (as
defined in the Act) of the outstanding Class C Shares of such Fund.
3. This Plan shall not take effect until the Plan, together with any
related agreement, has been approved by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the
Trust who are not "interested persons" of the Trust (as defined by the
Act) and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees") cast in person at a meeting (or meetings) called for the
purpose of voting on the Plan and such related agreement.
4. This Plan shall remain in effect until May 1, 1998 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 3.
5. 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.
6. This Plan may be terminated with respect to a Fund at any time by a
vote of a majority of the Rule 12b-1 Trustees or by vote of a majority
of the outstanding Class C Shares of such Fund. The Trust authorizes
the Distributor, if the distributor so elects, to assign to a third
party any payments that the Distributor is entitled to receive for the
Distributor's services hereunder free and clear of any offset, defense
or counterclaim the Trust may have against the Distributor (it being
understood that the foregoing does not constitute a waiver of any
claim the Trust or the Fund may have against the Distributor) and
except to the extent that any change or modification after the date
hereof of (x) the provisions of the Act, the rules and regulations
thereunder or other applicable law or (y) any interpretation of the
Act, the rules and regulations thereunder or other applicable law
shall restrict your right to make such transfer free and clear of any
offset, defense or counterclaim.
7. This Plan may not be amended with respect to any Fund 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 Class C Shares of
such Fund, except to the extent that the approval of another class of
such Fund is required in accordance with Rule 18f-3 under the Act, in
which case the approval of a majority (as defined in the Act) of the
outstanding voting securities of such class shall also be required.
No material amendment to the Plan shall be made unless approved in the
manner provided in paragraph 3 hereof.
8. 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.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports
-2-
<PAGE>
made pursuant to paragraph 5 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.
10. In the case of a Fund that offers more than one class of Shares, this
Plan only relates to the Class C Shares of such Fund and the fee
determined in accordance with paragraph 1 shall be based upon the
average daily net assets of the Fund attributable to Class C Shares.
The obligations of the Trust and the Funds hereunder are not
personally binding upon, nor shall resort be had to the private
property of any of the Trustees, shareholders, officers, employees or
agents of the Trust, but only the Trust's property allocable to Class
C 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 Fund that has designated a
class of its shares as the "Class C Shares" thereof) and the Distributor have
executed this Plan of Distribution as of the day and year first above written.
GOLDMAN SACHS TRUST
By: /s/ Douglas C. Grip
-------------------
Douglas C. Grip
President of the Trust
GOLDMAN, SACHS & CO.
By: /s/ David B. Ford
-----------------
General Partner
-3-
<PAGE>
GOLDMAN SACHS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, James A. Fitzpatrick,
hereby constitutes and appoints Douglas C. Grip, Scott M. Gilman, Nancy L.
Mucker, John Perlowski, Michael J. Richman, Howard B. Surloff and Valerie A.
Zondorak, jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Goldman Sachs Trust and any and all amendments to such Registration
Statements, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: October 21, 1997
/s/ James A.. Fitzpatrick
-------------------------
James A. Fitzpatrick
<PAGE>
GOLDMAN SACHS TRUST
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Valerie A. Zondorak,
hereby constitutes and appoints James A. Fitzpatrick, Douglas C. Grip, Scott M.
Gilman, John W. Mosior, Nancy L. Mucker, John Perlowski, Michael J. Richman and
Howard B. Surloff, jointly and severally, her attorneys-in-fact, each with power
of substitution, for her in any and all capacities to sign the Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 of Goldman Sachs Trust and any and all amendments to such Registra tion
Statements, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes, may do or cause to be done by virtue thereof.
Dated: October 21, 1997
/s/ Valerie A. Zondorak
-----------------------
Valerie A. Zondorak
